++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement and the accompanying prospectus +
+is not complete and may be changed. We may not sell these securities until we +
+deliver a final prospectus supplement and accompanying prospectus. This +
+prospectus supplement and the accompanying prospectus are not an offer to +
+sell these securities and are not seeking an offer to buy these securities in +
+any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MAY 15, 2001
Prospectus Supplement dated May [.], 2001
to Prospectus dated May 15, 2001
MBNA Credit Card Master Note Trust
Issuer
MBNA America Bank, National Association
Originator of the Issuer
MBNAseries
Class A(2001-1) Notes
The issuer will issue and sell: ---------------------
Principal amount $1,000,000,000
Interest rate [.]% per year
Interest payment dates 15th day of each month,
beginning in July 2001
Expected principal payment date May 15, 2006
Legal maturity date October 15, 2008
Expected issuance date May [.], 2001
Price to public $[.] (or [.]%)
Underwriting discount $[.] (or [.]%)
Proceeds to the issuer $[.] (or [.]%)
The Class A(2001-1) notes are a tranche of the Class A notes of the MBNAseries.
You should consider the discussion under "Risk
Factors" beginning on page S-14 in this prospectus
supplement and on page 15 of the accompanying
prospectus before you purchase any notes.
The notes are obligations of the issuer only and are
not obligations of any other person. Each tranche of
notes is secured by only some of the assets of the
issuer. Noteholders will have no recourse to any
other assets of the issuer for the payment of the
notes.
The primary asset of the issuer is the collateral
certificate, Series 2001-D, representing an undivided
interest in MBNA Master Credit Card Trust II, whose
assets include a portfolio of consumer revolving
credit card accounts.
The notes are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality.
Neither the SEC 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.
Underwriters
Lehman Brothers
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Barclays Capital
Credit Suisse First Boston
Deutsche Banc Alex. Brown
JPMorgan
Merrill Lynch & Co.
Salomon Smith Barney
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 that
progressively provide more detail: (a) this prospectus supplement, which will
describe the specific terms of the MBNAseries and the Class A(2001-1) notes and
(b) the accompanying prospectus, which provides general information about each
series of notes which may be issued by the MBNA Credit Card Master Note Trust,
some of which may not apply to the MBNAseries or the Class A(2001-1) notes.
This prospectus supplement may be used to offer and sell the Class A(2001-1)
notes only if accompanied by the prospectus.
This prospectus supplement may supplement disclosure in the accompanying
prospectus. If the terms of the MBNAseries or the Class A(2001-1) notes vary
between this prospectus supplement and the prospectus, you should rely on the
information in this prospectus supplement.
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 Class A(2001-1) notes in any
state where the offer is not permitted. We do not claim the accuracy of the
information in this prospectus supplement or the accompanying prospectus as of
any date other than the dates stated on their respective covers.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The Table of Contents in this prospectus
supplement and in the accompanying prospectus provide the pages on which these
captions are located.
----------------
S-2
Table of Contents
Page
----
Prospectus Supplement Summary.............................................. S-5
Securities Offered........................................................ S-5
The MBNAseries............................................................ S-6
Risk Factors.............................................................. S-6
Interest.................................................................. S-6
Principal................................................................. S-7
Nominal Liquidation Amount................................................ S-7
Required Subordinated Amount.............................................. S-7
Early Redemption of Notes................................................. S-8
Optional Redemption by the Issuer......................................... S-9
Events of Default......................................................... S-9
Master Trust II Assets and Receivables.................................... S-10
Key Operating Documents................................................... S-10
Issuer Accounts........................................................... S-10
Security for the Notes.................................................... S-11
Limited Recourse to the Issuer............................................ S-11
Derivative Agreement...................................................... S-11
Accumulation Reserve Account.............................................. S-12
Shared Excess Available Funds............................................. S-12
Stock Exchange Listing.................................................... S-13
Ratings................................................................... S-13
Risk Factors............................................................... S-14
Glossary................................................................... S-21
The Notes.................................................................. S-21
Subordination of Principal and Interest................................... S-21
Issuances of New Series, Classes and Tranches of Notes.................... S-23
Conditions to Issuance................................................... S-23
Required Subordinated Amount............................................. S-23
Waiver of Issuance Conditions............................................ S-24
Sources of Funds to Pay the Notes......................................... S-24
The Collateral Certificate............................................... S-24
Payments Received from Derivative Counterparties......................... S-24
Derivative Counterparty.................................................. S-27
Page
----
The Issuer Accounts..................................................... S-28
Limited Recourse to the Issuer; Security for the Notes.................. S-29
Early Redemption of the Notes........................................... S-29
Deposit and Application of Funds.......................................... S-30
MBNAseries Available Funds............................................... S-30
Application of MBNAseries Available Funds................................ S-31
Targeted Deposits of MBNAseries Available Funds to the Interest Funding
Account................................................................. S-32
Allocation to Interest Funding Subaccounts............................... S-33
Payments Received from Derivative Counterparties for Interest of Foreign
Currency Notes.......................................................... S-34
Allocations of Reductions from Charge-Offs............................... S-34
Allocations of Reimbursements of Nominal Liquidation Amount Deficits..... S-35
Application of MBNAseries Available Principal Amounts.................... S-36
Reductions to the Nominal Liquidation Amount of Subordinated Classes from
Reallocations of MBNAseries Available Principal Amounts................. S-38
Limit on Allocations of MBNAseries Available Principal Amounts and
MBNAseries Available Funds.............................................. S-40
Targeted Deposits of MBNAseries Available Principal Amounts to the
Principal Funding Account............................................... S-40
Allocation to Principal Funding Subaccounts.............................. S-42
Limit on Deposits to the Principal Funding Subaccount of Subordinated
Notes; Limit on Repayments of all Tranches.............................. S-43
S-3
Page
----
Payments Received from Derivative Counterparties for Principal........... S-44
Deposits of Withdrawals from the Class C Reserve Account to the Principal
Funding Account......................................................... S-45
Withdrawals from Interest Funding Subaccounts............................ S-45
Withdrawals from Principal Funding Account............................... S-46
Sale of Credit Card Receivables.......................................... S-47
Targeted Deposits to the Class C Reserve Account......................... S-49
Withdrawals from the Class C Reserve Account............................. S-49
Targeted Deposits to the Accumulation Reserve Account.................... S-49
Withdrawals from the Accumulation Reserve Account........................ S-49
Final Payment of the Notes............................................... S-50
Pro Rata Payments Within a Tranche....................................... S-51
Page
----
Shared Excess Available Funds............................................. S-51
MBNA and MBNA Corporation................................................ S-51
MBNA's Credit Card Portfolio............................................. S-52
Billing and Payments.................................................... S-52
Delinquencies and Collection Efforts.................................... S-52
The Master Trust II Portfolio............................................ S-53
Delinquency and Principal Charge-Off Experience......................... S-53
Revenue Experience...................................................... S-55
Interchange............................................................. S-57
Principal Payment Rates................................................. S-57
Underwriting............................................................. S-60
Glossary of Defined Terms................................................ S-63
Annex I:
Outstanding Series, Classes and Tranches of Notes....................... A-I-1
Annex II:
Outstanding Master Trust II Series...................................... A-II-1
S-4
Prospectus Supplement Summary
This summary does not contain all the information you may need to make an
informed investment decision. You should read the entire prospectus supplement
and the accompanying prospectus before you purchase any notes.
Securities Offered
$1,000,000,000 [.]% Class A(2001-1) notes.
These Class A(2001-1) notes are part of a series of notes called the
MBNAseries. The MBNAseries consists of Class A notes, Class B notes and Class C
notes. These Class A(2001-1) notes are a tranche of the Class A notes of the
MBNAseries.
These Class A(2001-1) notes are issued by, and are obligations of, the MBNA
Credit Card Master Note Trust. The issuer expects to issue other classes and
tranches of notes of the MBNAseries which may have different interest rates,
interest payment dates, expected principal payment dates, legal maturity dates
and other characteristics. In addition, the issuer may issue other series of
notes which may have different interest rates, interest payment dates, expected
principal payment dates, legal maturity dates and other characteristics. See
"The Notes--Issuances of New Series, Classes and Tranches of Notes" in this
prospectus supplement and in the prospectus.
Each class of notes in the MBNAseries may consist of multiple tranches. Notes
of any tranche can be issued on any date so long as there is sufficient credit
enhancement on that date, either in the form of outstanding subordinated notes
or other forms of credit enhancement. See "The Notes--Issuances of New Series,
Classes and Tranches of Notes" in this prospectus supplement and in the
prospectus. The expected principal payment dates and legal maturity dates of
tranches of senior and subordinated classes of the MBNAseries may be different.
Therefore, subordinated notes may have expected principal payment dates and
legal maturity dates earlier than some or all senior notes of the MBNAseries.
Subordinated notes will generally not be paid before their legal maturity date
unless, after payment, the remaining outstanding subordinated notes provide the
credit enhancement required for the senior notes.
In general, the subordinated notes of the MBNAseries serve as credit
enhancement for all of the senior notes of the MBNAseries, regardless of
whether the subordinated notes are issued before, at the same time as, or after
the senior notes of the MBNAseries. However, certain tranches of senior notes
may not require subordination from each class of notes subordinated to it. For
example, if a tranche of Class A notes requires credit enhancement solely from
Class C notes, the Class B notes will not, in that case, provide credit
enhancement for that tranche of Class A notes. The amount of credit exposure of
any particular tranche of notes is a function of, among other things, the total
amount of notes issued, the required subordinated amount, the amount of usage
of the required subordinated amount and the amount on deposit in the senior
tranches' principal funding subaccounts.
S-5
Only the Class A(2001-1) notes are being offered through this prospectus
supplement and the accompanying prospectus. Other series, classes and tranches
of notes, including other tranches of notes that are included in the MBNAseries
as a part of Class A, may be issued by the MBNA Credit Card Master Note Trust
in the future.
The MBNAseries
These Class A(2001-1) notes will be the first tranche of the Class A notes
issued by the issuer in the MBNAseries.
As of the issuance date of these Class A(2001-1) notes, the aggregate
outstanding dollar principal amount of notes in the MBNAseries is expected to
be $1,500,000,000, including these Class A(2001-1) notes and other tranches of
notes of the MBNAseries issued on or prior to that day, consisting of:
Class A notes $1,000,000,000
Class B notes $ 250,000,000
Class C notes $ 250,000,000
See "Annex I: Outstanding Series, Classes and Tranches of Notes" for additional
information on the other outstanding notes issued, or expected to be issued
upon or prior to the issuance of these Class A(2001-1) notes, by the issuer.
Risk Factors
Investment in the Class A(2001-1) notes involves risks. You should consider
carefully the risk factors beginning on page S-14 in this prospectus supplement
and beginning on page 15 in the accompanying prospectus.
Interest
These Class A(2001-1) notes will accrue interest at an annual rate equal to
[.]%.
Interest on these Class A(2001-1) notes will begin to accrue on May [.], 2001
and will be calculated on the basis of a 360-day year and twelve 30-day months.
Interest on the Class A(2001-1) notes for any interest payment date will equal
one-twelfth of the product of:
.the Class A(2001-1) note interest rate; times
.the outstanding dollar principal amount of the Class A(2001-1) notes as of the
related record date.
However, for the first interest payment date interest on these Class A(2001-1)
notes will be $[.].
The issuer will make interest payments on these Class A(2001-1) notes on the
15th day of each month beginning in July 2001. Interest payments due on a day
that is not a business day in New York, New York and Newark, Delaware will be
made on the following business day.
The Class A(2001-1) notes will have the benefit of a derivative agreement for
interest, as described herein.
The payment of interest on a senior class of notes on any payment date is
senior to the payment of interest on subordinated classes of notes of the
MBNAseries on such date. Generally, no payment of interest will be made on any
Class B note in the MBNAseries until the required payment of interest has been
made to the Class A notes in the MBNAseries. Similarly, generally, no payment
of interest will be made on any Class C note in the MBNAseries until the
S-6
required payment of interest has been made to the Class A notes and the Class B
notes in the MBNAseries. However, funds on deposit in the Class C reserve
account will be available only to holders of Class C notes to cover shortfalls
of interest on any interest payment date.
Principal
The issuer expects to pay the stated principal amount of these Class A(2001-1)
notes in one payment on May 15, 2006, which is the expected principal payment
date, and is obligated to do so if funds are available for that purpose. If the
stated principal amount of these Class A(2001-1) notes is not paid in full on
the expected principal payment date due to insufficient funds, noteholders will
generally not have any remedies against the issuer until October 15, 2008, the
legal maturity date of these Class A(2001-1) notes.
If the stated principal amount of these Class A(2001-1) notes is not paid in
full on the expected principal payment date, then an early redemption event
will occur with respect to these Class A(2001-1) notes and principal and
interest payments on these Class A(2001-1) notes will be made monthly until
they are paid in full or until the legal maturity date occurs, whichever is
earlier.
Principal of these Class A(2001-1) notes will be paid earlier than the expected
principal payment date if (i) an event of default and acceleration occurs with
respect to these Class A(2001-1) notes, (ii) an investment company early
redemption event occurs or (iii) any other early redemption event occurs with
respect to these Class A(2001-1) notes and the derivative agreement terminates
or has been terminated or an interest reserve account event occurs or has
occurred. See "The Indenture--Early Redemption Events" and "--Events of
Default" in the prospectus and "The Notes--Early Redemption of the Notes" in
this prospectus supplement.
Nominal Liquidation Amount
The initial nominal liquidation amount of these Class A(2001-1) notes is
$1,000,000,000.
The nominal liquidation amount of a tranche of notes corresponds to the portion
of the investor interest of the collateral certificate that is allocable to
support that tranche of notes. If the nominal liquidation amount of these Class
A(2001-1) notes is reduced by charge-offs resulting from uncovered defaults on
the principal receivables in master trust II allocable to the MBNAseries, the
principal of and interest on these Class A(2001-1) notes may not be paid in
full. If the nominal liquidation amount of these Class A(2001-1) notes has been
reduced, available principal amounts and available funds allocated to pay
principal of and interest on these Class A(2001-1) notes will be reduced.
For a more detailed discussion of nominal liquidation amount, see "The Notes--
Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal
Liquidation Amount" in the prospectus.
Required Subordinated Amount
In order to issue a senior class of notes, the required subordinated amount of
subordinated notes must be outstanding and available on the issuance date.
Generally, the required subordinated amount of a subordinated class of notes
for any date is an amount equal to a stated percentage of the adjusted
outstanding dollar principal
amount of the senior tranche of notes for such date.
S-7
The Class A required subordinated amount of Class B notes for these Class
A(2001-1) notes is 8.82353%, expressed as a percentage of the adjusted
outstanding dollar principal amount of these Class A(2001-1) notes. The Class A
required subordinated amount of Class C notes for these Class A(2001-1) notes
is 8.82353%, expressed as a percentage of the adjusted outstanding dollar
principal amount of these Class A(2001-1) notes. These percentages may change
without the consent of any noteholders if the rating agencies consent. In
addition, the required subordinated amounts of subordinated notes of other
Class A notes in the MBNAseries may be different than the percentages specified
for these Class A(2001-1) notes. In addition, if the rating agencies consent
and without the consent of any noteholders, the issuer may utilize forms of
credit enhancement other than subordinated notes in order to provide senior
classes of notes with the required credit enhancement.
No payment of principal will be made on any Class B note in the MBNAseries
unless, following the payment, the remaining available subordinated amount of
Class B notes in the MBNAseries is at least equal to the required subordinated
amount for the outstanding Class A notes in the MBNAseries less any usage of
the required subordinated amount of Class B notes for such outstanding Class A
notes. Similarly, no payment of principal will be made on any Class C note in
the MBNAseries unless, following the payment, the remaining available
subordinated amount of Class C notes in the MBNAseries is at least equal to the
required subordinated amount for the outstanding Class A notes and Class B
notes in the MBNAseries less any usage of the required subordinated amount of
Class C notes for such outstanding Class A notes and Class B notes. However,
there are some exceptions to this rule. See "The Notes--Subordination of
Interest and Principal" in the prospectus.
Early Redemption of Notes
The early redemption events applicable to all notes, including these Class
A(2001-1) notes, are described in the accompanying prospectus. In addition, if
for any date the amount of excess available funds averaged over the three
preceding calendar months is less than the required excess available funds for
such date, an early redemption event for the Class A(2001-1) notes will occur.
Excess available funds for any month equals the available funds allocated to
the MBNAseries that month after application for targeted deposits to the
interest funding account, payment of the master trust II servicing fee
allocable to the MBNAseries, application to cover defaults on principal
receivables in master trust II allocable to the MBNAseries and reimbursement of
any deficits in the nominal liquidation amounts of notes. Required excess
available funds is an amount equal to zero. This amount may be changed provided
the issuer (i) receives the consent of the rating agencies and (ii) reasonably
believes that the change will not have a material adverse effect on the notes.
See "The Notes--Early Redemption of Notes" and "The Indenture--Early Redemption
Events" in the prospectus.
If an early redemption event (other than an
investment company early redemption event) applicable to the Class A(2001-1)
notes occurs and the derivative agreement has not been terminated and an
interest reserve account event has not occurred, available principal amounts
allocable to the
S-8
Class A(2001-1) notes together with any amounts in the principal funding
subaccount for the Class A(2001-1) notes will not be paid to the holders of the
Class A(2001-1) notes as described under "The Notes--Early Redemption of the
Notes" and "The Indenture--Early Redemption of the Notes" in the prospectus,
but instead will be retained in the principal funding subaccount and paid to
the holders of the Class A(2001-1) notes on the expected principal payment date
of the Class A(2001-1) notes. However, if (i) the derivative agreement
terminates, (ii) an interest reserve account event occurs, (iii) an investment
company early redemption event occurs or (iv) an event of default and
acceleration of the Class A(2001-1) notes occurs, such amounts will not be
retained in the principal funding subaccount, but instead will be paid to the
holders of the Class A(2001-1) notes.
See "The Indenture--Early Redemption Events" in the prospectus for a
description of the investment company early redemption event and "The Notes--
Sources of Funds to Pay the Notes--Payments Received from Derivative
Counterparties" for a description of an interest reserve account event and the
derivative agreement termination events.
Optional Redemption by the Issuer
The servicer has the right, but not the obligation, to direct the issuer to
redeem these Class A(2001-1) notes in whole but not in part on any day on or
after the day on which the nominal liquidation amount of these Class A(2001-1)
notes is reduced to less than 5% of their highest outstanding dollar principal
amount. This repurchase option is referred to as a clean-up call.
If the issuer is directed to redeem these Class A(2001-1) notes, it will notify
the registered holders at least thirty days prior to the redemption date. The
redemption price of a note will equal 100% of the outstanding principal amount
of that note, plus accrued but unpaid interest on the note to but excluding the
date of redemption.
If the issuer is unable to pay the redemption price in full on the redemption
date, monthly payments on these Class A(2001-1) notes will thereafter be made
until either the principal of and accrued interest on those notes are paid in
full or the legal maturity date occurs, whichever is earlier. Any funds in the
principal funding subaccount and the interest funding subaccount for these
Class A(2001-1) notes will be applied to make the principal and interest
payments on these notes on the redemption date.
Events of Default
The Class A(2001-1) notes are subject to certain events of default described in
"The Indenture--Events of Default" in the prospectus. For a description of the
remedies upon an event of default, see "The Indenture--Events of Default
Remedies" in the prospectus and "Deposit and Application of Funds--Sale of
Credit Card Receivables" in this prospectus supplement.
S-9
Master Trust II Assets and Receivables
The collateral certificate, which is the issuer's primary source of funds for
the payment of principal of and interest on these Class A(2001-1) notes, is an
investor certificate issued by master trust II. The collateral certificate
represents an undivided interest in the assets of master trust II. Master trust
II's assets primarily include credit card receivables from selected
MasterCard(R) and VISA(R) revolving credit card accounts that meet the
eligibility criteria for inclusion in master trust II. These eligibility
criteria are discussed in the prospectus under "Master Trust II--Addition of
Master Trust II Assets."
The credit card receivables in master trust II consist primarily of principal
receivables and finance charge receivables. Principal receivables include
amounts charged by cardholders for merchandise and services and amounts
advanced to cardholders as cash advances. Finance charge receivables include
periodic finance charges, annual membership fees, cash advance fees, late
charges and certain other fees billed to cardholders.
In addition, MBNA is permitted to add to master trust II participations
representing interests in a pool of assets primarily consisting of receivables
arising under consumer revolving credit card accounts owned by MBNA and
collections thereon.
See "The Master Trust II Portfolio" for detailed financial information on the
receivables and the accounts.
See "Annex II: Outstanding Master Trust II Series" of this prospectus
supplement for additional information on the outstanding series in master trust
II.
[GRAPH]
Key Operating Documents
- -------------------
MBNA
- -------------------
- -------------------
Credit Card
Receivables
- -------------------
- ------------------- Pooling and
Master Trust II ---- Servicing
- ------------------- Agreement
- -------------------
Collateral ---- Series
Certificate Supplement
- -------------------
- -------------------
Master Note Trust ---- Indenture
- -------------------
- -------------------
MBNAseries ---- Indenture
Notes Supplement
- -------------------
- -------------------
Noteholders
- -------------------
Issuer Accounts
The issuer has established a principal funding account, an interest funding
account, an accumulation reserve account and a Class C reserve account for the
benefit of the MBNAseries. The principal funding account, the interest funding
account and the accumulation reserve account will have subaccounts for the
Class A(2001-1) notes.
S-10
Each month, distributions on the collateral certificate will be deposited into
the collection account. Those deposits will then be allocated to each series of
notes, including the MBNAseries. The amounts allocated to the MBNAseries plus
any other amounts to be treated as available funds and available principal
amounts for the MBNAseries will then be allocated to:
--the principal funding account;
--the interest funding account;
--the accumulation reserve account;
--the Class C reserve account;
--any other supplemental account;
--payments under any applicable derivative agreements; and
--the other purposes as specified in this prospectus supplement.
Funds on deposit in the principal funding account and the interest funding
account will be used to make payments of principal of and interest on the
MBNAseries notes, including the Class A(2001-1) notes.
Security for the Notes
The Class A(2001-1) notes are secured by a shared security interest in:
.the collateral certificate;
.the collection account;
.the applicable principal funding subaccount;
.the applicable interest funding subaccount;
.the applicable accumulation reserve subaccount; and
. the applicable derivative agreement.
However, the Class A(2001-1) notes are entitled to the benefits of only that
portion of those assets allocated to them under the indenture and the indenture
supplement.
See "The Notes--Sources of Funds to Pay the Notes--The Collateral Certificate"
and "--The Issuer Accounts" in this prospectus supplement and "Sources of Funds
to Pay the Notes--The Collateral Certificate" in the prospectus.
Limited Recourse to the Issuer
The sole source of payment for principal of or interest on these Class A(2001-
1) notes is provided by:
.the portion of the available principal amounts and available funds allocated
to the MBNAseries and available to these Class A(2001-1) notes; and
.funds in the applicable issuer accounts for these Class A(2001-1) notes.
Class A(2001-1) noteholders will have no recourse to any other assets of the
issuer or any other person or entity for the payment of principal of or
interest on these Class A(2001-1) notes.
However, following a sale of credit card receivables (i) due to an insolvency
of MBNA, (ii) due to an event of default and acceleration with respect to the
Class A(2001-1) notes or (iii) on the legal maturity date for the Class A(2001-
1) notes, as described in "Deposit and Application of Funds--Sale of Credit
Card Receivables" in this prospectus supplement and "Sources of Funds to Pay
the Notes--Sale of Credit Card Receivables" in the prospectus, the Class
A(2001-1) noteholders have recourse only to the proceeds of that sale.
Derivative Agreement
The issuer and Lehman Brothers Special Financing Inc., the derivative
counterparty,
S-11
will enter into a derivative agreement for interest for the benefit of the
Class A(2001-1) notes. Under the derivative agreement, for each transfer date:
. the swap counterparty will make a payment to the issuer, based on the
outstanding dollar principal amount of the Class A(2001-1) notes, at an
annual rate equal to [.]%; and
. the issuer will make a payment to the derivative counterparty, based on the
outstanding dollar principal amount of the Class A(2001-1) notes, at an
annual rate not to exceed LIBOR (for the related interest period) plus [.]%.
Generally, payments owed between the issuer and the derivative counterparty
will be made on a net basis. Amounts paid by the issuer to the derivative
counterparty will be paid from amounts on deposit in the interest funding
subaccount for the Class A(2001-1) notes as described under "Deposit and
Application of Funds-- Targeted Deposits of MBNAseries Available Funds to the
Interest Funding Account" and "--Withdrawals from Interest Funding
Subaccounts." Amounts paid by the derivative counterparty to the issuer will be
treated as MBNAseries available funds as described under "Deposit and
Application of Funds--MBNAseries Available Funds."
For a more detailed discussion of the derivative agreement, see "The Notes--
Sources of Funds to Pay the Notes--Payments Received from Derivative
Counterparties."
The derivative counterparty has the benefit of a guaranty from Lehman Brothers
Holdings Inc., the derivative counterparty guarantor. The derivative
counterparty
guarantor currently has a short-term credit rating of "A-1" and a long-term
unsecured debt credit rating of "A" from Standard & Poor's and a long-term
unsecured debt credit rating of "A2" from Moody's. For a discussion of the
consequences of certain reductions in, or a withdrawal of, the derivative
counterparty guarantor's credit ratings by either Standard & Poor's or Moody's,
see "Risk Factors" and "The Notes--Sources of Funds to Pay the Notes--Payments
Received from Derivative Counterparties."
Accumulation Reserve Account
The issuer will establish an accumulation reserve subaccount to cover
shortfalls in investment earnings on amounts (other than prefunded amounts) on
deposit in the principal funding subaccount for these Class A(2001-1) notes.
The amount targeted to be deposited in the accumulation reserve subaccount for
these Class A(2001-1) notes is zero, unless more than one budgeted deposit is
required to accumulate and pay the principal of the Class A(2001-1) notes on
its expected principal payment date, in which case, the amount targeted to be
deposited is 0.5% of the outstanding dollar principal amount of the Class
A(2001-1) notes or, such other amount designated by the issuer. See "Deposit
and Application of Funds--Targeted Deposits to the Accumulation Reserve
Account."
Shared Excess Available Funds
The MBNAseries will be included in "Group A." In addition to the MBNAseries,
the issuer may issue other series of notes that are included in Group A. As of
the date of this prospectus supplement, the MBNAseries is the only series of
notes issued by the issuer.
S-12
To the extent that available funds allocated to the MBNAseries are available
after all required applications of such amounts as described in "Deposit and
Application of Funds--Allocation of MBNAseries Available Funds," these unused
available funds, called shared excess available funds, will be applied to cover
shortfalls in available funds for other series of notes in Group A. In
addition, the MBNAseries may receive the benefits of shared excess available
funds from other series in Group A, to the extent available funds for such
other series of notes are not needed for such series. See "Deposit and
Application of Funds--Shared Excess Available Funds" herein and "Sources of
Funds to Pay the Notes--The Collateral Certificate" and "--Deposit and
Application of Funds" in the prospectus.
Stock Exchange Listing
The issuer will apply to list these Class A(2001-1) notes on the Luxembourg
Stock Exchange. The issuer cannot guarantee that the application for the
listing will be accepted. You should consult with Deutsche Bank Luxembourg
S.A., the Luxembourg listing agent for these Class A(2001-1) notes, Boulevard
Konrad Adenauer 2, L-1115 Luxembourg, phone number (352) 42 12 21, to determine
whether these Class A(2001-1) notes have been listed on the Luxembourg Stock
Exchange.
Ratings
The issuer will issue these Class A(2001-1) notes only if they are rated at
least "AAA" or "Aaa" or its equivalent by at least one nationally recognized
rating agency.
Other tranches of Class A notes may have different rating requirements from the
Class A(2001-1) notes.
A rating addresses the likelihood of the payment of interest on a note when due
and the ultimate payment of principal of that note by its legal maturity date.
A rating does not address the likelihood of payment of principal of a note on
its expected principal payment date. In addition, a rating does not address the
possibility of an early payment or acceleration of a note, which could be
caused by an early redemption event or an event of default. A rating is not a
recommendation to buy, sell or hold notes and may be subject to revision or
withdrawal at any time by the assigning rating agency. Each rating should be
evaluated independently of any other rating.
See "Risk Factors--If the ratings of the notes are lowered or withdrawn, their
market value could decrease" in the prospectus.
S-13
Risk Factors
The risk factors disclosed in this section and in "Risk Factors" in the
accompanying prospectus describe the principal risk factors of an investment in
the Class A(2001-1) notes.
Only some of the assets of the issuer are available
for payments on any tranche of notes
The sole source of payment of principal of and
interest on your tranche of notes is provided by:
. the portion of the available principal amounts and
available funds allocated to the MBNAseries and
available to your tranche of notes after giving
effect to any reallocations and payments and
deposits for senior notes; and
. funds in the applicable issuer accounts for your tranche of
notes.
As a result, you must rely only on the particular
allocated assets as security for your tranche of
notes for repayment of the principal of and interest
on your notes. You will not have recourse to any
other assets of the issuer or any other person for
payment of your notes. See "Sources of Funds to Pay
the Notes" in this prospectus supplement and in the
accompanying prospectus.
In addition, if there is a sale of credit card
receivables due to the insolvency of MBNA, due to an
event of default and acceleration or on the
applicable legal maturity date, as described in
"Deposit and Application of Funds--Sale of Credit
Card Receivables" in this prospectus supplement and
"Sources of Funds to Pay the Notes--Sale of Credit
Card Receivables" in the accompanying prospectus,
your tranche of notes has recourse only to the
proceeds of that sale, any amounts then on deposit in
the issuer accounts allocated to and held for the
benefit of your tranche of notes and any amounts
payable under any applicable derivative agreement.
The derivative agreement can affect the amount of
credit enhancement available to the notes
Since the derivative counterparty makes payments
under the derivative agreement based on a fixed rate
for the related transfer date and the issuer makes
payments under the derivative agreement based on a
floating rate for the related transfer date, it is
possible that the amount owing to the derivative
counterparty for any transfer date could exceed the
S-14
amount owing to the issuer for the related transfer
date and that a net derivative payment will be owing
by the issuer to the derivative counterparty. If a
net derivative payment is owing by the issuer to the
derivative counterparty for any transfer date, the
derivative counterparty will be entitled to that
payment from MBNAseries available funds and certain
other available amounts otherwise allocated to the
Class A(2001-1) notes and deposited into the interest
funding subaccount for the Class A(2001-1) notes. If
deposits to the interest funding subaccount for net
derivative payments are made out of reallocated
available principal amounts, the amount of credit
enhancement supporting the Class A(2001-1) notes may
be reduced.
A payment default under the derivative agreement or a
termination of the derivative agreement may result in
early or reduced payment on the notes
If the long-term credit rating of the derivative
counterparty guarantor is reduced below "BBB-" by
Standard & Poor's or below "Baa3" by Moody's, or is
withdrawn by either Standard & Poor's or Moody's, the
derivative counterparty will be directed to assign
its rights and obligations under the derivative
agreement to a replacement derivative counterparty.
You should be aware that there may not be a suitable
replacement derivative counterparty. In addition, we
cannot assure you that any assignment of the
derivative counterparty's rights and obligations will
occur.
A payment default by the derivative counterparty or
the issuer may result in the termination of the
derivative agreement. The derivative agreement may
also be terminated upon the occurrence of certain
other events described under "The Notes--Sources of
Funds to Pay the Notes--Payments Received from
Derivative Counterparties."
Although the rating agencies have not relied on the
ratings of the derivative counterparty or the
derivative party guarantor in rating any notes, but
rather have relied on the value of the receivables
and the benefits of the applicable credit
enhancement, we cannot assure you that interest on
the Class A(2001-1) notes can be paid if a payment
default by the derivative counterparty occurs.
S-15
The occurrence of certain events may result in early
payment on the notes
The occurrence of an investment company early
redemption event will cause available principal
amounts allocable to the Class A(2001-1) notes,
including amounts on deposit in the related principal
funding subaccount, if any, to be paid to the
Class A(2001-1) noteholders as described under "The
Indenture--Early Redemption Events" in the
prospectus. The occurrence of an early redemption
event (other than an investment company early
redemption event) will cause available principal
amounts allocable to the Class A(2001-1) notes to be
accumulated in the related principal funding
subaccount and not paid to the Class A(2001-1)
noteholders until the expected principal payment date
for the Class A(2001-1) notes, unless the derivative
agreement is terminated, an interest reserve account
event occurs, an investment company early redemption
event occurs or an event of default and acceleration
of the Class A(2001-1) notes occurs. Furthermore,
upon the occurrence of any such event, such amounts
will not be accumulated, but instead will be paid to
the Class A(2001-1) noteholders. We cannot assure you
that any of these events will not occur prior to the
expected principal payment date. See "The Notes--
Sources of Funds to Pay the Notes--Payments Received
from Derivative Counterparties" in this prospectus
supplement and "Master Trust II--Pay Out Events" in
the prospectus.
A conservator or receiver may have the power to
prevent or cause the liquidation of the receivables
or to prevent the issuer from retaining amounts in
the principal funding subaccount and keeping the
notes outstanding which may result in delayed,
accelerated or reduced payments
In the case of certain events of insolvency,
conservatorship or receivership of MBNA, a master
trust II pay out event will occur (which is an early
redemption event for the Class A(2001-1) notes), and
MBNA will stop transferring newly created principal
receivables to master trust II. The master trust II
trustee will then proceed to liquidate the credit
card receivables, unless otherwise instructed within
a specified period by holders of certificates
(including the collateral certificate) representing
interests aggregating more than 50% of the investor
interest of each series (or if any series has more
than one class, of each class, and any other person
specified in
S-16
the master trust II agreement or a series
supplement). The noteholders as holders of the
collateral certificate will be deemed to have
disapproved of such liquidation. If such liquidation
occurs, there may be no further collections in
respect of principal receivables or finance charge
receivables by master trust II and, therefore, no
MBNAseries available principal amounts or MBNAseries
available funds.
If the master trust II trustee liquidates the
receivables, the proceeds from such liquidation
allocable to the Class A(2001-1) notes will be
deposited into the principal funding subaccount up to
the outstanding dollar principal amount of the Class
A(2001-1) notes. If the master trust II trustee is
instructed not to liquidate the receivables as
described above and in "Master Trust II--Pay Out
Events" in the prospectus, MBNAseries available
principal amounts allocable to the Class A(2001-1)
notes will be deposited into the principal funding
subaccount up to the outstanding dollar principal
amount of the Class A(2001-1) notes. In either case,
the derivative agreement will remain in effect and
the Class A notes will remain outstanding until the
earliest of:
. the expected principal payment date of the Class
A(2001-1) notes;
. the date on which an investment company early
redemption event occurs;
. the date on which an interest reserve account event
occurs;
. the date on which the derivative agreement
terminates; and
. the date on which an event of default and
acceleration of the Class A(2001-1) notes occurs,
at which time the amount on deposit in the principal
funding account will be distributed to the Class
A(2001-1) noteholders.
However, if the only early redemption event to occur
is the master trust II pay out event relating to the
insolvency of MBNA or the appointment of a
conservator or receiver for MBNA, the conservator or
receiver may have the power to prevent the
liquidation of the receivables or to cause the
liquidation of the receivables regardless of the vote
of the investor certificateholders and noteholders.
In addition, a conservator or receiver may have the
power (i) to prevent the deposit of liquidation
proceeds in the principal funding subaccount or (ii)
if there is no liquidation, to cause the
S-17
payment of the notes prior to the expected principal
payment date. A conservator or receiver may also have
the power to terminate or assign the derivative
agreement, take any funds on deposit in the
accumulation reserve subaccount, and require the
Class A(2001-1) notes to remain outstanding until the
legal maturity date. If a conservator or receiver
were to take any such actions, your payments could be
delayed, accelerated or reduced. See "Risk Factors"
and"Material Legal Aspects of the Receivables--
Certain Matters Relating to Conservatorship or
Receivership" in the prospectus.
Class A and Class B notes of the MBNAseries can lose
their subordination under some circumstances
resulting in delayed or reduced payments to you
Subordinated notes of the MBNAseries may have
expected principal payment dates and legal maturity
dates earlier than some or all of the notes of the
senior classes.
If notes of a subordinated class reach their expected
principal payment date at a time when they are needed
to provide the required subordination for the senior
classes of the MBNAseries and the issuer is unable to
issue additional notes of that subordinated class or
obtain acceptable alternative forms of credit
enhancement, prefunding of the senior classes will
begin and such subordinated notes will not be paid on
their expected principal payment date. The principal
funding subaccounts for the senior classes will be
prefunded with available principal amounts allocable
to the MBNAseries and available for that purpose in
an amount necessary to permit the payment of those
subordinated notes while maintaining the required
subordination for the senior classes. See "Deposit
and Application of Funds--Targeted Deposits of
MBNAseries Available Principal Amounts to the
Principal Funding Account."
There will generally be a 29-month period between the
expected principal payment date and the legal
maturity date of the subordinated notes to prefund
the principal funding subaccounts of the senior
classes, if necessary. Notes of a subordinated class
which have reached their expected principal payment
date will not be paid until the remaining
subordinated notes provide the required subordination
for the senior notes, which payment may be delayed
further as other subordinated notes reach their
expected principal payment date. The subordinated
notes will be paid on their legal maturity date, to
S-18
the extent that any funds are available for that
purpose from proceeds of the sale of receivables or
otherwise, whether or not the senior classes of notes
have been fully prefunded.
If the rate of repayment of principal receivables in
master trust II were to decline during this
prefunding period, then the principal funding
subaccounts for the senior classes of notes may not
be fully prefunded before the legal maturity date of
the subordinated notes. In that event and only to the
extent not fully prefunded, the senior classes would
not have the required subordination beginning on the
legal maturity date of those subordinated notes
unless additional subordinated notes of that class
were issued or a sufficient amount of senior notes
have matured so that the remaining outstanding
subordinated notes provide the necessary
subordination.
The table under "The Master Trust II Portfolio--
Principal Payment Rates" sets forth the highest and
lowest cardholder monthly principal payment rates for
the master trust II portfolio during the periods
shown in such table. Principal payment rates may
change due to a variety of factors including
economic, social and legal factors, changes in the
terms of credit card accounts by MBNA or the addition
of credit card accounts to master trust II with
different characteristics. There can be no assurance
that the rate of principal repayment will remain in
this range in the future.
Yield and payments on the receivables could decrease
resulting in the receipt of principal payments
earlier than the expected principal payment date
There is no assurance that the stated principal
amount of your notes will be paid on its expected
principal payment date.
A significant decrease in the amount of credit card
receivables in master trust II for any reason could
result in an early redemption event and in early
payment of your notes, as well as decreased
protection to you against defaults on the credit card
receivables. In addition, the effective yield on the
credit card receivables owned by master trust II
could decrease due to, among other things, a change
in periodic finance charges on the credit card
accounts, an increase in the level of delinquencies
or increased convenience use of the card whereby
cardholders pay their credit card balance in full
each month and incur no finance charges. This could
reduce the amount of available funds. If the amount
of excess available
S-19
funds for any three consecutive calendar months is
less than the required excess available funds for
such three months, an early redemption event will
occur and could result in an early payment of your
notes. See "Prospectus Supplement Summary--Early
Redemption of Notes."
See "Risk Factors" in the prospectus for a discussion
of other circumstances under which you may receive
principal payments earlier or later than the expected
principal payment date.
S-20
Glossary
This prospectus supplement and the accompanying prospectus use defined terms.
You can find a listing of defined terms in the "Glossary of Defined Terms"
beginning on page S-63 in this prospectus supplement and beginning on page 101
in the accompanying prospectus.
The Notes
The MBNAseries notes will be issued pursuant to the indenture and an
indenture supplement. The following discussion and the discussion under "The
Notes" and "The Indenture" in the prospectus summarize the material terms of
the notes, the indenture and the MBNAseries indenture supplement. These
summaries do not purport to be complete and are qualified in their entirety by
reference to the provisions of the notes, the indenture and the MBNAseries
indenture supplement. Neither the indenture nor the MBNAseries indenture
supplement limits the aggregate principal amount of notes that may be issued.
The MBNAseries will be included in Excess Available Funds Group A for the
purpose of sharing excess available funds. The MBNAseries notes will be issued
in classes. Each class of notes may have multiple tranches which may be issued
at different times and have different terms. Whenever a "class" of notes is
referred to in this prospectus supplement or the accompanying prospectus, it
includes all tranches of that class of notes, unless the context otherwise
requires.
No senior class of the MBNAseries may be issued unless a sufficient amount of
subordinated notes or other acceptable credit enhancement have previously been
issued and are outstanding. See "--Issuances of New Series, Classes and
Tranches of Notes--Required Subordinated Amount."
The issuer will pay principal of and interest on the Class A(2001-1) notes
solely from the portion of MBNAseries Available Funds and MBNAseries Available
Principal Amounts and from other amounts which are available to the Class
A(2001-1) notes under the indenture and the MBNAseries indenture supplement
after giving effect to all allocations and reallocations. If those sources are
not sufficient to pay the Class A(2001-1) notes, Class A(2001-1) noteholders
will have no recourse to any other assets of the issuer or any other person or
entity for the payment of principal of or interest on those notes.
Subordination of Principal and Interest
Principal and interest payments on Class B notes and Class C notes of the
MBNAseries are subordinated to payments on Class A notes of the MBNAseries.
Subordination of Class B notes and Class C notes of the MBNAseries provides
credit enhancement for Class A notes of the MBNAseries.
Principal and interest payments on Class C notes of the MBNAseries are
subordinated to payments on Class A notes and Class B notes of the MBNAseries.
Subordination of
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Class C notes of the MBNAseries provides credit enhancement for Class A notes
and Class B notes of the MBNAseries.
In addition, in the case of a discount note, the accreted principal of that
note corresponding to capitalized interest will be senior or subordinated to
the same extent that principal is senior or subordinated.
MBNAseries Available Principal Amounts may be reallocated to pay interest on
senior classes of notes or to pay a portion of the master trust II servicing
fee allocable to the MBNAseries, subject to certain limitations. In addition,
charge-offs due to uncovered defaults on principal receivables in master
trust II allocable to the MBNAseries generally are reallocated from the senior
classes to the subordinated classes of the MBNAseries. See "The Notes--Stated
Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation
Amount--Nominal Liquidation Amount" and "Master Trust II--Defaulted
Receivables; Rebates and Fraudulent Charges" in the prospectus.
In the MBNAseries, payment of principal may be made on a subordinated class
of notes before payment in full of each senior class of notes only under the
following circumstances:
. If after giving effect to the proposed principal payment there is still
a sufficient amount of subordinated notes to support the outstanding
senior notes. See "Deposit and Application of Funds--Targeted Deposits
of MBNAseries Available Principal Amounts to the Principal Funding
Account" and "--Allocation to Principal Funding Subaccounts." For
example, if a tranche of Class A notes has been repaid, this generally
means that, unless other Class A notes are issued, at least some Class B
notes and Class C notes may be repaid when such Class B notes and Class
C notes are required to be repaid even if other tranches of Class A
notes are outstanding.
. If the principal funding subaccounts for the senior classes of notes
have been sufficiently prefunded as described in "Deposit and
Application of Funds--Targeted Deposits of MBNAseries Available
Principal Amounts to the Principal Funding Account--Prefunding of the
Principal Funding Account for Senior Classes."
. If new tranches of subordinated notes are issued so that the
subordinated notes that have reached their expected principal payment
date are no longer necessary to provide the required subordination.
. If the subordinated tranche of notes reaches its legal maturity date and
there is a sale of credit card receivables as described in "Deposit and
Application of Funds--Sale of Credit Card Receivables."
MBNAseries Available Principal Amounts remaining after any reallocations for
interest on the senior notes or for a portion of the master trust II servicing
fee allocable to the MBNAseries will be applied to make targeted deposits to
the principal funding subaccounts of senior notes before being applied to make
targeted deposits to the principal funding subaccounts of the subordinated
notes if such remaining amounts are not sufficient to make all required
targeted deposits.
S-22
Issuances of New Series, Classes and Tranches of Notes
Conditions to Issuance
The issuer may issue new series, classes and tranches of notes (including
additional notes of an outstanding tranche or class), so long as the conditions
to issuance listed in "The Notes--Issuances of New Series, Classes and Tranches
of Notes" in the prospectus are satisfied and so long as any increase in the
targeted deposit amount of any Class C reserve subaccount caused by such
issuance will have been funded on or prior to such issuance date.
The issuer and the indenture trustee are not required to obtain the consent
of any noteholder of any outstanding series, class or tranche to issue any
additional notes.
Required Subordinated Amount
No Class A notes or Class B notes may be issued unless the required
subordinated amount of subordinated classes is available at the time of its
issuance. The required subordinated amount of a tranche of a senior class of
notes of the MBNAseries is the aggregate nominal liquidation amount of a
subordinated class that is required to be outstanding and available on the date
when a tranche of a senior class of notes is issued.
The issuer may change the required subordinated amount for any tranche of
notes of the MBNAseries, or the method of computing the required subordinated
amount, at any time without the consent of any noteholders so long as the
issuer has:
. received confirmation from each rating agency that has rated any
outstanding notes that the change will not result in the reduction,
qualification or withdrawal of its then-current rating of any
outstanding notes in the MBNAseries; and
. delivered an opinion of counsel that for federal income tax purposes (1)
the change will not adversely affect the tax characterization as debt of
any outstanding series, class or tranche of notes of the issuer that
were characterized as debt at the time of their issuance, (2) following
the change, the issuer will not be treated as an association, or
publicly traded partnership, taxable as a corporation, and (3) such
change will not cause or constitute an event in which gain or loss would
be recognized by any holder of such notes.
In order to issue Class A notes, the issuer must calculate the available
amount of Class B notes and Class C notes. The issuer will first calculate the
amount of Class B notes available for such new tranche of Class A notes. This
is done by computing the following:
. the aggregate nominal liquidation amount of all tranches of outstanding
Class B notes on that date, after giving effect to issuances, deposits,
allocations, reallocations or payments with respect to Class B notes to
be made on that date; minus
. the aggregate amount of the Class A required subordinated amount of
Class B notes for all other Class A notes which are outstanding on that
date, after giving effect to any issuances, deposits, allocations,
reallocations or payments with respect to Class A notes to be made on
that date.
S-23
The calculation in the prior paragraph will also be made in the same manner
for calculating the amount of Class C notes available for Class A notes and the
amount of Class C notes available for Class B notes.
Waiver of Issuance Conditions
If the issuer obtains confirmation from each rating agency that has rated any
outstanding notes that the issuance of a new series, class or tranche of notes
will not cause a reduction or withdrawal of the ratings of any outstanding
notes rated by that rating agency, then some of the conditions to issuance
described above and under "The Notes--Issuance of New Series, Classes and
Tranches of Notes" in the prospectus may be waived.
Sources of Funds to Pay the Notes
The Collateral Certificate
The primary source of funds for the payment of principal of and interest on
the notes is the collateral certificate issued by master trust II to the
issuer. For a description of the collateral certificate, master trust II and
its assets, see "Master Trust II" and "Sources of Funds to Pay the Notes--The
Collateral Certificate" in the prospectus.
Payments Received from Derivative Counterparties
The issuer may enter into derivative agreements with respect to certain
tranches of the MBNAseries as a source of funds to pay principal of or interest
on the notes. See "Deposit and Application of Funds--Payments Received from
Derivative Counterparties for Interest in Foreign Currencies" and "--Payments
Received from Derivative Counterparties for Principal." On the date the Class
A(2001-1) notes are issued, the issuer will enter into a derivative agreement
for interest (referred to in this prospectus supplement as the derivative
agreement) with Lehman Brothers Special Financing Inc., the derivative
counterparty.
The amount payable by the derivative counterparty to the issuer under the
derivative agreement will be, for each Transfer Date, an amount equal to one-
twelfth of the product of (a) [.]% and (b) the outstanding dollar principal
amount of the Class A(2001-1) notes at the end of the prior month. In the case
of the first Transfer Date, such amounts will include accrued amounts for the
period from and including the issuance date to but excluding the first interest
payment date. Payments from the derivative counterparty to the issuer will be
calculated on the basis of a 360-day year and twelve 30-day months.
The amount payable by the issuer to the derivative counterparty under the
derivative agreement will be, for each Transfer Date, an amount equal to the
product of:
(i) a fraction, the numerator of which is the actual number of days in
the interest period relating to such Transfer Date, and the denominator of
which is 360;
(ii) a rate not to exceed [.]% per annum above LIBOR prevailing on the
related LIBOR Determination Date with respect to such interest period; and
S-24
(iii) the outstanding dollar principal amount of the Class A(2001-1)
notes at the end of the prior month.
An "interest period" begins on and includes an interest payment date and ends
on but excludes the next interest payment date. However, the first interest
period will begin on and include the issuance date.
With respect to each Transfer Date, the Net Derivative Receipt, if any, will
be treated as MBNAseries Available Funds. The Net Derivative Payment, if any,
will be paid to the derivative counterparty out of MBNAseries Available Funds
and certain other available amounts allocated to the Class A(2001-1) notes and
deposited into the related interest funding subaccount, including amounts on
deposit in the accumulation reserve subaccount and reallocated MBNAseries
Available Principal Amounts, based on the respective amounts due as described
under "Deposit and Application of Funds--Targeted Deposits of MBNAseries
Available Funds to the Interest Funding Account."
The "Net Derivative Payment," for any Transfer Date, means, (a) if the
netting provisions of the derivative agreement apply, the amount by which the
Floating Amount for such date exceeds the Fixed Amount for such date, and (b)
otherwise, an amount equal to the Floating Amount for such date.
The "Net Derivative Receipt," for any Transfer Date, means, (a) if the
netting provisions of the derivative agreement apply, the amount by which the
Fixed Amount for such date exceeds the Floating Amount for such date, and (b)
otherwise, an amount equal to the Fixed Amount for such date.
The netting provisions of the derivative agreement will apply unless the
issuer elects gross payments to be made pursuant to the provisions of the
derivative agreement. If the issuer elects gross payments under the derivative
agreement, the issuer's obligation to pay the Floating Amount on any Transfer
Date to the derivative counterparty pursuant to the terms of the derivative
agreement is conditioned upon the prior receipt of the Fixed Amount from the
derivative counterparty for such date.
The "Fixed Amount," for any Transfer Date, means an amount equal to the fixed
amount (including any termination payments pursuant to the derivative
agreement) payable by the derivative counterparty to the issuer for such date
pursuant to the terms of the derivative agreement.
The "Floating Amount," for any Transfer Date, means an amount equal to the
floating amount payable by the issuer to the derivative counterparty for such
date pursuant to the derivative agreement minus the excess of (i) the targeted
amount of principal funding subaccount earnings for the Class A(2001-1) notes
for the related month over (ii) the sum of the amount actually earned on such
funds for the related month, plus amounts withdrawn from the applicable
accumulation reserve subaccount, plus collections of finance charge receivables
allocable to the designated portion of the Seller Interest, if any, plus
amounts withdrawn from a derivative reserve account, in each case, to cover
shortfalls on principal funding subaccount earnings, if any. The Floating
Amount does not include any termination
S-25
payments payable by the issuer to the derivative counterparty pursuant to the
derivative agreement.
The derivative agreement will terminate by its terms, whether or not the
Class A(2001-1) notes have been paid in full prior to such termination, upon
the earliest to occur of:
(i) the termination of the issuer pursuant to the terms of the indenture;
(ii) the payment in full of the Class A(2001-1) notes;
(iii) the expected principal payment date for the Class A(2001-1) notes;
(iv) the insolvency, conservatorship or receivership of the derivative
counterparty;
(v) the failure on the part of the issuer or the derivative counterparty
to make any payment under the derivative agreement within the applicable
grace period, if any;
(vi) illegality on the part of the issuer or the derivative counterparty
to be a party to, or perform an obligation under, the derivative agreement;
and
(vii) the termination of the guaranty provided by the derivative
counterparty guarantor to the derivative counterparty without a suitable
replacement guaranty or similar arrangement.
In the event that the derivative agreement terminates prior to the payment in
full of the Class A(2001-1) notes, applications of MBNAseries Available Funds
to fund targeted deposits to the interest funding subaccount will be made
without the benefit of any Net Derivative Receipts that might have been due for
any future Transfer Dates.
If (i) the derivative counterparty guarantor's short-term credit rating from
Standard & Poor's is below "A-1", (ii) in the case of a replacement derivative
counterparty that does not have a short-term credit rating from Standard &
Poor's, such derivative counterparty's long-term credit rating from Standard &
Poor's is below "A+", or (iii) either of such ratings is withdrawn by Standard
& Poor's, the derivative counterparty will be required within 30 days from the
date of such rating or withdrawal to fund an interest reserve account in an
amount equal to one-twelfth of the product of (a) [.]% and (b) the outstanding
dollar principal amount of the Class A(2001-1) notes at the end of the month
preceding such reduction or withdrawal (the "required interest reserve
amount"). On any Transfer Date after such deposit, if Standard & Poor's short-
term credit rating of the derivative counterparty or its guarantor is "A-1" or
higher, or if Standard & Poor's long-term credit rating of the derivative
counterparty or its guarantor is "A+" or higher, the issuer will distribute any
amounts on deposit in the interest reserve account to the derivative
counterparty pursuant to the terms of the derivative agreement. The issuer will
establish and maintain the interest reserve account for the benefit of the
Class A(2001-1) noteholders. There can be no assurance that the derivative
counterparty can or will adequately fund the interest reserve account. If the
derivative counterparty fails to adequately fund the interest reserve account
within 30 days of such reduction or withdrawal (an "interest reserve account
event"), then (i) if an early redemption event has not previously occurred,
upon the
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occurrence of an early redemption event, MBNAseries Available Principal Amounts
allocable to the Class A(2001-1) notes, together with any amounts in the
principal funding subaccount for the Class A(2001-1) notes will not be retained
in such subaccount and will be paid to the Class A(2001-1) noteholders or (ii)
if an early redemption event has previously occurred, upon the occurrence of
such interest reserve account event, any amounts in the principal funding
subaccount for the Class A(2001-1) notes will not be retained in such account
and will, together with MBNAseries Available Principal Amounts allocable to the
Class A(2001-1) notes, if any, be paid to the Class A(2001-1) noteholders.
All amounts on deposit in the interest reserve account on any Transfer Date
(after giving effect to any deposits to the interest reserve account to be made
on such Transfer Date) will be invested in Permitted Investments. Investment
earnings on amounts on deposit in the interest reserve account will be retained
in the interest reserve account (to the extent the amount on deposit is less
than the required interest reserve amount) or paid to the derivative
counterparty.
On the Transfer Date on or following the termination of the derivative
agreement due to a default by the derivative counterparty, the issuer will
withdraw an amount equal to the Net Derivative Receipt, if any, for such
Transfer Date, plus the amount of any Net Derivative Receipt previously due but
not paid, from funds on deposit in the interest reserve account, if any, and
treat such amounts as MBNAseries Available Funds as described under "Deposit
and Application of Funds--MBNAseries Available Funds" as if such amounts were a
Net Derivative Receipt received from the derivative counterparty. The interest
reserve account will thereafter be terminated.
Upon the termination of the interest reserve account, any remaining amounts
will be paid to the derivative counterparty.
In the event the long-term credit rating of the derivative counterparty
guarantor or a replacement derivative counterparty is reduced below "BBB-" by
Standard & Poor's or below "Baa3" by Moody's, or is withdrawn by either
Standard & Poor's or Moody's, the issuer will direct the derivative
counterparty to assign its rights and obligations under the derivative
agreement to a replacement derivative counterparty. There can be no assurance
that a successor derivative counterparty will be found or that such assignment
can be made.
The rating agencies have not relied on the ratings of the derivative
counterparty in rating the Class A(2001-1) notes but rather on the value of the
receivables in master trust II and the terms of the applicable credit
enhancements. See "Risk Factors."
Derivative Counterparty
The derivative counterparty under the derivative agreement for interest for
the Class A(2001-1) notes is Lehman Brothers Special Financing Inc. ("LBSF"), a
Delaware corporation and wholly owned subsidiary of Lehman Brothers Holdings
Inc. ("Holdings"), a Delaware corporation. The obligations of LBSF under the
derivative agreement are fully and unconditionally guaranteed by Holdings.
Holdings currently has a
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long-term unsecured debt credit rating of "A" and a short-term credit rating of
"A-1" from Standard & Poor's and a long-term unsecured debt credit rating of
"A2" and a short-term credit rating of "P-1" from Moody's.
The information set forth in the preceding paragraph and in the first and
second sentences of the last paragraph of "Summary of Terms--Derivative
Agreement" has been provided by the derivative counterparty. The issuer makes
no representations as to the accuracy or completeness of such information.
The Issuer Accounts
The issuer will establish a principal funding account, an interest funding
account and an accumulation reserve account for the benefit of the MBNAseries,
which will have subaccounts for each tranche of notes of the MBNAseries, and a
Class C reserve account, which will have subaccounts for each tranche of Class
C notes of the MBNAseries.
Each month, distributions on the collateral certificate will be deposited
into the collection account, and then allocated to each series of notes
(including the MBNAseries) as described in the accompanying prospectus, and
then allocated to the principal funding account, the interest funding account,
the accumulation reserve account, the Class C reserve account and any other
supplemental account, to make payments under any applicable derivative
agreements and additionally as specified in "Deposit and Application of Funds."
Funds on deposit in the principal funding account and the interest funding
account will be used to make payments of principal of and interest on the
MBNAseries notes when such payments are due. Payments of interest and principal
will be due in the month when the funds are deposited into the accounts, or in
later months. If interest on a note is not scheduled to be paid every month--
for example, if interest on that note is payable quarterly, semiannually or at
another interval less frequently than monthly--the issuer will deposit accrued
interest amounts funded from MBNAseries Available Funds into the interest
funding subaccount for that note to be held until the interest is due. See
"Deposit and Application of Funds--Targeted Deposits of MBNAseries Available
Funds to the Interest Funding Account."
If the issuer anticipates that MBNAseries Available Principal Amounts will
not be enough to pay the stated principal amount of a note on its expected
principal payment date, the issuer may begin to apply MBNAseries Available
Principal Amounts in months before the expected principal payment date and
deposit those funds into the principal funding subaccount established for that
tranche to be held until the expected principal payment date of that note.
However, since funds in the principal funding subaccount for tranches of
subordinated notes will not be available for credit enhancement for any senior
classes of notes, MBNAseries Available Principal Amounts will not be deposited
into the principal funding subaccount for a tranche of subordinated notes if
such deposit would reduce the available subordination below the required
subordination.
If the earnings on funds in the principal funding subaccount are less than
the interest payable on the portion of principal in the principal funding
subaccount for the applicable
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tranche of notes, the amount of such shortfall will be withdrawn from the
accumulation reserve account to the extent available, unless the amounts on
deposit in the principal funding subaccount are prefunded amounts, in which
case additional finance charge collections will be allocable to the collateral
certificate and the MBNAseries and will be treated as MBNAseries Available
Funds as described under "Deposit and Application of Funds--MBNAseries
Available Funds" in this prospectus supplement and "Master Trust II--
Application of Collections" in the prospectus.
Limited Recourse to the Issuer; Security for the Notes
The collateral certificate is allocated a portion of collections of finance
charge receivables, collections of principal receivables, its share of the
payment obligation on the master trust II servicing fee and its share of
defaults on principal receivables in master trust II based on the investor
percentage. The MBNAseries and the other series of notes are secured by a
shared security interest in the collateral certificate and the collection
account of the issuer, but each series of notes (including the MBNAseries) is
entitled to the benefits of only that portion of those assets allocable to it
under the indenture and the applicable indenture supplement. Therefore, only a
portion of the collections allocated to the collateral certificate are
available to the MBNAseries. Similarly, MBNAseries notes are entitled only to
their allocable share of MBNAseries Available Funds, MBNAseries Available
Principal Amounts, amounts on deposit in the applicable issuer accounts, any
payments received from derivative counterparties (to the extent not included in
MBNAseries Available Funds) and proceeds of the sale of credit card receivables
by master trust II. Noteholders will have no recourse to any other assets of
the issuer or any other person or entity for the payment of principal of or
interest on the notes.
Each tranche of notes of the MBNAseries is entitled to the benefits of only
that portion of the issuer's assets allocated to that tranche under the
indenture and the MBNAseries indenture supplement. Each tranche of notes is
also secured by a security interest in the applicable principal funding
subaccount, the applicable interest funding subaccount, the applicable
accumulation reserve subaccount, in the case of a tranche of Class C notes, the
applicable Class C reserve subaccount and any other applicable supplemental
account, and by a security interest in any applicable derivative agreement.
Early Redemption of the Notes
The early redemption events applicable to all notes are described in "The
Indenture-- Early Redemption Events" in the prospectus. In addition, if for any
date the amount of Excess Available Funds averaged over the three preceding
months is less than the Required Excess Available Funds for such date, an early
redemption event for the Class A(2001-1) notes will occur.
If any of the early redemption events applicable to the Class A(2001-1) notes
occurs (other than an investment company early redemption event) and the
derivative agreement has not been terminated, an interest reserve account event
has not occurred and an event of default and acceleration of the Class A(2001-
1) notes has not occurred, MBNAseries Available Principal Amounts allocable to
the Class A(2001-1) notes and amounts in the
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principal funding subaccount for the Class A(2001-1) notes will not be paid to
the holders of the Class A(2001-1) notes as described under "The Notes--Early
Redemption of the Notes" and "The Indenture--Early Redemption of the Notes" in
the prospectus, but instead will be retained in the principal funding
subaccount for the Class A(2001-1) notes until the expected principal payment
date of the Class A(2001-1) notes. However, if (i) the derivative agreement
terminates, (ii) an interest reserve account event occurs, (iii) an investment
company early redemption event occurs or (iv) an event of default and
acceleration of the Class A(2001-1) notes occurs, such amounts will not be
accumulated in the principal funding subaccount for the Class A(2001-1) notes,
but instead will be paid to the holders of the Class A(2001-1) notes. See "The
Notes--Sources of Funds to Pay the Notes--Payments Received from Derivative
Counterparties" for a description of an interest reserve account event and the
derivative agreement termination events.
Deposit and Application of Funds
The indenture specifies how Available Funds (primarily consisting of
collections of finance charge receivables allocated and paid to the collateral
certificateholder) and Available Principal Amounts (primarily consisting of
collections of principal receivables allocated and paid to the collateral
certificateholder) will be allocated among the multiple series of notes secured
by the collateral certificate. The MBNAseries indenture supplement specifies
how MBNAseries Available Funds (which are the MBNAseries' share of Available
Funds plus other amounts treated as MBNAseries Available Funds) and MBNAseries
Available Principal Amounts (which are the MBNAseries' share of Available
Principal Amounts plus other amounts treated as MBNAseries Available Principal
Amounts) will be deposited into the issuer accounts established for the
MBNAseries to provide for the payment of interest on and principal of
MBNAseries notes as payments become due. In addition, the MBNAseries indenture
supplement specifies how defaults on principal receivables in master trust II
and the master trust II servicing fee will be allocated to the collateral
certificate and the MBNAseries. The following sections summarize those
provisions.
MBNAseries Available Funds
MBNAseries Available Funds will consist of the following amounts:
. The MBNAseries' share of collections of finance charge receivables
allocated and paid to the collateral certificateholder and investment
earnings on funds held in the collection account. See "Sources of Funds
to Pay the Notes--Deposit and Application of Funds" in the prospectus.
. Withdrawals from the accumulation reserve subaccount.
If the number of months targeted to accumulate budgeted deposits of
MBNAseries Available Principal Amounts for the payment of principal on a
tranche of notes is greater than one month, then the issuer will begin
to fund an accumulation reserve subaccount for such tranche. See "--
Targeted Deposits of MBNAseries Available Principal Amounts to the
Principal Funding Account." The amount targeted to be deposited in the
accumulation reserve account for each month, beginning with the
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third month prior to which MBNAseries Available Principal Amounts are to
be accumulated for such tranche, will be an amount equal to 0.5% of the
outstanding dollar principal amount of such tranche of notes.
On each Transfer Date, the issuer will calculate the targeted amount of
principal funding subaccount earnings for each tranche of notes, which
will be equal to the amount that the funds (other than prefunded
amounts) on deposit in each principal funding subaccount would earn at
the interest rate payable by the issuer--taking into account payments
due under applicable derivative agreements--on the related tranche of
notes. As a general rule, if the amount actually earned on such funds on
deposit is less than the targeted amount of earnings, then the amount of
such shortfall will be withdrawn from the applicable accumulation
reserve subaccount and treated as MBNAseries Available Funds for such
month.
. Additional finance charge collections allocable to the MBNAseries.
The issuer will notify the servicer from time to time of the aggregate
prefunded amount on deposit in the principal funding account. Whenever
there are any prefunded amounts on deposit in any principal funding
subaccount, master trust II will designate an amount of the Seller
Interest equal to such prefunded amounts. On each Transfer Date, the
issuer will calculate the targeted amount of principal funding
subaccount prefunded amount earnings for each tranche of notes, which
will be equal to the amount that the prefunded amounts on deposit in
each principal funding subaccount would earn at the interest rate
payable by the issuer--taking into account payments due under applicable
derivative agreements--on the related tranche of notes. As a general
rule, if the amount actually earned on such funds on deposit is less
than the targeted amount of earnings, collections of finance charge
receivables allocable to such designated portion of the Seller Interest
up to the amount of the shortfall will be treated as MBNAseries
Available Funds. See "Master Trust II--Application of Collections" in
the prospectus.
. Investment earnings on amounts on deposit in the principal funding
account, interest funding account and accumulation reserve account for
the MBNAseries.
. Any shared excess available funds allocable to the MBNAseries.
See "--Shared Excess Available Funds" in this prospectus supplement.
. Amounts received from derivative counterparties.
Unless otherwise specified in the MBNAseries indenture supplement,
payments received under derivative agreements for interest on notes of
the MBNAseries payable in U.S. dollars will be treated as MBNAseries
Available Funds.
Application of MBNAseries Available Funds
On each Transfer Date, the indenture trustee will apply MBNAseries Available
Funds as follows:
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. first, to make the targeted deposits to the interest funding account to
fund the payment of interest on the notes and certain payments due to
derivative counterparties;
. second, to pay the MBNAseries's share of the master trust II servicing
fee, plus any previously due and unpaid master trust II servicing fee
allocable to the MBNAseries, to the servicer;
. third, to be treated as MBNAseries Available Principal Amounts in an
amount equal to the amount of defaults on principal receivables in
master trust II allocated to the MBNAseries for the preceding month;
. fourth, to be treated as MBNAseries Available Principal Amounts in an
amount equal to the Nominal Liquidation Amount Deficits, if any, of
MBNAseries notes;
. fifth, to make the targeted deposit to the accumulation reserve account,
if any;
. sixth, to make the targeted deposit to the Class C reserve account, if
any;
. seventh, to make any other payment or deposit required by any class or
tranche of MBNAseries notes;
. eighth, to be treated as shared excess available funds; and
. ninth, to the issuer.
Targeted Deposits of MBNAseries Available Funds to the Interest Funding Account
The aggregate deposit targeted to be made each month to the interest funding
account will be equal to the sum of the interest funding account deposits
targeted to be made for each tranche of notes set forth below. The deposit
targeted for any month will also include any shortfall in the targeted deposit
from any prior month which has not been previously deposited.
. Interest Payments. The deposit targeted for any tranche of outstanding
interest-bearing notes on each Transfer Date will be equal to the amount
of interest accrued on the outstanding dollar principal amount of that
tranche during the period from and including the first Monthly Interest
Accrual Date in the prior month to but excluding the first Monthly
Interest Accrual Date for the current month.
. Amounts Owed to Derivative Counterparties. If a tranche of notes has a
Performing or non-Performing derivative agreement for interest that
provides for payments to the applicable derivative counterparty, in
addition to any applicable stated interest as determined under the item
above, the deposit targeted for that tranche of notes on each Transfer
Date with respect to any payment to the derivative counterparty will be
specified in the MBNAseries indenture supplement.
. Discount Notes. The deposit targeted for a tranche of discount notes on
each Transfer Date is the amount of accretion of principal of that
tranche of notes from and including the prior Monthly Principal Accrual
Date--or in the case of the first Monthly Principal Accrual Date, from
and including the date of issuance of that
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tranche--to but excluding the first Monthly Principal Accrual Date for
the next month.
. Specified Deposits. If any tranche of notes provides for deposits in
addition to or different from the deposits described above to be made to
the interest funding subaccount for that tranche, the deposits targeted
for that tranche each month are the specified amounts.
. Additional Interest. The deposit targeted for any tranche of notes that
has previously due and unpaid interest for any month will include the
interest accrued on that overdue interest during the period from and
including the first Monthly Interest Accrual Date in the prior month to
but excluding the first Monthly Interest Accrual Date for the current
month.
Each deposit to the interest funding account for each month will be made on
the following Transfer Date. A tranche of notes may be entitled to more than
one of the preceding deposits.
A class or tranche of notes for which credit card receivables have been sold
by master trust II as described in "--Sale of Credit Card Receivables" will not
be entitled to receive any of the preceding deposits to be made from MBNAseries
Available Funds after the sale has occurred.
Allocation to Interest Funding Subaccounts
The aggregate amount to be deposited in the interest funding account will be
allocated, and a portion deposited in the interest funding subaccount
established for each tranche of notes, as follows:
. MBNAseries Available Funds are at least equal to targeted amounts. If
MBNAseries Available Funds are at least equal to the sum of the deposits
targeted by each tranche of notes as described above, then that targeted
amount will be deposited in the interest funding subaccount established
for each tranche.
. MBNAseries Available Funds are less than targeted amounts. If MBNAseries
Available Funds are less than the sum of the deposits targeted by each
tranche of notes as described above, then MBNAseries Available Funds
will be allocated to each tranche of notes as follows:
--first, to cover the deposits with respect to the Class A notes
(including any applicable derivative counterparty payments),
--second, to cover the deposits with respect to the Class B notes
(including any applicable derivative counterparty payments), and
--third, to cover the deposits with respect to the Class C notes
(including any applicable derivative counterparty payments).
In each case, MBNAseries Available Funds allocated to a class will be
allocated to each tranche of notes within such class pro rata based on the
ratio of:
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--the aggregate amount of the deposits targeted with respect to that
tranche of notes, to
--the aggregate amount of the deposits targeted with respect to all
tranches of notes in such class.
Payments Received from Derivative Counterparties for Interest of Foreign
Currency Notes
Payments received under derivative agreements for interest of foreign
currency notes in the MBNAseries will be applied as specified in the MBNAseries
indenture supplement.
Allocations of Reductions from Charge-Offs
On each Transfer Date when there is a charge-off for uncovered defaults on
principal receivables in master trust II allocable to the MBNAseries for the
prior month, that reduction will be allocated (and reallocated) on that date to
each tranche of notes as set forth below:
Initially, the amount of such charge-off will be allocated to each tranche of
outstanding notes pro rata based on the ratio of the Weighted Average Available
Funds Allocation Amount for such tranche for the prior month to the Weighted
Average Available Funds Allocation Amount for the MBNAseries for the prior
month.
Immediately afterwards, the amount of charge-offs allocated to the Class A
notes and Class B notes will be reallocated to the Class C notes as set forth
below, and the amount of charge-offs allocated to the Class A notes and not
reallocated to the Class C notes because of the limits set forth below will be
reallocated to the Class B notes as set forth below. In addition, charge-offs
initially allocated to Class A notes which are reallocated to Class B notes
because of Class C usage limitations can be reallocated to Class C notes if
permitted as described below. Any amount of charge-offs which cannot be
reallocated to a subordinated class as a result of the limits set forth below
will reduce the nominal liquidation amount of the tranche of notes to which it
was initially allocated.
Limits on Reallocations of Charge-Offs to a Tranche of Class C Notes from
Tranches of Class A and Class B Notes.
No reallocations of charge-offs from a tranche of Class A notes to Class C
notes may cause that tranche's Class A Usage of Class C Required Subordinated
Amount to exceed that tranche's Class A required subordinated amount of Class C
notes.
No reallocations from a tranche of Class B notes to Class C notes may cause
that tranche's Class B Usage of Class C Required Subordinated Amount to exceed
that tranche's Class B required subordinated amount of Class C notes.
The amount permitted to be reallocated to tranches of Class C notes will be
applied to each tranche of Class C notes pro rata based on the ratio of the
Weighted Average Available Funds Allocation Amount of such tranche of Class C
notes for the prior month to the
S-34
Weighted Average Available Funds Allocation Amount of all Class C notes in the
MBNAseries for the prior month.
No such reallocation will reduce the nominal liquidation amount of any
tranche of Class C notes below zero.
Limits on Reallocations of Charge-Offs to a Tranche of Class B Notes from
Tranches of Class A Notes.
No reallocations of charge-offs from a tranche of Class A notes to Class B
notes may cause that tranche's Class A Usage of Class B Required Subordinated
Amount to exceed that tranche's Class A required subordinated amount of Class B
notes.
The amount permitted to be reallocated to tranches of Class B notes will be
applied to each tranche of Class B notes pro rata based on the ratio of the
Weighted Average Available Funds Allocation Amount for that tranche of Class B
notes for the prior month to the Weighted Average Available Funds Allocation
Amount for all Class B notes in the MBNAseries for the prior month.
No such reallocation will reduce the nominal liquidation amount of any
tranche of Class B notes below zero.
For each tranche of notes, the nominal liquidation amount of that tranche
will be reduced by an amount equal to the charge-offs which are allocated or
reallocated to that tranche of notes less the amount of charge-offs that are
reallocated from that tranche of notes to a subordinated class of notes.
Allocations of Reimbursements of Nominal Liquidation Amount Deficits
If there are MBNAseries Available Funds available to reimburse any Nominal
Liquidation Amount Deficits on any Transfer Date, such funds will be allocated
to each tranche of notes as follows:
. first, to each tranche of Class A notes,
. second, to each tranche of Class B notes, and
. third, to each tranche of Class C notes.
In each case, MBNAseries Available Funds allocated to a class will be
allocated to each tranche of notes within such class pro rata based on the
ratio of:
--the Nominal Liquidation Amount Deficit of such tranche of notes, to
--the aggregate Nominal Liquidation Amount Deficit of all tranches of such
class.
In no event will the nominal liquidation amount of a tranche of notes be
increased above the Adjusted Outstanding Dollar Principal Amount of such
tranche.
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Application of MBNAseries Available Principal Amounts
On each Transfer Date, the indenture trustee will apply MBNAseries Available
Principal Amounts as follows:
. first, for each month, if MBNAseries Available Funds are insufficient to
make the full targeted deposit into the interest funding subaccount for
any tranche of Class A notes, then MBNAseries Available Principal
Amounts (in an amount not to exceed the sum of the investor percentage
of collections of principal receivables allocated to the Class B notes
and the Class C notes for each day during such month) will be allocated
to the interest funding subaccount of each such tranche of Class A notes
pro rata based on, in the case of each such tranche of Class A notes,
the lesser of:
--the amount of the deficiency of the targeted amount to be deposited
into the interest funding subaccount of such tranche of Class A notes,
and
--an amount equal to the sum of the Class A Unused Subordinated Amount of
Class C notes plus the Class A Unused Subordinated Amount of Class B
notes for such tranche of Class A notes (determined after giving effect
to the allocation of charge-offs for uncovered defaults on principal
receivables in master trust II);
. second, for each month, if MBNAseries Available Funds are insufficient
to make the full targeted deposit into the interest funding subaccount
for any tranche of Class B notes, then MBNAseries Available Principal
Amounts (in an amount not to exceed the sum of the investor percentage
of collections of principal receivables allocated to the Class B notes
and the Class C notes for each day during such month minus the aggregate
amount of MBNAseries Available Principal Amounts reallocated as
described in the first clause above) will be allocated to the interest
funding subaccount of each such tranche of Class B notes pro rata based
on, in the case of each such tranche of Class B notes, the lesser of:
--the amount of the deficiency of the targeted amount to be deposited
into the interest funding subaccount of such tranche of Class B notes,
and
--an amount equal to the Class B Unused Subordinated Amount of Class C
notes for such tranche of Class B notes (determined after giving effect
to the allocation of charge-offs for uncovered defaults on principal
receivables in master trust II and the reallocation of MBNAseries
Available Principal Amounts as described in the first clause above);
. third, for each month, if MBNAseries Available Funds are insufficient to
pay the portion of the master trust II servicing fee allocable to the
MBNAseries, then MBNAseries Available Principal Amounts (in an amount
not to exceed the sum of the investor percentage of collections of
principal receivables allocated to the Class B notes and the Class C
notes for each day during such month minus the aggregate amount of
MBNAseries Available Principal Amounts reallocated as described in the
first and second clauses above) will be paid to the servicer in an
amount equal to, and allocated to each such tranche of Class A notes pro
rata based on, in the case of each tranche of Class A notes, the lesser
of:
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--the amount of the deficiency times the Weighted Average Available Funds
Allocation Amount for such tranche for such month to the Weighted
Average Available Funds Allocation Amount for the MBNAseries for such
month, and
--an amount equal to the Class A Unused Subordinated Amount of Class C
notes plus the Class A Unused Subordinated Amount of Class B notes for
such tranche of Class A notes (determined after giving effect to the
allocation of charge-offs for uncovered defaults on principal
receivables in master trust II and the reallocation of MBNAseries
Available Principal Amounts as described in the first and second
clauses above);
. fourth, for each month, if MBNAseries Available Funds are insufficient
to pay the portion of the master trust II servicing fee allocable to the
MBNAseries, then MBNAseries Available Principal Amounts (in an amount
not to exceed the sum of the investor percentage of collections of
principal receivables allocated to the Class B notes and the Class C
notes for each day during such month minus the aggregate amount of
MBNAseries Available Principal Amounts reallocated as described in the
first, second and third clauses above) will be paid to the servicer in
an amount equal to, and allocated to each tranche of Class B notes pro
rata based on, in the case of each such tranche of Class B notes, the
lesser of:
--the amount of the deficiency times the Weighted Average Available Funds
Allocation Amount for such tranche for such month to the Weighted
Average Available Funds Allocation Amount for the MBNAseries for such
month, and
--an amount equal to the Class B Unused Subordinated Amount of Class C
notes for such tranche of Class B notes (determined after giving effect
to the allocation of charge-offs for uncovered defaults on principal
receivables in master trust II and the reallocation of MBNAseries
Available Principal Amounts as described in the preceding clauses);
. fifth, to make the targeted deposits to the principal funding account as
described below under "--Targeted Deposits of MBNAseries Available
Principal Amounts to the Principal Funding Account;" and
. sixth, to the issuer for reinvestment in the Investor Interest of the
collateral certificate.
A tranche of notes for which credit card receivables have been sold by master
trust II as described in "--Sale of Credit Card Receivables" will not be
entitled to receive any further allocations of MBNAseries Available Funds or
MBNAseries Available Principal Amounts.
The Investor Interest of the collateral certificate is the sum of the nominal
liquidation amounts of each tranche of notes issued by the issuer and
outstanding and, therefore, will be reduced by the amount of MBNAseries
Available Principal Amounts used to make deposits into the interest funding
account, payments to the servicer and deposits into the principal funding
account. If the Investor Interest of the collateral certificate is reduced
because MBNAseries Available Principal Amounts have been used to make deposits
into the interest funding account or payments to the servicer or because of
charge-offs due to uncovered
S-37
defaults on principal receivables in master trust II, the amount of Available
Funds and Available Principal Amounts allocated to the collateral certificate
and the amount of MBNAseries Available Funds and MBNAseries Available Principal
Amounts will be reduced unless the reduction in the Investor Interest is
reimbursed from amounts described above in the fourth item in "--Application of
MBNAseries Available Funds."
Reductions to the Nominal Liquidation Amount of Subordinated Classes from
Reallocations of MBNAseries Available Principal Amounts
Each reallocation of MBNAseries Available Principal Amounts deposited to the
interest funding subaccount of a tranche of Class A notes as described in the
first clause of "--Application of MBNAseries Available Principal Amounts" will
reduce the nominal liquidation amount of the Class C notes. However, the amount
of such reduction for each such tranche of Class A notes will not exceed the
Class A Unused Subordinated Amount of Class C notes for such tranche of Class A
notes.
Each reallocation of MBNAseries Available Principal Amounts deposited to the
interest funding subaccount of a tranche of Class A notes as described in the
first clause of "--Application of MBNAseries Available Principal Amounts" which
does not reduce the nominal liquidation amount of Class C notes pursuant to the
preceding paragraph will reduce the nominal liquidation amount of the Class B
notes. However, the amount of such reduction for each such tranche of Class A
notes will not exceed the Class A Unused Subordinated Amount of Class B notes
for such tranche of Class A notes, and such reductions in the nominal
liquidation amount of the Class B notes may be reallocated to the Class C notes
if permitted as described below.
Each reallocation of MBNAseries Available Principal Amounts deposited to the
interest funding subaccount of a tranche of Class B notes as described in the
second clause of "--Application of MBNAseries Available Principal Amounts"
will reduce the nominal liquidation amount (determined after giving effect to
the preceding paragraphs) of the Class C notes.
Each reallocation of MBNAseries Available Principal Amounts paid to the
servicer as described in the third clause of "--Application of MBNAseries
Available Principal Amounts" will reduce the nominal liquidation amount
(determined after giving effect to the preceding paragraphs) of the Class C
notes. However, the amount of such reduction for each such tranche of Class A
notes will not exceed the Class A Unused Subordinated Amount of Class C notes
for such tranche of Class A notes (after giving effect to the preceding
paragraphs).
Each reallocation of MBNAseries Available Principal Amounts paid to the
servicer as described in the third clause of "--Application of MBNAseries
Available Principal Amounts" which does not reduce the nominal liquidation
amount of Class C notes as described above will reduce the nominal liquidation
amount (determined after giving effect to the preceding paragraphs) of the
Class B notes. However, the amount of such reduction for each such tranche of
Class A notes will not exceed the Class A Unused Subordinated
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Amount of Class B notes for such tranche of Class A notes (after giving effect
to the preceding paragraphs), and such reductions in the nominal liquidation
amount of the Class B notes may be reallocated to the Class C notes if
permitted as described below.
Each reallocation of MBNAseries Available Principal Amounts paid to the
servicer as described in the fourth clause of "--Application of MBNAseries
Available Principal Amounts" will reduce the nominal liquidation amount
(determined after giving effect to the preceding paragraphs) of the Class C
notes.
Subject to the following paragraph, each reallocation of MBNAseries Available
Principal Amounts which reduces the nominal liquidation amount of Class B notes
as described above will reduce the nominal liquidation amount of each tranche
of the Class B notes pro rata based on ratio of the Weighted Average Available
Funds Allocation Amount for such tranche of Class B notes for the related month
to the Weighted Average Available Funds Allocation Amount for all Class B notes
for the related month. However, any allocation of any such reduction that would
otherwise have reduced the nominal liquidation amount of a tranche of Class B
notes below zero will be reallocated to the remaining tranches of Class B notes
in the manner set forth in this paragraph.
Each reallocation of MBNAseries Available Principal Amounts which reduces the
nominal liquidation amount of Class B notes as described in the preceding
paragraph may be reallocated to the Class C notes and such reallocation will
reduce the nominal liquidation amount of the Class C notes. However, the amount
of such reallocation from each tranche of Class B notes will not exceed the
Class B Unused Subordinated Amount of Class C notes for such tranche of Class B
notes.
Each reallocation of MBNAseries Available Principal Amounts which reduces the
nominal liquidation amount of Class C notes as described above will reduce the
nominal liquidation amount of each tranche of the Class C notes pro rata based
on ratio of the Weighted Average Available Funds Allocation Amount for such
tranche of Class C notes for the related month to the Weighted Average
Available Funds Allocation Amount for all Class C notes for the related month.
However, any allocation of any such reduction that would otherwise have reduced
the nominal liquidation amount of a tranche of Class C notes below zero will be
reallocated to the remaining tranches of Class C notes in the manner set forth
in this paragraph.
None of such reallocations will reduce the nominal liquidation amount of any
tranche of Class B or Class C notes below zero.
For each tranche of notes, the nominal liquidation amount of that tranche
will be reduced by the amount of reductions which are allocated or reallocated
to that tranche less the amount of reductions which are reallocated from that
tranche to notes of a subordinated class.
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Limit on Allocations of MBNAseries Available Principal Amounts and MBNAseries
Available Funds
Each tranche of notes will be allocated MBNAseries Available Principal
Amounts and MBNAseries Available Funds solely to the extent of its nominal
liquidation amount. Therefore, if the nominal liquidation amount of any tranche
of notes has been reduced due to reallocations of MBNAseries Available
Principal Amounts to cover payments of interest or the master trust II
servicing fee or due to charge-offs for uncovered defaults on principal
receivables in master trust II, such tranche of notes will not be allocated
MBNAseries Available Principal Amounts or MBNAseries Available Funds to the
extent of such reductions. However, any funds in the applicable principal
funding subaccount, any funds in the applicable interest funding subaccount,
any amounts payable from any applicable derivative agreement, any funds in the
applicable accumulation reserve subaccount, and in the case of Class C notes,
any funds in the applicable Class C reserve account, will still be available to
pay principal of and interest on that tranche of notes. If the nominal
liquidation amount of a tranche of notes has been reduced due to reallocation
of MBNAseries Available Principal Amounts to pay interest on senior classes of
notes or the master trust II servicing fee, or due to charge-offs for uncovered
defaults on principal receivables in master trust II, it is possible for that
tranche's nominal liquidation amount to be increased by allocations of
MBNAseries Available Funds. However, there are no assurances that there will be
any MBNAseries Available Funds for such allocations.
Targeted Deposits of MBNAseries Available Principal Amounts to the Principal
Funding Account
The amount targeted to be deposited into the principal funding account in any
month will be the sum of the following amounts. However, no amount will be
deposited into the principal funding subaccount for any subordinated note
unless following such deposit the remaining available subordinated amount is
equal to the aggregate unused subordinated amount for all outstanding senior
notes. A tranche of notes may be entitled to more than one of the following
deposits in a particular month:
. Principal Payment Date. For the month before any principal payment date
of a tranche of notes, the deposit targeted for that tranche of notes
for that month is equal to the nominal liquidation amount of that
tranche of notes as of the close of business on the last day of such
month, determined after giving effect to any charge-offs for uncovered
defaults on principal receivables in master trust II and any
reallocations, payments or deposits of MBNAseries Available Principal
Amounts occurring on the following Transfer Date.
. Budgeted Deposits. Each month beginning with the twelfth month before
the expected principal payment date of a tranche of notes, the deposit
targeted to be made into the principal funding subaccount for a tranche
of notes will be one-twelfth of the expected outstanding dollar
principal amount of that tranche of notes as of its expected principal
payment date.
The issuer may postpone the date of the targeted deposits under the
previous sentence. If the issuer and the servicer determine that less
than twelve months would
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be required to accumulate MBNAseries Available Principal Amounts
necessary to pay a tranche of notes on its expected principal payment
date, using conservative historical information about payment rates of
principal receivables under master trust II and after taking into account
all of the other expected payments of principal of master trust II
investor certificates and notes to be made in the next twelve months,
then the start of the targeted deposits may be postponed each month by
one month, with proportionately larger targeted deposits for each month
of postponement.
. Prefunding of the Principal Funding Account for Senior Classes. If the
issuer determines that any date on which principal is payable or to be
deposited into a principal funding subaccount with respect to any
tranche of Class C notes will occur at a time when the payment or
deposit of all or part of that tranche of Class C notes would be
prohibited because it would cause a deficiency in the remaining
available subordination for the Class A notes or Class B notes, the
targeted deposit amount for the Class A notes and Class B notes will be
an amount equal to the portion of the Adjusted Outstanding Dollar
Principal Amount of the Class A notes and Class B notes that would have
to cease to be outstanding in order to permit the payment of or deposit
with respect to that tranche of Class C notes.
If the issuer determines that any date on which principal is payable or
to be deposited into a principal funding subaccount with respect to any
Class B notes will occur at a time when the payment or deposit of all or
part of that tranche of Class B notes would be prohibited because it
would cause a deficiency in the remaining available subordination for
the Class A notes, the targeted deposit amount for the Class A notes
will be an amount equal to the portion of the Adjusted Outstanding
Dollar Principal Amount of the Class A notes that would have to cease to
be outstanding in order to permit the payment of or deposit with respect
to that tranche of Class B notes.
Prefunding of the principal funding subaccount for the senior tranches of
the MBNAseries will continue until:
--enough senior notes are repaid so that the subordinated notes that
are payable are no longer necessary to provide the required
subordination for the outstanding senior notes;
--new subordinated notes are issued so that the subordinated notes that
are payable are no longer necessary to provide the required
subordination for the outstanding senior notes; or
--the principal funding subaccounts for the senior notes are prefunded
so that the subordinated notes that are payable are no longer
necessary to provide the required subordination for the outstanding
senior notes.
For purposes of calculating the prefunding requirements, the required
subordinated amount of a tranche of a senior class of notes of the
MBNAseries will be calculated as described under "The Notes--Issuance of
New Series, Classes and Tranches of Notes--Required Subordinated Amount"
based on its Adjusted Outstanding Dollar Principal Amount on such date.
However, if any early redemption event has occurred
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with respect to the subordinated notes or if the usage of the
subordinated notes with respect to such senior notes is greater than
zero, the required subordinated amount will be calculated based on the
Adjusted Outstanding Dollar Principal Amount of such tranche as of the
close of business on the day immediately preceding the occurrence of such
early redemption event or the date on which the usage of the subordinated
notes exceeds zero.
When the prefunded amounts are no longer necessary, they will be
withdrawn from the principal funding account and applied in accordance
with the description under "--Withdrawals from Principal Funding
Account--Withdrawal of Prefunded Amount." The nominal liquidation amount
of the prefunded tranches will be increased by the amount removed from
the principal funding account.
If any tranche of senior notes becomes payable as a result of an early
redemption event, event of default or other optional or mandatory
redemption, or upon reaching its expected principal payment date, any
prefunded amounts on deposit in its principal funding subaccount will be
paid to noteholders of that tranche and deposits to pay the notes will
continue as necessary to pay that tranche.
. Event of Default, Early Redemption Event or Other Optional or Mandatory
Redemption. If any tranche of notes has been accelerated after the
occurrence of an event of default during that month, or an early
redemption event or other optional or mandatory redemption has occurred
with respect to any tranche of notes, the deposit targeted for that
tranche of notes with respect to that month and each following month
will equal the nominal liquidation amount of that tranche of notes as of
the close of business on the last day of the preceding month, determined
after giving effect to reallocations, payments or deposits occurring on
the Transfer Date with respect to such month.
. Amounts Owed to Derivative Counterparties. If a tranche of U.S. dollar
notes or foreign currency notes that has a Performing or non-Performing
derivative agreement for principal that provides for a payment to the
applicable derivative counterparty, the deposit targeted for that
tranche of notes on each Transfer Date with respect to any payment to
the derivative counterparty will be specified in the MBNAseries
indenture supplement.
Allocation to Principal Funding Subaccounts
MBNAseries Available Principal Amounts, after any reallocation to cover
MBNAseries Available Funds shortfalls, if any, will be allocated each month,
and a portion deposited in the principal funding subaccount established for
each tranche of notes, as follows:
. MBNAseries Available Principal Amounts Equal Targeted Amounts. If
MBNAseries Available Principal Amounts remaining after giving effect to
clauses one through four under "--Application of MBNAseries Available
Principal Amounts" are equal to the sum of the deposits targeted by each
tranche of notes, then the applicable targeted amount will be deposited
in the principal funding subaccount established for each tranche.
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. MBNAseries Available Principal Amounts Are Less Than Targeted
Amounts. If MBNAseries Available Principal Amounts remaining after
giving effect to clauses one through four under "--Application of
MBNAseries Available Principal Amounts" are less than the sum of the
deposits targeted by each tranche of notes, then MBNAseries Available
Principal Amounts will be deposited in the principal funding subaccounts
for each tranche in the following priority:
--first, the amount available will be allocated to the Class A notes,
--second, the amount available after the application above will be
allocated to the Class B notes, and
--third, the amount available after the applications above will be
allocated to the Class C notes.
In each case, MBNAseries Available Principal Amounts allocated to a class
will be allocated to each tranche of notes within such class pro rata based on
the ratio of:
--the amount targeted to be deposited into the principal funding
subaccount for the applicable tranche of such class, to
--the aggregate amount targeted to be deposited into the principal
funding subaccount for all tranches of such class.
If restrictions in "--Limit on Deposits to the Principal Funding Subaccount
of Subordinated Notes; Limit on Repayments of all Tranches" prevent the deposit
of MBNAseries Available Principal Amounts into the principal funding subaccount
of any subordinated note, the aggregate amount of MBNAseries Available
Principal Amounts available to make the targeted deposit for such subordinated
tranche will be allocated first to the Class A notes and then to the Class B
notes, in each case pro rata based on the dollar amount of subordinated notes
required to be outstanding for the related senior notes. See "--Targeted
Deposits of MBNAseries Available Principal Amounts to the Principal Funding
Account."
Limit on Deposits to the Principal Funding Subaccount of Subordinated Notes;
Limit on Repayments of all Tranches
Limit on Deposits to the Principal Funding Subaccount of Subordinated Notes.
No MBNAseries Available Principal Amounts will be deposited in the principal
funding subaccount of any tranche of Class B notes unless, following such
deposit, the available subordinated amount of Class B notes is at least equal
to the required subordinated amount of Class B notes for all outstanding Class
A notes minus the Class A Usage of the Class B Required Subordinated Amount for
all Class A notes. For this purpose, the available subordinated amount of Class
B notes is equal to the aggregate nominal liquidation amounts of all other
Class B notes of the MBNAseries which will be outstanding after giving effect
to the deposit into the principal funding subaccount of such tranche of Class B
notes and all other Class B notes which have a targeted deposit into the
principal funding account for such month.
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No MBNAseries Available Principal Amounts will be deposited in the principal
funding subaccount of any tranche of Class C notes unless, following such
deposit:
--the available subordinated amount of Class C notes is at least equal to
the required subordinated amount of Class C notes for all outstanding
Class A notes minus the Class A Usage of the Class C Required
Subordinated Amount for all Class A notes; and
--the available subordinated amount of Class C notes is at least equal to
the required subordinated amount of Class C notes for all outstanding
Class B notes minus the Class B Usage of the Class C Required
Subordinated Amount for all Class B notes.
For this purpose, the available subordinated amount of Class C notes is equal
to the aggregate nominal liquidation amounts of all other Class C notes of the
MBNAseries which will be outstanding after giving effect to the deposit into
the principal funding subaccount of such tranche of Class C notes and all other
Class C notes which have a targeted deposit into the principal funding account
for such month.
MBNAseries Available Principal Amounts will be deposited in the principal
funding subaccount of a subordinated note if and only to the extent that such
deposit is not contrary to either of the preceding two paragraphs and the
prefunding target amount for each senior note is zero.
Limit on Repayments of all Tranches.
No amounts on deposit in a principal funding subaccount for any tranche of
Class A notes or Class B notes will be applied to pay principal of that tranche
or to make a payment under a derivative agreement with respect to principal of
that tranche in excess of the highest outstanding dollar principal amount of
that tranche (or, in the case of foreign currency notes, such other amount that
may be specified in the MBNAseries indenture supplement). In the case of any
tranche of Class C notes, no amounts on deposit in a principal funding
subaccount or, if applicable, a Class C reserve subaccount for any such tranche
will be applied to pay principal of that tranche or to make a payment under a
derivative agreement with respect to principal of that tranche in excess of the
highest outstanding dollar principal amount of that tranche (or, in the case of
foreign currency notes, such other amount that may be specified in the
MBNAseries indenture supplement).
Payments Received from Derivative Counterparties for Principal
Unless otherwise specified in the related indenture supplement, dollar
payments for principal received under derivative agreements of U.S. dollar
notes in the MBNAseries will be treated as MBNAseries Available Principal
Amounts. Payments received under derivative agreements for principal of foreign
currency notes in the MBNAseries will be applied as specified in the MBNAseries
indenture supplement.
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Deposits of Withdrawals from the Class C Reserve Account to the Principal
Funding Account
Withdrawals from any Class C reserve subaccount will be deposited into the
principal funding subaccount for the applicable tranche of Class C notes to the
extent required pursuant to the MBNAseries indenture supplement.
Withdrawals from Interest Funding Subaccounts
After giving effect to all deposits of funds to the interest funding account
in a month, the following withdrawals from the applicable interest funding
subaccount may be made, to the extent funds are available, in the applicable
interest funding subaccount. A tranche of notes may be entitled to more than
one of the following withdrawals in a particular month:
. Withdrawals for U.S. Dollar Notes. On each applicable interest payment
date for each tranche of U.S. dollar notes, an amount equal to interest
due on the applicable tranche of notes on the applicable interest
payment date (including any overdue interest payments and additional
interest on overdue interest payments) will be withdrawn from that
interest funding subaccount and paid to the applicable paying agent.
. Withdrawal for Foreign Currency Notes with a Non-Performing Derivative
Agreement. On each applicable interest payment date with respect to a
tranche of foreign currency notes that has a non-Performing derivative
agreement for interest, the amount specified in the MBNAseries indenture
supplement will be withdrawn from that interest funding subaccount and,
if so specified in the applicable indenture supplement, converted to the
applicable foreign currency at the applicable spot exchange rate and
remitted to the applicable paying agent.
. Withdrawals for Discount Notes. On each applicable principal payment
date, with respect to each tranche of discount notes, an amount equal to
the amount of the accretion of principal of that tranche of notes from
the prior principal payment date-- or, in the case of the first
principal payment date, the date of issuance of that tranche--to but
excluding the applicable principal payment date will be withdrawn from
that interest funding subaccount and invested in the Investor Interest
of the collateral certificate.
. Withdrawals for Payments to Derivative Counterparties. On each date on
which a payment is required under the applicable derivative agreement,
with respect to any tranche of notes that has a Performing or non-
Performing derivative agreement for interest, an amount equal to the
amount of the payment to be made under the applicable derivative
agreement (including, if applicable, any overdue payment and any
additional interest on overdue payments) will be withdrawn from that
interest funding subaccount and paid in accordance with the MBNAseries
indenture supplement.
If the aggregate amount available for withdrawal from an interest funding
subaccount is less than all withdrawals required to be made from that
subaccount in a month after giving
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effect to all deposits, then the amounts on deposit in that interest funding
subaccount will be withdrawn and, if payable to more than one person, applied
pro rata based on the amounts of the withdrawals required to be made. After
payment in full of any tranche of notes, any amount remaining on deposit in the
applicable interest funding subaccount will be first applied to cover any
interest funding subaccount shortfalls for other tranches of notes in the
manner described in "--Allocation to Interest Funding Subaccounts," second
applied to cover any principal funding subaccount shortfalls in the manner
described in "--Allocation to Principal Funding Subaccounts," and third paid to
the issuer.
Withdrawals from Principal Funding Account
After giving effect to all deposits of funds to the principal funding account
in a month, the following withdrawals from the applicable principal funding
subaccount will be made to the extent funds are available in the applicable
principal funding subaccount. A tranche of notes may be entitled to more than
one of the following withdrawals in a particular month:
. Withdrawals for U.S. Dollar Notes with no Derivative Agreement for
Principal. On each applicable principal payment date, with respect to
each tranche of U.S. dollar notes that has no derivative agreement for
principal, an amount equal to the principal due on the applicable
tranche of notes on the applicable principal payment date will be
withdrawn from the applicable principal funding subaccount and paid to
the applicable paying agent.
. Withdrawals for U.S. Dollar or Foreign Currency Notes with a Performing
Derivative Agreement for Principal. On each date on which a payment is
required under the applicable derivative agreement with respect to any
tranche of U.S. dollar or foreign currency notes that has a Performing
derivative agreement for principal, an amount equal to the amount of the
payment to be made under the applicable derivative agreement will be
withdrawn from the applicable principal funding subaccount and paid to
the applicable derivative counterparty. The issuer will direct the
applicable derivative counterparty to remit its payments under the
applicable derivative agreement to the applicable paying agent.
. Withdrawals for Foreign Currency Notes with non-Performing Derivative
Agreement for Principal. On each principal payment date with respect to
a tranche of foreign currency notes that has a non-Performing derivative
agreement for principal, an amount equal to the amount specified in the
applicable indenture supplement will be withdrawn from that principal
funding subaccount and, if so specified in the applicable indenture
supplement, converted to the applicable foreign currency at the
prevailing spot exchange rate and paid to the applicable paying agent.
Any excess dollar amount will be retained on deposit in the applicable
principal funding subaccount to be applied to make principal payments on
later principal payment dates.
. Withdrawals for U.S. Dollar Notes with a non-Performing Derivative
Agreement for Principal. On each principal payment date with respect to
a tranche of U.S. dollar notes with a non-Performing derivative
agreement for principal, the amount specified
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in the applicable indenture supplement will be withdrawn from the
applicable principal funding subaccount and paid to the applicable paying
agent.
. Withdrawal of Prefunded Amount. If prefunding of the principal funding
subaccounts for senior classes of notes is no longer necessary as a
result of payment of senior notes or issuance of additional subordinated
notes, as described under "--Targeted Deposits of Available Principal
Amounts to the Principal Funding Account--Prefunding of the Principal
Funding Account for Senior Classes," the prefunded amounts will be
withdrawn from the principal funding account and first, allocated among
and deposited to the principal funding subaccounts of the Class A notes
up to the amount then targeted to be on deposit in such principal
funding subaccount; second, allocated among and deposited to the
principal funding subaccounts of the Class B notes up to the amount then
targeted to be on deposit in such principal funding subaccount; third,
allocated among and deposited to the principal funding subaccount of the
Class C notes up to the amount then targeted to be on deposit in such
principal funding subaccount; and fourth, any remaining amounts paid to
master trust II to increase the Investor Interest of the collateral
certificate.
. Withdrawals on the Legal Maturity Date. On the legal maturity date of
any tranche of notes, amounts on deposit in the principal funding
subaccount of such tranche may be applied to pay principal of that
tranche or to make a payment under a derivative agreement with respect
to principal of that tranche.
If the aggregate amount available for withdrawal from a principal funding
subaccount for any tranche of notes is less than all withdrawals required to be
made from that principal funding subaccount for that tranche in a month, then
the amounts on deposit will be withdrawn and applied pro rata based on the
amounts of the withdrawals required to be made. Upon payment in full of any
tranche of notes, any remaining amount on deposit in the applicable principal
funding subaccount will be first applied to cover any interest funding
subaccount shortfalls for other tranches of notes, second applied to cover any
principal funding subaccount shortfalls, and third paid to the issuer.
Sale of Credit Card Receivables
Credit card receivables may be sold upon the insolvency of MBNA, upon an
event of default and acceleration with respect to a tranche of notes and on the
legal maturity date of a tranche of notes. See "The Indenture--Events of
Default" and "Master Trust II--Pay Out Events" in the prospectus.
If a tranche of notes has an event of default and is accelerated before its
legal maturity date, master trust II may sell credit card receivables in an
amount up to the nominal liquidation amount of the affected tranche plus any
accrued, past due or additional interest on the affected tranche if the
conditions described in "Indenture--Events of Default" in the prospectus are
satisfied. This sale will take place at the option of the indenture trustee or
at the direction of the holders of a majority of aggregate outstanding dollar
principal amount of notes of that tranche. However, a sale will only be
permitted if at least one of the following conditions is met:
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. the holders of 90% of the aggregate outstanding dollar principal amount
of the accelerated tranche of notes consent;
. the net proceeds of such sale (plus amounts on deposit in the applicable
subaccounts and payments to be received from any applicable derivative
agreement) would be sufficient to pay all amounts due on the accelerated
tranche of notes; or
. if the indenture trustee determines that the funds to be allocated to
the accelerated tranche of notes, including MBNAseries Available Funds
and MBNAseries Available Principal Amounts allocable to the accelerated
tranche of notes, payments to be received from any applicable derivative
agreement and amounts on deposit in the applicable subaccounts, may not
be sufficient on an ongoing basis to make all payments on the
accelerated tranche of notes as such payments would have become due if
such obligations had not been declared due and payable, and 66 2/3% of
the noteholders of the accelerated tranche of notes consent to the sale.
Any sale of receivables for a subordinated tranche of notes will be delayed
if the subordination provisions prevent payment of the accelerated tranche
until a sufficient amount of senior classes of notes are prefunded, or a
sufficient amount of senior notes have been repaid, or a sufficient amount of
subordinated tranches have been issued, in each case, to the extent that the
accelerated tranche of notes is no longer needed to provide the required
subordination for the senior classes.
If principal of or interest on a tranche of notes has not been paid in full
on its legal maturity date (after giving effect to any allocations, deposits
and distributions to be made on such date), the sale will automatically take
place on that date regardless of the subordination requirements of any senior
classes of notes. Proceeds from such a sale will be immediately paid to the
noteholders of the related tranche.
The amount of credit card receivables sold will be up to the nominal
liquidation amount of, plus any accrued, past due and additional interest on,
the tranches of notes that directed the sale to be made. The nominal
liquidation amount of any tranche of notes that directed the sale to be made
will be automatically reduced to zero upon such sale. After such sale, no more
MBNAseries Available Principal Amounts or MBNAseries Available Funds will be
allocated to that tranche.
If a tranche of notes directs a sale of credit card receivables, then after
the sale that tranche will no longer be entitled to credit enhancement from
subordinated classes of notes of the same series. Tranches of notes that have
directed sales of credit card receivables are not outstanding under the
indenture.
After giving effect to a sale of receivables for a tranche of notes, the
amount of proceeds may be less than the outstanding dollar principal amount of
that tranche. This deficiency can arise because of a Nominal Liquidation Amount
Deficit or if the sale price for the receivables was less than the outstanding
dollar principal amount. These types of deficiencies will not be reimbursed
unless, in the case of Class C notes only, there are sufficient amounts in the
related Class C reserve subaccount.
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Any amount remaining on deposit in the interest funding subaccount for a
tranche of notes that has received final payment as described in "--Final
Payment of the Notes" and that has caused a sale of receivables will be treated
as MBNAseries Available Funds and be allocated as described in "--Application
of MBNAseries Available Funds."
Targeted Deposits to the Class C Reserve Account
The Class C reserve account will be funded on each Transfer Date, as
necessary, from MBNAseries Available Funds as described under "--Application of
MBNAseries Available Funds." The aggregate deposit targeted to be made to the
Class C reserve account in each month will be the sum of the Class C reserve
subaccount deposits targeted to be made for each tranche of Class C notes as
required under the MBNAseries indenture supplement.
Withdrawals from the Class C Reserve Account
Withdrawals will be made from the Class C reserve account in the amount and
manner required under the MBNAseries indenture supplement.
Targeted Deposits to the Accumulation Reserve Account
If more than one budgeted deposit is targeted for a tranche, the accumulation
reserve subaccount will be funded for such tranche no later than three months
prior to the date on which a budgeted deposit is first targeted for such
tranche as described under "Deposit and Application of Funds--Targeted Deposits
of MBNAseries Available Principal Amounts to the Principal Funding Account."
The accumulation reserve subaccount for a tranche of notes will be funded on
each Transfer Date, as necessary, from MBNAseries Available Funds as described
under "--Application of MBNAseries Available Funds." The aggregate deposit
targeted to be made to the accumulation reserve account in each month will be
the sum of the accumulation reserve subaccount deposits targeted to be made for
each tranche of notes.
If the aggregate amount of MBNAseries Available Funds available for deposit
to the accumulation reserve account is less than the sum of the targeted
deposits for each tranche of notes, then the amount available will be allocated
to each tranche of notes up to the targeted deposit pro rata based on the ratio
of the Weighted Average Available Funds Allocation Amount for that tranche for
that month to the Weighted Average Available Funds Allocation Amount for all
tranches of notes that have a targeted deposit to their accumulation reserve
subaccounts for that month. After the initial allocation, any excess will be
further allocated in a similar manner to those accumulation reserve subaccounts
which still have an uncovered targeted deposit.
Withdrawals from the Accumulation Reserve Account
Withdrawals will be made from the accumulation reserve subaccounts, but in no
event more than the amount on deposit in the applicable accumulation reserve
subaccount, in the following order:
S-49
. Interest. On or prior to each Transfer Date, the issuer will calculate
for each tranche of notes the amount of any shortfall of net investment
earnings for amounts on deposit in the principal funding subaccount for
that tranche (other than prefunded amounts) over the amount of interest
that would have accrued on such deposit if that tranche had borne
interest at the applicable note interest rate (or other rate specified in
the MBNAseries indenture supplement) for the prior month. If there is any
such shortfall for that Transfer Date, or any unpaid shortfall from any
earlier Transfer Date, the issuer will withdraw the sum of those amounts
from the accumulation reserve subaccount, to the extent available, for
treatment as MBNAseries Available Funds for such month.
. Payment to Issuer. Upon payment in full of any tranche of notes, any
amount on deposit in the applicable accumulation reserve subaccount will
be paid to the Issuer.
Final Payment of the Notes
Noteholders are entitled to payment of principal in an amount equal to the
outstanding dollar principal amount of their respective notes. However,
MBNAseries Available Principal Amounts will be allocated to pay principal on
the notes only up to their nominal liquidation amount, which will be reduced
for charge-offs due to uncovered defaults of principal receivables in master
trust II and reallocations of MBNAseries Available Principals Amounts to pay
interest on senior classes of notes or a portion of the master trust II
servicing fee allocable to such notes. In addition, if a sale of receivables
occurs, as described in "--Sale of Credit Card Receivables," the amount of
receivables sold will be limited to the nominal liquidation amount of, plus any
accrued, past due or additional interest on, the related tranche of notes. If
the nominal liquidation amount of a tranche has been reduced, noteholders of
such tranche will receive full payment of principal only to the extent proceeds
from the sale of receivables are sufficient to pay the full principal amount,
amounts are received from an applicable derivative agreement or amounts have
been previously deposited in an issuer account for such tranche of notes.
On the date of a sale of receivables, the proceeds of such sale will be
available to pay the outstanding dollar principal amount of, plus any accrued,
past due and additional interest on, that tranche.
A tranche of notes will be considered to be paid in full, the holders of
those notes will have no further right or claim, and the issuer will have no
further obligation or liability for principal or interest, on the earliest to
occur of:
. the date of the payment in full of the stated principal amount of and
all accrued, past due and additional interest on that tranche of notes;
. the date on which the outstanding dollar principal amount of that
tranche of notes is reduced to zero, and all accrued, past due or
additional interest on that tranche of notes is paid in full;
S-50
. the legal maturity date of that tranche of notes, after giving effect to
all deposits, allocations, reallocations, sales of credit card
receivables and payments to be made on that date; or
. the date on which a sale of receivables has taken place with respect to
such tranche, as described in "--Sale of Credit Card Receivables."
Pro Rata Payments Within a Tranche
All notes of a tranche will receive payments of principal and interest pro
rata based on the stated principal amount of each note in that tranche.
Shared Excess Available Funds
MBNAseries Available Funds for any month remaining after making the seventh
application described under "--Application of MBNAseries Available Funds" will
be available for allocation to other series of notes in Group A. Such excess
including excesses, if any, from other series of notes in Group A, called
shared excess available funds, will be allocated to cover certain shortfalls in
Available Funds for the series in Group A, if any, which have not been covered
out of Available Funds allocable to such series. If these shortfalls exceed
shared excess available funds for any month, shared excess available funds will
be allocated pro rata among the applicable series in Group A based on the
relative amounts of those shortfalls in Available Funds. To the extent that
shared excess available funds exceed those shortfalls, the balance will be paid
to the issuer. For the MBNAseries, shared excess available funds, to the extent
available and allocated to the MBNAseries, will cover shortfalls in the first
four applications described in "--Application of MBNAseries Available Funds."
MBNA and MBNA Corporation
MBNA America Bank, National Association (referred to in this prospectus
supplement as MBNA) is a wholly-owned subsidiary of MBNA Corporation. MBNA has
two wholly owned foreign bank subsidiaries, MBNA Europe Bank Limited located in
the United Kingdom and MBNA Canada Bank, located in Canada.
On a managed basis, including loans originated by MBNA Europe Bank Limited
and MBNA Canada Bank, MBNA maintained loan accounts with aggregate outstanding
balances of $86.7 billion as of March 31, 2001. Of this amount, $68.3 billion
were MasterCard and VISA credit card loans originated in the United States. As
of March 31, 2001, MBNA had assets of $37.2 billion, deposits of $24.8 billion
and capital and surplus accounts of $5.8 billion, and MBNA Corporation had
consolidated assets of $39.3 billion, consolidated deposits of $24.2 billion
and capital and surplus accounts of $6.8 billion.
S-51
MBNA's Credit Card Portfolio
Billing and Payments
MBNA, using MBNA Hallmark Information Services, Inc. as its service bureau,
generates and mails to cardholders monthly statements summarizing account
activity and processes cardholder monthly payments. Generally, cardholders must
make a monthly minimum payment at least equal to the lesser of (i) the sum of
all finance charges, bank imposed fees, a stated minimum amount (generally $15)
and past due amounts or (ii) 2.25% of the statement balance plus past due
amounts, but generally not less than $15. Certain eligible cardholders are
given the option periodically to take a payment deferral.
The finance charges on purchases, which are assessed monthly, are calculated
by multiplying the account's average daily purchase balance by the applicable
daily periodic rate, and multiplying the result by the number of days in the
billing cycle. Finance charges are calculated on purchases from the date of the
purchase or the first day of the billing cycle in which the purchase is posted
to the account, whichever is later. Monthly periodic finance charges are not
assessed in most circumstances on new purchases if all balances shown on the
previous billing statement are paid by the due date, which is generally at
least 25 days after the billing date. Monthly periodic finance charges are not
assessed in most circumstances on previous purchases if all balances shown on
the two previous billing statements are paid by their respective due dates.
The finance charges, which are assessed monthly on cash advances (including
balance transfers), are calculated by multiplying the account's average cash
advance balance by the applicable daily periodic rate, and multiplying the
result by the number of days in the billing cycle. Finance charges are
calculated on cash advances (including balance transfers) from the date of the
transaction. Currently, MBNA generally treats the day on which a cash advance
check is deposited or cashed as the transaction date for such check.
MBNA offers fixed rate and variable rate credit card accounts. MBNA also
offers temporary promotional rates.
MBNA assesses annual membership fees on certain accounts although under
various marketing programs these fees may be waived or rebated. For most credit
card accounts, MBNA also assesses late, overlimit and returned check charges.
MBNA generally assesses a fee on cash advances and certain purchase
transactions.
Delinquencies and Collection Efforts
An account is contractually delinquent if the minimum payment is not received
by the due date indicated on the customer's statement. Efforts to collect
contractually delinquent credit card receivables currently are made by MBNA's
Customer Assistance personnel. Collection activities include statement
messages, telephone calls and formal collection letters. MBNA employs two
principal computerized systems for collecting past due accounts. The Predictive
Management System analyzes each cardholder's purchase and repayment habits and
selects accounts for initial contact with the objective of contacting the
highest risk
S-52
accounts first. The accounts selected are queued to MBNA's proprietary Outbound
Call Management System. This system sorts accounts by a number of factors,
including time zone, degree of delinquency and dollar amount due, and
automatically dials delinquent accounts in order of priority. Representatives
are automatically linked to the cardholder's account information and voice line
when a contact is established.
Accounts are worked continually at each stage of delinquency through the end
of the month in which the account falls 180 day past due. As an account enters
the 180 day delinquency level, it is classified as a potential charge-off.
Accounts failing to make a payment by the end of the month in which the account
falls 180 days past due are written off. Managers may defer a charge-off of an
account for another month, pending continued payment activity or other special
circumstances. Senior manager approval is required on all exceptions to charge-
off. Accounts of cardholders in bankruptcy are currently charged-off no later
than is consistent with this policy.
The Master Trust II Portfolio
The receivables conveyed to master trust II arise in accounts selected from
the Bank Portfolio on the basis of criteria set forth in master trust II
agreement as applied on the Cut-Off Date and, with respect to additional
accounts, as of the related date of their designation. The receivables in
master trust II may include receivables that are contractually delinquent. The
seller has the right, subject to certain limitations and conditions set forth
therein, to designate from time to time additional accounts and to transfer to
master trust II all receivables of such additional accounts. Any additional
accounts designated must be Eligible Accounts as of the date the seller
designates such accounts as additional accounts.
Delinquency and Principal Charge-Off Experience
Minimum scheduled payments for the accounts are generally due 25 days from
the end of the last billing cycle. A credit card account is contractually
delinquent if less than 90% of the minimum payment is made by the payment due
date. For collection purposes, however, an account is considered delinquent if
at least 90% of the minimum payment required to be made is not received by MBNA
within 5 days after the due date reflected in the respective monthly billing
statement. Upon receipt of 3 consecutive payments on their respective due
dates, delinquent accounts may qualify to be redesignated as non-delinquent.
S-53
The following tables sets forth the delinquency experience for cardholder
payments on the credit card accounts in the Master Trust II Portfolio for each
of the periods shown. The receivables outstanding on the accounts consist of
all amounts due from cardholders as posted to the accounts as of the end of the
period shown. We cannot provide any assurance that the delinquency experience
for the receivables in the future will be similar to the historical experience
set forth below.
Delinquency Experience
Master Trust II Portfolio
(Dollars in Thousands)
March 31, December 31,
----------------------- -----------------------------------------------
2001 2000 1999
----------------------- ----------------------- -----------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- -----------
Receivables
Outstanding............ $58,072,403 $58,611,594 $51,032,411
Receivables
Delinquent:
30-59 Days............. $ 1,013,960 1.75% $ 1,024,175 1.75% $ 817,374 1.60%
60-89 Days............. 619,948 1.07 583,768 1.00 482,084 0.94
90 or More............. 1,212,782 2.08 1,158,371 1.97 1,064,669 2.09
----------- ---- ----------- ---- ----------- ----
Total.................. $ 2,846,690 4.90% $ 2,766,314 4.72% $ 2,364,127 4.63%
=========== ==== =========== ==== =========== ====
December 31,
-----------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- -----------
Receivables
Outstanding............ $42,099,780 $35,542,445 $23,743,488
Receivables
Delinquent:
30-59 Days............. $ 756,062 1.80% $ 671,313 1.89% $ 433,068 1.82%
60-89 Days............. 416,500 0.99 329,087 0.93 204,156 0.86
90 or More............. 914,003 2.17 708,755 1.99 436,245 1.84
----------- ---- ----------- ---- ----------- ----
Total.................. $ 2,086,565 4.96% $ 1,709,155 4.81% $ 1,073,469 4.52%
=========== ==== =========== ==== =========== ====
S-54
The following tables set forth the principal charge-off experience for
cardholder payments on the credit card accounts in the Master Trust II
Portfolio for each of the periods shown. Charge-offs consist of write-offs of
principal receivables. If accrued finance charge receivables that have been
written off were included in total charge-offs, total charge-offs would be
higher as an absolute number and as a percentage of the average of principal
receivables outstanding during the periods indicated. Average principal
receivables outstanding is the average of the daily principal receivables
balance during the periods indicated. We cannot provide any assurance that the
charge-off experience for the receivables in the future will be similar to the
historical experience set forth below.
Principal Charge-Off Experience
Master Trust II Portfolio
(Dollars in Thousands)
Three Months Year Ended December 31,
Ended March 31, ------------------------
2001 2000 1999
--------------- ----------- -----------
Average Principal Receivables
Outstanding........................ $56,939,061 $52,869,754 $44,034,527
Total Charge-Offs................... $ 681,996 $ 2,697,976 $ 2,172,404
Total Charge-Offs as a percentage of
Average Principal Receivables
Outstanding........................ 4.79% 5.10% 4.93%
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
Average Principal Receivables
Outstanding........................... $36,987,103 $28,445,493 $16,934,810
Total Charge-Offs...................... $ 1,843,986 $ 1,330,140 $ 672,553
Total Charge-Offs as a percentage of
Average Principal Receivables
Outstanding........................... 4.99% 4.68% 3.97%
Total charge-offs are total principal charge-offs before recoveries and do
not include any charge-offs of finance charge receivables or the amount of any
reductions in average daily principal receivables outstanding due to fraud,
returned goods, customer disputes or other miscellaneous adjustments.
In 1999, the Federal Financial Institutions Examination Counsel published a
revised policy statement on the classification of consumer loans. The revised
policy statement establishes uniform guidelines for charge-off of loans to
delinquent, bankrupt and deceased borrowers, for charge-off of fraudulent
accounts, and for re-aging. MBNA implemented the guidelines in December 2000.
In doing so, MBNA accelerated charge-off of some delinquent loans. The one time
acceleration caused the reported charge-off rate for the month of December 2000
for master trust II to increase by 5.34%.
Revenue Experience
The following table sets forth the revenue experience for the credit card
accounts from finance charges, fees paid and interchange in the Master Trust II
Portfolio for each of the periods shown.
S-55
The revenue experience in the following table is calculated on a cash basis.
Yield from finance charges and fees is the result of dividing finance charges
and fees by average daily principal receivables outstanding during the periods
indicated. Finance charges and fees are comprised of monthly cash collections
of periodic finance charges and other credit card fees including Interchange.
Revenue Experience
Master Trust II Portfolio
(Dollars in Thousands)
Year Ended December
Three Months 31,
Ended March 31, -----------------------
2001 2000 1999
--------------- ----------- ----------
Finance Charges and Fees.............. $2,866,486 $10,122,205 $8,121,775
Yield from Finance Charges and Fees... 20.14% 19.15% 18.44%
Year Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Finance Charges and Fees.................... $6,737,139 $4,951,621 $2,893,047
Yield from Finance Charges and Fees......... 18.21% 17.41% 17.08%
The yield on a cash basis will be affected by numerous factors, including the
monthly periodic finance charges on the receivables, the amount of the annual
membership fees and other fees, changes in the delinquency rate on the
receivables, the percentage of cardholders who pay their balances in full each
month and do not incur monthly periodic finance charges, the percentage of
credit card accounts bearing finance charges at promotional rates and changes
in the level of delinquencies on the receivables. See "Risk Factors" in the
prospectus.
The revenue from periodic finance charges and fees--other than annual fees--
depend in part upon the collective preference of cardholders to use their
credit cards as revolving debt instruments for purchases and cash advances and
to pay account balances over several months--as opposed to convenience use,
where cardholders pay off their entire balance each month, thereby avoiding
periodic finance charges on their purchases--and upon other credit card related
services for which the cardholder pays a fee. Fees for these other services
will be treated for purposes of the master trust II agreement as principal
receivables rather than finance charge receivables; however, MBNA may specify
that it will treat these fees as finance charge receivables. Revenues from
periodic finance charges and fees also depend on the types of charges and fees
assessed on the credit card accounts. Accordingly, revenue will be affected by
future changes in the types of charges and fees assessed on the accounts and on
the types of additional accounts added from time to time. These revenues could
be adversely affected by future changes in fees and charges assessed by MBNA
and other factors. See "MBNA's Credit Card Activities" in the prospectus.
S-56
Interchange
MBNA, as seller, will transfer to master trust II a percentage of the
interchange attributed to cardholder charges for goods and services in the
accounts of master trust II. Interchange will be allocated to each series of
master trust II investor certificates based on such series's pro rata portion
as measured by its Investor Interest of cardholder charges for goods and
services in the accounts of master trust II relative to the total amount of
cardholder charges for goods and services in the MasterCard and VISA credit
card accounts owned by MBNA, as reasonably estimated by the seller.
MasterCard and VISA may from time to time change the amount of interchange
reimbursed to banks issuing their credit cards. Interchange will be treated as
collections of finance charge receivables. Under the circumstances described
herein, interchange will be used to pay a portion of the Investor Servicing Fee
required to be paid on each Transfer Date. See "Master Trust II--Servicing
Compensation and Payment of Expenses" and "MBNA's Credit Card Activities--
Interchange" in the prospectus.
Principal Payment Rates
The following table sets forth the highest and lowest cardholder monthly
principal payment rates for the Master Trust II Portfolio during any month in
the periods shown and the average cardholder monthly principal payment rates
for all months during the periods shown, in each case calculated as a
percentage of total beginning monthly account principal balances during the
periods shown. Principal payment rates shown in the table are based on amounts
which are deemed payments of principal receivables with respect to the
accounts.
Cardholder Monthly Principal Payment Rates
Master Trust II Portfolio
Three Months Year Ended December 31,
Ended ----------------------------------
March 31, 2001 2000 1999 1998 1997 1996
-------------- ------ ------ ------ ------ ------
Lowest Month.................. 12.28% 12.21% 12.56% 11.47% 11.02% 9.30%
Highest Month................. 13.40% 14.05% 13.61% 13.43% 13.00% 11.52%
Monthly Average............... 13.00% 13.01% 13.17% 12.59% 11.62% 10.36%
Generally, cardholders must make a monthly minimum payment at least equal to
the lesser of (i) the sum of all finance charges, bank imposed fees, a stated
minimum amount (generally $15) and past due amounts or (ii) 2.25% of the
statement balance plus past due amounts, but generally not less than $15.
Certain eligible cardholders are given the option periodically to take a
payment deferral. We cannot assure you that the cardholder monthly principal
payment rates in the future will be similar to the historical experience set
forth above. In addition, the amount of collections of receivables may vary
from month to month due to seasonal variations, general economic conditions and
payment habits of individual cardholders.
S-57
MBNA, as seller, has the right, subject to certain limitations and
conditions, to designate certain removed credit card accounts and to require
the master trust II trustee to reconvey all receivables in such removed credit
card accounts to the seller. Once an account is removed, receivables existing
or guaranteed under that credit card account are not transferred to master
trust II.
As of the beginning of the day on April 30, 2001:
. the Master Trust II Portfolio included $58,107,360,089 of principal
receivables and $1,515,415,888 of finance charge receivables;
. the credit card accounts had an average principal receivable balance of
$1,395 and an average credit limit of $12,053;
. the percentage of the aggregate total receivable balance to the
aggregate total credit limit was 11.9%;
. the average age of the credit card accounts was approximately 56
months; and
. cardholders whose accounts are included in the Master Trust II
Portfolio had billing addresses in all 50 States and the District of
Columbia.
The following tables summarize the Master Trust II Portfolio by various
criteria as of the beginning of the day on April 30, 2001. Because the future
composition of the Master Trust II Portfolio may change over time, these tables
do not describe the composition of the Master Trust II Portfolio at any future
time.
Composition by Account Balance
Master Trust II Portfolio
Percentage
of Percentage
Number Total Number of Total
Account Balance Range of Accounts of Accounts Receivables Receivables
- --------------------- ----------- ------------ --------------- -----------
Credit Balance............ 589,299 1.4% $ (67,142,519) (0.1)%
No Balance................ 25,710,281 61.7 0 0.0
$ .01-$ 5,000.00..... 11,020,579 26.5 15,068,066,725 25.3
$ 5,000.01-$10,000.00..... 2,767,133 6.6 19,516,265,975 32.7
$10,000.01-$15,000.00..... 920,318 2.2 11,122,494,745 18.7
$15,000.01-$20,000.00..... 355,199 0.9 6,095,656,425 10.2
$20,000.01-$25,000.00..... 170,686 0.4 3,818,813,996 6.4
$25,000.01 or More........ 119,289 0.3 4,068,620,630 6.8
---------- ----- --------------- -----
Total................... 41,652,784 100.0% $59,622,775,977 100.0%
========== ===== =============== =====
S-58
Composition by Credit Limit
Master Trust II Portfolio
Percentage
of Total Percentage
Number Number of of Total
Credit Limit Range of Accounts Accounts Receivables Receivables
- ------------------ ----------- ---------- --------------- -----------
Less than or equal to
$5,000.00................. 7,846,578 18.8% $ 4,652,736,126 7.8%
$ 5,000.01-$10,000.00...... 12,486,555 30.0 16,270,420,238 27.3
$10,000.01-$15,000.00...... 9,478,636 22.8 13,481,588,763 22.6
$15,000.01-$20,000.00...... 5,500,306 13.2 9,090,771,993 15.2
$20,000.01-$25,000.00...... 4,510,181 10.8 9,051,714,836 15.2
$25,000.01 or More......... 1,830,528 4.4 7,075,544,021 11.9
---------- ----- --------------- -----
Total.................... 41,652,784 100.0% $59,622,775,977 100.0%
========== ===== =============== =====
Composition by Period of Delinquency
Master Trust II Portfolio
Percentage
of Total Percentage
Period of Delinquency (Days Number Number of of Total
Contractually Delinquent) of Accounts Accounts Receivables Receivables
- --------------------------- ----------- ---------- --------------- -----------
Not Delinquent............. 40,393,470 97.0% $52,520,667,218 88.1%
Up to 29 Days.............. 752,274 1.8 4,044,296,463 6.8
30 to 59 Days.............. 205,075 0.5 1,147,019,545 1.9
60 to 89 Days.............. 105,928 0.2 635,650,076 1.1
90 or More Days............ 196,037 0.5 1,275,142,675 2.1
---------- ----- --------------- -----
Total.................... 41,652,784 100.0% $59,622,775,977 100.0%
========== ===== =============== =====
Composition by Account Age
Master Trust II Portfolio
Percentage
of Total Percentage
Number Number of of Total
Account Age of Accounts Accounts Receivables Receivables
- ----------- ----------- ---------- --------------- -----------
Not More than 6 Months..... 2,119,632 5.1% $ 2,389,246,595 4.0%
Over 6 Months to 12
Months.................... 2,845,687 6.8 3,589,497,726 6.0
Over 12 Months to 24
Months.................... 5,526,576 13.3 7,400,776,068 12.4
Over 24 Months to 36
Months.................... 5,594,745 13.4 6,394,014,369 10.7
Over 36 Months to 48
Months.................... 6,148,817 14.8 6,349,765,667 10.7
Over 48 Months to 60
Months.................... 5,657,468 13.6 7,237,594,788 12.1
Over 60 Months to 72
Months.................... 3,871,519 9.3 5,519,533,735 9.3
Over 72 Months............. 9,888,340 23.7 20,742,347,029 34.8
---------- ----- --------------- -----
Total.................... 41,652,784 100.0% $59,622,775,977 100.0%
========== ===== =============== =====
S-59
Geographic Distribution of Accounts
Master Trust II Portfolio
Percentage
of Total Percentage
Number of Number of of Total
State Accounts Accounts Receivables Receivables
- ----- ---------- ---------- --------------- -----------
California.................... 4,206,029 10.1% $ 6,931,600,219 11.6%
New York...................... 3,108,974 7.4 4,175,260,127 7.0
Florida....................... 2,527,845 6.1 3,743,449,398 6.3
Texas......................... 2,442,877 5.9 4,092,295,540 6.9
Pennsylvania.................. 2,433,506 5.8 2,932,604,720 4.9
Ohio.......................... 1,790,396 4.3 2,168,116,472 3.6
Illinois...................... 1,763,836 4.2 2,353,570,620 4.0
New Jersey.................... 1,631,270 3.9 2,432,135,239 4.1
Michigan...................... 1,530,840 3.7 2,150,441,641 3.6
Massachusetts................. 1,359,360 3.3 1,726,205,242 2.9
Other......................... 18,857,851 45.3 26,917,096,759 45.1
---------- ----- --------------- -----
Total....................... 41,652,784 100.0% $59,622,775,977 100.0%
========== ===== =============== =====
Since the largest number of cardholders (based on billing address) whose
accounts were included in master trust II as of April 30, 2001 were in
California, New York, Florida, Texas and Pennsylvania, adverse changes in the
economic conditions in these areas could have a direct impact on the timing and
amount of payments on the notes.
Underwriting
Subject to the terms and conditions of the underwriting agreement for these
Class A(2001-1) notes, the issuer has agreed to sell to each of the
underwriters named below, and each of those underwriters has severally agreed
to purchase, the principal amount of these Class A(2001-1) notes set forth
opposite its name:
Principal
Underwriters Amount
------------ --------------
Lehman Brothers Inc. ................................... $ 111,112,000
Banc of America Securities LLC.......................... 111,111,000
Banc One Capital Markets, Inc. ......................... 111,111,000
Barclays Capital Inc. ................................. 111,111,000
Credit Suisse First Boston Corporation.................. 111,111,000
Deutsche Banc Alex. Brown Inc. ......................... 111,111,000
J.P. Morgan Securities Inc. ............................ 111,111,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 111,111,000
Salomon Smith Barney Inc. .............................. 111,111,000
--------------
Total................................................. $1,000,000,000
==============
S-60
The several underwriters have agreed, subject to the terms and conditions of
the underwriting agreement, to purchase all $1,000,000,000 aggregate principal
amount of these Class A(2001-1) notes if any of these Class A(2001-1) notes are
purchased.
The underwriters have advised the issuer that the several underwriters
propose initially to offer these Class A(2001-1) notes to the public at the
public offering price set forth on the cover page of this prospectus
supplement, and to certain dealers at that public offering price less a
concession not in excess of [.]% of the principal amount of these Class
A(2001-1) notes. The underwriters may allow, and those dealers may reallow to
other dealers, a concession not in excess of [.]% of the principal amount.
After the public offering, the public offering price and other selling terms
may be changed by the underwriters.
Each underwriter of these Class A(2001-1) notes has agreed that:
. 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 these Class A(2001-1) notes in, from or otherwise involving
the United Kingdom;
. it has only issued, distributed or passed on and will only issue,
distribute or pass on in the United Kingdom any document received by it
in connection with the issue of these Class A(2001-1) notes 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 such document may otherwise lawfully be issued,
distributed or passed on;
. 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 prospectus if that person is 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
. it is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1986.
In connection with the sale of these Class A(2001-1) notes, the underwriters
may engage in:
. over-allotments, in which members of the syndicate selling these Class
A(2001-1) notes sell more notes than the issuer actually sold to the
syndicate, creating a syndicate short position;
. stabilizing transactions, in which purchases and sales of these Class
A(2001-1) notes may be made by the members of the selling syndicate at
prices that do not exceed a specified maximum;
S-61
. syndicate covering transactions, in which members of the selling
syndicate purchase these Class A(2001-1) notes in the open market after
the distribution has been completed in order to cover syndicate short
positions; and
. penalty bids, by which underwriters reclaim a selling concession from a
syndicate member when any of these Class A(2001-1) notes originally sold
by that syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of these Class A(2001-1) notes to be higher than it
would otherwise be. These transactions, if commenced, may be discontinued at
any time.
The issuer and MBNA will, jointly and severally, indemnify the underwriters
against certain liabilities, including liabilities under applicable securities
laws, or contribute to payments the underwriters may be required to make in
respect of those liabilities.
The proceeds to the issuer from the sale of these Class A(2001-1) notes and
the underwriting discount are set forth on the cover page of this prospectus
supplement. Additional offering expenses are estimated to be $700,000.
Lehman Brothers Inc. is an affiliate of Lehman Brothers Special Financing
Inc., the derivative counterparty, and Lehman Brothers Holdings Inc., the
derivative counterparty guarantor.
S-62
Glossary of Defined Terms
"Class A Unused Subordinated Amount of Class B notes" means for any tranche
of outstanding Class A notes, with respect to any Transfer Date, an amount
equal to the Class A required subordinated amount of Class B notes minus the
Class A Usage of the Class B Required Subordinated Amount, each as of such
Transfer Date.
"Class A Unused Subordinated Amount of Class C notes" means for any tranche
of outstanding Class A notes, with respect to any Transfer Date, an amount
equal to the Class A required subordinated amount of Class C notes minus the
Class A Usage of the Class C Required Subordinated Amount, each as of such
Transfer Date.
"Class A Usage of Class B Required Subordinated Amount" means, with respect
to any tranche of outstanding Class A notes, zero on the date of issuance of
such tranche, and on any Transfer Date thereafter, the sum of the Class A Usage
of Class B Required Subordinated Amount as of the preceding date of
determination plus the sum of the following amounts:
(1) an amount equal to the product of:
. a fraction, the numerator of which is the Class A Unused Subordinated
Amount of Class B notes for that tranche of Class A notes (as of the
last day of the preceding month) and the denominator of which is the
aggregate Nominal Liquidation Amount of all Class B notes (as of the
last day of the preceding month), times
. the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated to Class B notes
which did not result in a Class A Usage of Class C Required
Subordinated Amount on such Transfer Date; plus
(2) the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated to Class A notes and
then reallocated on such Transfer Date to Class B notes; plus
(3) the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to the interest funding sub-account for that tranche of
Class A notes which did not result in a Class A Usage of Class C Required
Subordinated Amount for such tranche of Class A notes; plus
(4) an amount equal to the aggregate amount of MBNAseries Available
Principal Amounts reallocated to pay any amount to the servicer for such
tranche of Class A notes which did not result in a Class A Usage of Class C
Required Subordinated Amount for such tranche of Class A notes on such
Transfer Date; minus
(5) an amount (which will not exceed the sum of items (1) through (4)
above) equal to the sum of:
. the product of:
--a fraction, the numerator of which is the Class A Usage of Class B
Required Subordinated Amount (prior to giving effect to any
reimbursement of a Nominal Liquidation Amount Deficit for any
tranche of Class B notes on such
S-63
Transfer Date) for such tranche of Class A notes and the
denominator of which is the aggregate Nominal Liquidation Amount
Deficits for all tranches of Class B notes (prior to giving effect
to any reimbursement of a Nominal Liquidation Amount Deficit for
any tranche of Class B notes on such Transfer Date), times
--the aggregate amount of the Nominal Liquidation Amount Deficits of
any tranche of Class B notes which are reimbursed on such Transfer
Date, plus
. if the aggregate Class A Usage of Class B Required Subordinated
Amount (prior to giving effect to any reimbursement of Nominal
Liquidation Amount Deficits for any tranche of Class B notes on such
Transfer Date) for all Class A notes exceeds the aggregate Nominal
Liquidation Amount Deficits of all tranches of Class B notes (prior
to giving effect to any reimbursement on such Transfer Date), the
product of:
--a fraction, the numerator of which is the amount of such excess
and the denominator of which is the aggregate Nominal Liquidation
Amount Deficits for all tranches of Class C notes (prior to giving
effect to any reimbursement of a Nominal Liquidation Amount
Deficit for any tranche of Class C notes on such Transfer Date),
times
--the aggregate amount of the Nominal Liquidation Amount Deficits of
any tranche of Class C notes which are reimbursed on such Transfer
Date, times
--a fraction, the numerator of which is the Class A Usage of the
Class B Required Subordinated Amount of such tranche of Class A
notes and the denominator of which is the Class A Usage of Class B
Required Subordinated Amount for all Class A notes in the
MBNAseries.
"Class A Usage of Class C Required Subordinated Amount" means, with respect
to any tranche of outstanding Class A notes, zero on the date of issuance of
such tranche of Class A notes, and on any Transfer Date thereafter, the sum of
the Class A Usage of Class C Required Subordinated Amount as of the preceding
date of determination plus the sum of the following amounts:
(1) an amount equal to the product of:
. a fraction, the numerator of which is the Class A Unused Subordinated
Amount of Class C notes for that tranche of Class A notes (as of the
last day of the preceding month) and the denominator of which is the
aggregate nominal liquidation amount of all Class C notes (as of the
last day of the preceding month), times
. the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated on such Transfer
Date to Class C notes; plus
(2) the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated to Class A notes and
then reallocated on such date to Class C notes; plus
(3) an amount equal to the product of:
S-64
. a fraction, the numerator of which is the Class A Unused Subordinated
Amount of Class B notes for that tranche of Class A notes (as of the
last day of the preceding month) and the denominator of which is the
aggregate nominal liquidation amount of all Class B notes (as of the
last day of the preceding month), times
. the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated on such Transfer
Date to Class B notes; plus
(4) the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to the interest funding subaccount for that tranche of
Class A notes; plus
(5) an amount equal to the product of:
. a fraction, the numerator of which is the Class A Unused Subordinated
Amount of Class B notes for such tranche of Class A notes (as of the
last day of the preceding month) and the denominator of which is the
aggregate nominal liquidation amount of all Class B notes (as of the
last day of the preceding month), times
. the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to the interest funding sub-account for any
tranche of Class B notes; plus
(6) the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to pay any amount to the servicer for such tranche of
Class A notes; plus
(7) an amount equal to the product of:
. a fraction, the numerator of which is the Class A Unused Subordinated
Amount of Class B notes for that tranche of Class A notes (as of the
last day of the preceding month) and the denominator of which is the
aggregate nominal liquidation amount of all Class B notes (as of the
last day of the preceding month), times
. the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to pay any amount to the servicer for any tranche
of Class B notes; minus
(8) an amount (which will not exceed the sum of items (1) through (7)
above) equal to the product of:
. a fraction, the numerator of which is the Class A Usage of Class C
Required Subordinated Amount (prior to giving effect to any
reimbursement of a Nominal Liquidation Amount Deficit for any tranche
of Class C notes on such Transfer Date) for that tranche of Class A
notes and the denominator of which is the aggregate Nominal
Liquidation Amount Deficits (prior to giving effect to such
reimbursement) of all Class C notes, times
. the aggregate Nominal Liquidation Amount Deficits of all Class C
notes which are reimbursed on such Transfer Date.
"Class B Unused Subordinated Amount of Class C notes" means for any tranche
of outstanding Class B notes, with respect to any Transfer Date, an amount
equal to the Class B
S-65
required subordinated amount of Class C notes minus the Class B Usage of the
Class C Required Subordinated Amount, each as of such Transfer Date.
"Class B Usage of Class C Required Subordinated Amount" means, with respect
to any tranche of outstanding Class B notes, zero on the date of issuance of
such tranche, and on any Transfer Date thereafter, the sum of the Class B Usage
of Class C Required Subordinated Amount as of the preceding date of
determination plus the sum of the following amounts:
(1) an amount equal to the product of:
. a fraction, the numerator of which is the Class B Unused Subordinated
Amount of Class C notes for that tranche of Class B notes (as of the
last day of the preceding month) and the denominator of which is the
aggregate nominal liquidation amount of all Class C notes (as of the
last day of the preceding month), times
. the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated on such Transfer
Date to Class C notes; plus
(2) an amount equal to the product of:
. a fraction, the numerator of which is the nominal liquidation amount
for that tranche of Class B notes (as of the last day of the
preceding month) and the denominator of which is the aggregate
nominal liquidation amount of all Class B notes (as of the last day
of the preceding month), times
. the sum of (i) the amount of charge-offs for uncovered defaults on
principal receivables in master trust II initially allocated to any
tranche of Class A notes that has a Class A Unused Subordinated
Amount of Class B notes that was included in Class A Usage of Class C
Required Subordinated Amount and (ii) the amount of charge-offs for
uncovered defaults on principal receivables in master trust II
initially allocated to any tranche of Class A notes that has a Class
A Unused Subordinated Amount of Class B notes that was included in
Class A Usage of Class B Required Subordinated Amount; plus
(3) the amount of charge-offs for uncovered defaults on principal
receivables in master trust II initially allocated to that tranche of Class
B notes, and then reallocated on such date to the Class C notes; plus
(4) an amount equal to the product of:
. a fraction, the numerator of which is the nominal liquidation amount
for that tranche of Class B notes (as of the last day of the
preceding month) and the denominator of which is the aggregate
nominal liquidation amount of all Class B notes (as of the last day
of the preceding month), times
. the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to the interest funding sub-account for any
tranche of Class A notes that has a Class A Unused Subordinated
Amount of Class B notes; plus
S-66
(5) the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to the interest funding sub-account for that tranche of
Class B notes; plus
(6) an amount equal to the product of:
. a fraction, the numerator of which is the nominal liquidation amount
for such tranche of Class B notes (as of the last day of the
preceding month) and the denominator of which is the aggregate
nominal liquidation amount of all Class B notes (as of the last day
of the preceding month), times
. the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to pay any amount to the servicer for any tranche
of Class A notes that has a Class A Unused Subordinated Amount of
Class B notes; plus
(7) the amount of MBNAseries Available Principal Amounts reallocated on
such Transfer Date to pay any amount to the servicer for such tranche of
Class B notes; minus
(8) an amount (which will not exceed the sum of items (1) through (7)
above) equal to the product of:
. a fraction, the numerator of which is the Class B Usage of Class C
Required Subordinated Amount (prior to giving effect to any
reimbursement of a Nominal Liquidation Amount Deficit for any tranche
of Class C notes on such Transfer Date) for that tranche of Class B
notes and the denominator of which is the Nominal Liquidation Amount
Deficits (prior to giving effect to such reimbursement) of all
tranches of Class C notes, times
. the aggregate Nominal Liquidation Amount Deficits of all Class C
notes which are reimbursed on such Transfer Date.
"Excess Available Funds" means, for the MBNAseries for any month, the
Available Funds allocable to the MBNAseries remaining after application to
cover targeted deposits to the interest funding account, payment of the portion
of the master trust II servicing fee allocable to the MBNAseries, and
application to cover any defaults on principal receivables in master trust II
allocable to the MBNAseries or any deficits in the nominal liquidation amount
of the MBNAseries notes.
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
United States dollars for a one-month period (or, in the case of the first
interest period, such rate that corresponds with the actual number of days in
the first interest period) which appears on Telerate Page 3750 as of 11:00
a.m., London time, on such date. If such rate does not appear on Telerate Page
3750, the rate for that LIBOR Determination Date will be determined on the
basis of the rates at which deposits in United States dollars are offered by
four major banks selected by the beneficiary of the issuer 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 such banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for that LIBOR Determination
Date will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, the rate for that LIBOR Determination Date will be the
arithmetic
S-67
mean of the rates quoted by major banks in New York City, selected by the
beneficiary of the issuer, 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 (i) May [.], 2001 for the period from and
including the issuance date through but excluding July 16, 2001 and (ii) for
each interest period thereafter, the second London Business Day prior to each
interest payment date on which such interest period commences.
"London Business Day" means any Business Day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
"MBNAseries Available Funds" means, for any month, the amounts to be treated
as MBNAseries Available Funds as described in "Deposit and Application of
Funds--MBNAseries Available Funds."
"MBNAseries Available Principal Amounts" means, for any month, the sum of the
Available Principal Amounts allocated to the MBNAseries, dollar payments for
principal under any derivative agreements for tranches of notes of the
MBNAseries, and any amounts of MBNAseries Available Funds available to cover
defaults on principal receivables in master trust II allocable to the
MBNAseries or any deficits in the nominal liquidation amount of the MBNAseries
notes.
"Monthly Interest Accrual Date" means, with respect to any outstanding
series, class or tranche of notes:
. each interest payment date for such series, class or tranche, and
. for any month in which no interest payment date occurs, the date in that
month corresponding numerically to the next interest payment date for
that series, class or tranche of notes, or in the case of a series,
class or tranche of zero-coupon discount notes, the expected principal
payment date for that series, class or tranche; but
--for the month in which a series, class or tranche of notes is issued,
the date of issuance of such series, class or tranche will be the first
Monthly Interest Accrual Date for such tranche of notes;
--for the month next following the month in which a series, class or
tranche of notes is issued, unless otherwise indicated, the first day
of such month will be the first Monthly Interest Accrual Date in such
next following month for such series, class or tranche of notes;
--any date on which proceeds from a sale of receivables following an
event of default and acceleration of any series, class or tranche of
notes are deposited into the interest funding account for such series,
class or tranche of notes will be a Monthly Interest Accrual Date for
such series, class or tranche of notes;
--if there is no such numerically corresponding date in that month, then
the Monthly Interest Accrual Date will be the last Business Day of the
month; and
S-68
--if the numerically corresponding date in such month is not a Business
Day with respect to that class or tranche, then the Monthly Interest
Accrual Date will be the next following Business Day, unless that
Business Day would fall in the following month, in which case the
monthly interest date will be the last Business Day of the earlier
month.
"Monthly Principal Accrual Date" means with respect to any outstanding
series, class or tranche of notes:
. for any month in which the expected principal payment date occurs for
such series, class or tranche, such expected principal payment date, or
if that day is not a Business Day, the next following Business Day, and
. for any month in which no expected principal payment date occurs for
such series, class or tranche, the date in that month corresponding
numerically to the expected principal payment date for that tranche of
notes (or for any month following the last expected principal payment
date, the date in such month corresponding numerically to the preceding
expected principal payment date for such tranche of notes); but
--following a Pay Out Event, the second Business Day following such Pay
Out Event shall be a Monthly Principal Accrual Date;
--any date on which prefunded excess amounts are released from any
principal funding subaccount and deposited into the principal funding
subaccount of any tranche of notes on or after the expected principal
payment date for such tranche of notes will be a Monthly Principal
Accrual Date for such tranche of notes;
--any date on which proceeds from a sale of receivables following an
event of default and acceleration of any series, class or tranche of
notes are deposited into the principal funding account for such series,
class or tranche of notes will be a Monthly Principal Accrual Date for
such series, class or tranche of notes;
--if there is no numerically corresponding date in that month, then the
Monthly Principal Accrual Date will be the last Business Day of the
month; and
--if the numerically corresponding date in such month is not a Business
Day, the Monthly Principal Accrual Date will be the next following
Business Day, unless that Business Day would fall in the following
month, in which case the Monthly Principal Accrual Date will be the
last Business Day of the earlier month.
"Nominal Liquidation Amount Deficit" means, for any tranche of notes, the
Adjusted Outstanding Dollar Principal Amount minus the nominal liquidation
amount of that tranche.
"Performing" means, with respect to any derivative agreement, that no payment
default or repudiation by the derivative counterparty has occurred and such
derivative agreement has not been terminated.
"Required Excess Available Funds" means, for any month, zero; provided,
however, that this amount may be changed if the issuer (i) receives the consent
of the rating agencies
S-69
and (ii) reasonably believes that the change will not have a material adverse
effect on the notes.
"Telerate Page 3750" means the display page currently so designated on the
Bridge Telerate Market Report (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
S-70
Annex I
Outstanding Series, Classes and Tranches of Notes
The information provided in this Annex I is an integral part of the
prospectus supplement.
MBNAseries
Nominal Expected Principal Legal
# Class/Tranche Issuance Date Liquidation Amount Certificate Rate Payment Date Maturity Date
- - --------------- ------------- ------------------ ------------------------ ------------------ -------------
1 Class C(2001-1) 5/24/01* $250,000,000 One Month LIBOR + 1.05% May 2006 October 2008
2 Class B(2001-1) 5/24/01* $250,000,000 One Month LIBOR + 0.375% May 2006 October 2008
* Expected
A-I-1
Annex II
Outstanding Master Trust II Series
The information provided in this Annex II is an integral part of the
prospectus supplement.
# Series/Class Issuance Date Investor Interest Certificate Rate Scheduled Payment Date Termination Date
--- -------------- ------------- ----------------- ------------------------ ---------------------- ----------------
1 Series 1994-C 10/26/94
Class A -- $870,000,000 One Month LIBOR + .25% October 2001 March 2004
Class B -- $45,000,000 One Month LIBOR + .45% November 2001 March 2004
Collateral
Interest -- $85,000,000 -- -- --
2 Series 1994-E 12/15/94
Investor
Interest
(as of
4/30/01) -- $450,000,000 Commercial Paper Index -- --
Cash
Collateral
Amount -- $20,000,000 -- -- --
3 Series 1995-A 3/22/95
Class A -- $500,250,000 One Month LIBOR + .27% August 2004 January 2007
Class B -- $25,875,000 One Month LIBOR + .45% September 2004 January 2007
Collateral
Interest -- $48,875,000 -- -- --
4 Series 1995-C 6/29/95
Class A -- $500,250,000 6.45% June 2005 February 2008
Class B -- $25,875,000 One Month LIBOR + .42% July 2005 February 2008
Collateral
Interest -- $48,875,000 -- -- --
5 Series 1995-E 8/2/95
Class A -- $435,000,000 One Month LIBOR + .22% August 2002 January 2005
Class B -- $22,500,000 One Month LIBOR + .32% September 2002 January 2005
Collateral
Interest -- $42,500,000 -- -- --
6 Series 1995-G 9/27/95
Class A -- $435,000,000 One Month LIBOR + .21% October 2002 March 2005
Class B -- $22,500,000 One Month LIBOR + .33% November 2002 March 2005
Collateral
Interest -- $42,500,000 -- -- --
7 Series 1995-J 11/21/95
Class A -- $435,000,000 One Month LIBOR + .23% November 2002 April 2005
Class B -- $22,500,000 One Month LIBOR + .35% December 2002 April 2005
Collateral
Interest -- $42,500,000 -- -- --
8 Series 1996-A 2/28/96
Class A -- $609,000,000 One Month LIBOR + .21% February 2003 July 2005
Class B -- $31,500,000 One Month LIBOR + .34% March 2003 July 2005
Collateral
Interest -- $59,500,000 -- -- --
9 Series 1996-B 3/26/96
Class A -- $435,000,000 One Month LIBOR + .26% March 2006 August 2008
Class B -- $22,500,000 One Month LIBOR + .37% April 2006 August 2008
Collateral
Interest -- $42,500,000 -- -- --
10 Series 1996-E 5/21/96
Class A -- $637,500,000 One Month LIBOR + .17% May 2003 October 2005
Class B -- $56,250,000 One Month LIBOR + .31% June 2003 October 2005
Collateral
Interest -- $56,250,000 -- -- --
11 Series 1996-F 6/25/96
Investor
Interest
(as of
4/30/01) -- $744,681,000 Commercial Paper Index -- --
Collateral
Interest -- $45,000,000 -- -- --
12 Series 1996-G 7/17/96
Class A -- $425,000,000 One Month LIBOR + .18% July 2006 December 2008
Class B -- $37,500,000 One Month LIBOR + .35% August 2006 December 2008
Collateral
Interest -- $37,500,000 -- -- --
13 Series 1996-H 8/14/96
Class A -- $1,020,000,000 Three Month LIBOR + .10% August 2001 January 2004
Class B -- $90,000,000 Three Month LIBOR + .27% September 2001 January 2004
Collateral
Interest -- $90,000,000 -- -- --
A-II-1
# Series/Class Issuance Date Investor Interest Certificate Rate Scheduled Payment Date Termination Date
- - ---------------------- ------------- ----------------- --------------------------- ---------------------- ----------------
14 Series 1996-I 9/25/96
Class A Deutsche Mark -- DM 1,000,000,000 Three Month DM LIBOR + .09% September 19, 2001 February 18, 2004
Class A -- $666,444,518.49 Three Month LIBOR + .115% September 19, 2001 February 18, 2004
Class B -- $58,804,000 Not to Exceed Three Month October 2001 February 18, 2004
LIBOR + .50%
Collateral Interest -- $58,804,000 -- -- --
15 Series 1996-J 9/19/96
Class A -- $850,000,000 One Month LIBOR +.15% September 2003 February 2006
Class B -- $75,000,000 One Month LIBOR + .36% October 2003 February 2006
Collateral Interest -- $75,000,000 -- -- --
16 Series 1996-K 10/24/96
Class A -- $850,000,000 One Month LIBOR + .13% October 2003 March 2006
Class B -- $75,000,000 One Month LIBOR + .35% November 2003 March 2006
Collateral Interest -- $75,000,000 -- -- --
17 Series 1996-M 11/26/96
Class A -- $425,000,000 Three Month LIBOR + .13% November 2006 April 2009
Class B -- $37,500,000 Three Month LIBOR + .35% December 2006 April 2009
Collateral Interest -- $37,500,000 -- -- --
18 Series 1997-B 2/27/97
Class A -- $850,000,000 One Month LIBOR + .16% March 2012 August 2014
Class B -- $75,000,000 One Month LIBOR + .35% March 2012 August 2014
Collateral Interest -- $75,000,000 -- -- --
19 Series 1997-C 3/26/97
Class A -- $637,500,000 One Month LIBOR + .11% March 2004 August 2006
Class B -- $56,250,000 One Month LIBOR + .30% March 2004 August 2006
Collateral Interest -- $56,250,000 -- -- --
20 Series 1997-D 5/22/97
Class A -- $387,948,000 Three Month LIBOR + .05% May 2007 October 2009
Class B -- $34,231,000 Not to Exceed Three Month May 2007 October 2009
LIBOR + .50%
Collateral Interest -- $34,231,000 -- -- --
21 Series 1997-E 5/8/97
Class A -- $637,500,000 Three Month LIBOR + .08% April 2002 September 2004
Class B -- $56,250,000 Three Month LIBOR + .28% April 2002 September 2004
Collateral Interest -- $56,250,000 -- -- --
22 Series 1997-F 6/18/97
Class A -- $600,000,000 6.60% June 2002 November 2004
Class B -- $53,000,000 One Month LIBOR + .29% June 2002 November 2004
Collateral Interest -- $53,000,000 -- -- --
23 Series 1997-G 6/18/97
Class A -- $460,000,000 One Month LIBOR + .15% June 2004 November 2006
Class B -- $40,600,000 One Month LIBOR + .36% June 2004 November 2006
Collateral Interest -- $40,600,000 -- -- --
24 Series 1997-H 8/6/97
Class A -- $507,357,000 Three Month LIBOR + .07% September 2007 February 2010
Class B -- $44,770,000 Not to Exceed Three Month September 2007 February 2010
LIBOR + .50%
Collateral Interest -- $44,770,000 -- -- --
25 Series 1997-I 8/26/97
Class A -- $637,500,000 6.55% August 2004 January 2007
Class B -- $56,250,000 One Month LIBOR + .31% August 2004 January 2007
Collateral Interest -- $56,250,000 -- -- --
26 Series 1997-J 9/10/97
Class A -- $637,500,000 One Month LIBOR + .12% September 2004 February 2007
Class B -- $56,250,000 One Month LIBOR + .30% September 2004 February 2007
Collateral Interest -- $56,250,000 -- -- --
27 Series 1997-K 10/22/97
Class A -- $637,500,000 One Month LIBOR + .12% November 2005 April 2008
Class B -- $56,250,000 One Month LIBOR + .32% November 2005 April 2008
Collateral Interest -- $56,250,000 -- -- --
28 Series 1997-L 11/13/97
Class A -- $511,000,000 Three Month LIBOR - .01% November 2002 April 2005
Class B -- $45,100,000 Not to Exceed Three Month November 2002 April 2005
LIBOR + .50%
Collateral Interest -- $45,100,000 -- -- --
29 Series 1997-M 11/6/97
Class A -- $637,500,000 Three Month LIBOR + .11% October 2002 March 2005
Class B -- $56,250,000 Three Month LIBOR + .27% October 2002 March 2005
Collateral Interest -- $56,250,000 -- --
A-II-2
# Series/Class Issuance Date Investor Interest Certificate Rate Scheduled Payment Date Termination Date
- - -------------------- ------------- ----------------- ------------------------ ---------------------- ----------------
30 Series 1997-O 12/23/97
Class A -- $425,000,000 One Month LIBOR + .17% December 2007 May 2010
Class B -- $37,500,000 One Month LIBOR + .35% December 2007 May 2010
Collateral Interest -- $37,500,000 -- -- --
31 Series 1998-A 3/18/98
Class A -- $637,500,000 One Month LIBOR + .11% March 2003 August 2005
Class B -- $56,250,000 Not to Exceed One Month March 2003 August 2005
LIBOR + .50%
Collateral Interest -- $56,250,000 -- -- --
32 Series 1998-B 4/14/98
Class A -- $550,000,000 Three Month LIBOR + .09% April 2008 September 2010
Class B -- $48,530,000 Not to Exceed Three Month April 2008 September 2010
LIBOR + .50%
Collateral Interest -- $48,530,000 -- -- --
33 Series 1998-C 6/24/98
Class A -- $637,500,000 One Month LIBOR + .08% June 2003 November 2005
Class B -- $56,250,000 One Month LIBOR + .25% June 2003 November 2005
Collateral Interest -- $56,250,000 -- -- --
34 Series 1998-D 7/30/98
Class A -- $475,000,000 5.80% July 2003 December 2005
Class B -- $42,000,000 One Month LIBOR + .25% July 2003 December 2005
Collateral Interest -- $42,000,000 -- -- --
35 Series 1998-E 8/11/98
Class A -- $750,000,000 Three Month LIBOR + .145% April 2008 September 2010
Class B -- $66,200,000 Three Month LIBOR + .33% April 2008 September 2010
Collateral Interest -- $66,200,000 -- --
36 Series 1998-F 8/26/98
Class A -- $425,000,000 Three Month LIBOR + .10% September 2005 February 2008
Class B -- $37,500,000 Three Month LIBOR + .28% September 2005 February 2008
Collateral Interest -- $37,500,000 -- -- --
37 Series 1998-G 9/10/98
Class A -- $637,500,000 One Month LIBOR + .13% September 2006 February 2009
Class B -- $56,250,000 One Month LIBOR + .40% September 2006 February 2009
Collateral Interest -- $56,250,000 -- -- --
38 Series 1998-I 10/22/98
Class A -- $637,500,000 One Month LIBOR + .26% October 2001 October 2003
Class B -- $56,250,000 One Month LIBOR + .51% October 2001 October 2003
Collateral Interest -- $56,250,000 -- --
39 Series 1998-J 10/29/98
Class A -- $660,000,000 5.25% September 2003 February 2006
Class B -- $45,000,000 5.65% September 2003 February 2006
Collateral Interest -- $45,000,000 -- -- --
40 Series 1998-K 11/24/98
Class A -- $637,500,000 One Month LIBOR + .24% August 2002 January 2005
Class B -- $56,250,000 One Month LIBOR + .49% August 2002 January 2005
Collateral Interest -- $56,250,000 -- -- --
41 Series 1999-A 3/25/99
Class A -- $425,000,000 One Month LIBOR + .14% February 2004 July 2006
Class B -- $37,500,000 One Month LIBOR + .37% February 2004 July 2006
Collateral Interest -- $37,500,000 --
42 Series 1999-B 3/26/99 March 2009 August 2011
Class A -- $637,500,000 5.90% March 2009 August 2011
Class B -- $56,250,000 6.20% -- --
Collateral Interest -- $56,250,000 --
43 Series 1999-C 5/18/99 May 2004 October 2006
Class A -- $799,500,000 Three Month LIBOR + .19% May 2004 October 2006
Class B -- $70,550,000 Not to Exceed Three Month -- --
LIBOR + .50%
Collateral Interest -- $70,550,000 --
A-II-3
# Series/Class Issuance Date Investor Interest Certificate Rate Scheduled Payment Date Termination Date
- - -------------------- ------------- ----------------- -------------------------- ---------------------- ----------------
44 Series 1999-D 6/3/99
Class A -- $425,000,000 One Month LIBOR + .19% June 2006 November 2008
Class B -- $37,500,000 6.50% June 2006 November 2008
Collateral Interest -- $37,500,000 -- -- --
45 Series 1999-E 7/7/99
Class A -- $850,000,000 One Month LIBOR + .125% June 2002 June 2004
Class B -- $75,000,000 One Month LIBOR + .32% June 2002 June 2004
Collateral Interest -- $75,000,000 -- -- --
46 Series 1999-F 8/3/99
Class A -- $509,400,000 Three Month LIBOR - .125% August 2004 January 2007
Class B -- $44,950,000 Not to Exceed Three Month August 2004 January 2007
LIBOR + .50%
Collateral Interest -- $44,950,000 -- -- --
47 Series 1999-G 7/29/99
Class A -- $637,500,000 6.35% July 2004 December 2006
Class B -- $56,250,000 6.60% July 2004 December 2006
Collateral Interest -- $56,250,000 -- -- --
48 Series 1999-H 8/18/99
Class A -- $850,000,000 Three Month LIBOR + .21% April 2004 September 2006
Class B -- $75,000,000 Three Month LIBOR + .48% April 2004 September 2006
Collateral Interest -- $75,000,000 -- -- --
49 Series 1999-I 9/8/99
Class A -- $637,500,000 6.40% August 2002 January 2005
Class B -- $56,250,000 6.70% August 2002 January 2005
Collateral Interest -- $56,250,000 -- -- --
50 Series 1999-J 9/23/99
Class A -- $850,000,000 7.00% September 2009 February 2012
Class B -- $75,000,000 7.40% September 2009 February 2012
Collateral Interest -- $75,000,000 -- -- --
51 Series 1999-K 10/27/99
Class A -- $2,300,000,000 -- October 2002 March 2005
Collateral Interest -- $200,000,000 -- -- --
52 Series 1999-L 11/5/99
Class A -- $637,500,000 One Month LIBOR + .25% October 2006 March 2009
Class B -- $56,250,000 One Month LIBOR + .53% October 2006 March 2009
Collateral Interest -- $56,250,000 -- -- --
53 Series 1999-M 12/1/99
Class A -- $425,000,000 6.60% November 2004 April 2007
Class B -- $37,500,000 6.80% November 2004 April 2007
Collateral Interest -- $37,500,000 -- -- --
54 Series 2000-A 3/8/00
Class A -- $637,500,000 7.35% February 2005 July 2007
Class B -- $56,250,000 7.55% February 2005 July 2007
Collateral interest -- $56,250,000 -- -- --
55 Series 2000-B 3/28/00
Class A -- $637,500,000 One Month LIBOR + .115% February 2003 July 2005
Class B -- $56,250,000 One Month LIBOR + .30% February 2003 July 2005
Collateral Interest -- $56,250,000 -- -- --
56 Series 2000-C 4/13/00
Class A -- $1,275,000,000 One Month LIBOR + .16% February 2005 July 2007
Class B -- $112,500,000 One Month LIBOR + .375% February 2005 July 2007
Collateral Interest -- $112,500,000 -- -- --
57 Series 2000-D 5/11/00
Class A -- $722,500,000 One Month LIBOR + .20% April 2007 September 2009
Class B -- $63,750,000 One Month LIBOR + .43% April 2007 September 2009
Collateral Interest -- $63,750,000 -- -- --
58 Series 2000-E 6/1/00
Class A -- $500,000,000 7.80% May 2010 October 2012
Class B -- $45,000,000 8.15% May 2010 October 2012
Collateral Interest -- $45,000,000 -- -- --
59 Series 2000-F 6/23/00
Class A -- $750,000,000 Three Month LIBOR + .125% June 2005 November 2007
Class B -- $66,200,000 Three Month LIBOR + .35% June 2005 November 2007
Collateral Interest -- $66,200,000 -- -- --
A-II-4
# Series/Class Issuance Date Investor Interest Certificate Rate Scheduled Payment Date Termination Date
- --- --------------------- ------------- ----------------- ------------------------- ---------------------- ----------------
60 Series 2000-G 7/20/00
Class A -- $637,500,000 Three Month LIBOR + .13% July 2005 December 2007
Class B -- $56,250,000 Three Month LIBOR + .40% July 2005 December 2007
Collateral Interest -- $56,250,000 -- -- --
61 Series 2000-H 8/23/00
Class A -- $595,000,000 One Month LIBOR + .25% August 2010 January 2013
Class B -- $52,500,000 One Month LIBOR + .60% August 2010 January 2013
Collateral Interest -- $52,500,000 -- -- --
62 Series 2000-I 9/8/00
Class A -- $850,000,000 6.90% August 2005 January 2008
Class B -- $75,000,000 7.15% August 2005 January 2008
Collateral Interest -- $75,000,000 -- -- --
63 Series 2000-J 10/12/00
Class A Swiss Francs -- CHF 1,000,000,000 4.125%
Class A -- $568,990,043 Three Month LIBOR + .21% October 17, 2007 March 17, 2010
Class B -- $50,250,000 One Month LIBOR + .44% October 2007 March 17, 2010
Collateral Interest -- $50,250,000 -- -- --
64 Series 2000-K 11/21/00
Class A -- $637,500,000 Three Month LIBOR + .11% October 2005 March 2008
Class B -- $56,250,000 Three Month LIBOR + .375% October 2005 March 2008
Collateral Interest -- $56,250,000 -- -- --
65 Series 2000-L 12/13/00
Class A -- $425,000,000 6.50% November 2007 April 2010
Class B -- $37,500,000 One Month LIBOR + .50% November 2007 April 2010
Collateral Interest -- $37,500,000 -- -- --
66 Series 2000-Z 3/30/00
Class A -- $0 Commercial Paper Index -- --
Class B -- $0 Commercial Paper Index -- --
Collateral Interest -- -- -- -- --
67 Series 2001-A 2/20/01
Class A -- $1,062,500,000 One Month LIBOR + .15% February 2006 July 2008
Class B -- $93,750,000 One Month LIBOR + .45% February 2006 July 2008
Collateral Interest -- $93,750,000 -- -- --
68 Series 2001-B 3/8/01
Class A -- $637,500,000 One Month LIBOR + .26% March 2011 August 2013
Class B -- $56,250,000 One Month LIBOR + .60% March 2011 August 2013
Collateral Interest -- $56,250,000 -- -- --
69 Series 2001-C 4/25/01
Class A -- $675,000,000 Three Month LIBOR - .125% April 2011 September 2013
Class B -- $60,000,000 One Month LIBOR + .62% April 2011 September 2013
Collateral Interest -- $60,000,000 -- -- --
A-II-5
Prospectus Dated May 15, 2001
MBNA Credit Card Master Note Trust
Issuer
MBNA America Bank, National Association
Originator of the Issuer
The issuer--
. may periodically issue notes in one or more series, classes or tranches; and
. will own--
--the collateral certificate, Series 2001-D, representing an undivided
interest in master trust II, whose assets include a portfolio of consumer
revolving credit card accounts; and
--other property described in this prospectus and in the accompanying
prospectus supplement.
The notes--
. will be secured by the issuer's assets and will be paid only from proceeds of
the issuer's assets;
. offered with this prospectus and the related prospectus supplement will be
rated in one of the four highest rating categories by at least one nationally
recognized rating agency; and
. may be issued as part of a designated series, class or tranche.
You should consider the discussion under "Risk Factors" beginning on page 15
of this prospectus before you purchase any notes.
MBNA Credit Card Master Note Trust will be the issuer of the notes. The notes
will be obligations of the issuer only and are not obligations of any other
person. Each tranche of notes will be secured by only some of the assets of
the issuer. Noteholders will have no recourse to any other assets of the
issuer for the payment of the notes.
The notes will not be insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
Neither the SEC nor any state securities commission has approved these notes or
determined that this prospectus is truthful, accurate or complete. Any
representation to the contrary is a criminal offense.
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 that
progressively provide more detail: (a) this prospectus, which provides general
information, some of which may not apply to a particular series, class or
tranche of notes, including your series, class or tranche, and (b) the
accompanying prospectus supplement, which will describe the specific terms of
your series, class or tranche of notes, including:
. the timing of interest and principal payments;
. financial and other information about the issuer's assets;
. information about enhancement for your series, class or tranche;
. the ratings for your class or tranche; and
. the method for selling the notes.
This prospectus may be used to offer and sell any series, class or tranche of
notes only if accompanied by the prospectus supplement for that series, class
or tranche.
If the terms of a particular series, class or tranche of notes vary between
this prospectus and the prospectus supplement, you should rely on the
information in the prospectus supplement.
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 do not claim the accuracy of the information in this prospectus
or the accompanying prospectus supplement as of any date other than the dates
stated on their respective covers.
We include cross-references in this prospectus and in the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The Table of Contents in this prospectus and in the
accompanying prospectus supplement provide the pages on which these captions
are located.
----------------
2
Table of Contents
Page
----
Prospectus Summary........................................................ 6
Securities Offered....................................................... 6
Risk Factors............................................................. 6
Issuer................................................................... 6
Master Trust II.......................................................... 6
MBNA..................................................................... 6
Indenture Trustee........................................................ 6
Series, Classes and Tranches of Notes.................................... 6
Interest Payments........................................................ 7
Expected Principal Payment Date and Legal Maturity Date.................. 7
Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal
Liquidation Amount of Notes............................................. 8
Subordination............................................................ 9
Limit on Repayment of All Notes.......................................... 10
Sources of Funds to Pay the Notes........................................ 10
Early Redemption of Notes................................................ 11
Events of Default........................................................ 11
Events of Default Remedies............................................... 12
Security for the Notes................................................... 13
Limited Recourse to the Issuer........................................... 13
Registration, Clearance and Settlement................................... 13
ERISA Eligibility........................................................ 13
Tax Status............................................................... 14
Denominations............................................................ 14
Record Date.............................................................. 14
Risk Factors.............................................................. 15
Glossary.................................................................. 28
The Issuer................................................................ 28
Use of Proceeds........................................................... 29
MBNA and MBNA Corporation................................................. 29
Page
----
The Notes................................................................. 29
General.................................................................. 30
Interest................................................................. 31
Principal................................................................ 31
Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal
Liquidation Amount...................................................... 32
Stated Principal Amount................................................. 32
Outstanding Dollar Principal Amount..................................... 32
Nominal Liquidation Amount.............................................. 32
Final Payment of the Notes............................................... 35
Subordination of Interest and Principal.................................. 35
Required Subordinated Amount............................................. 36
Early Redemption of Notes................................................ 36
Issuances of New Series, Classes and Tranches of Notes................... 37
Payments on Notes; Paying Agent.......................................... 39
Denominations............................................................ 39
Record Date.............................................................. 40
Governing Law............................................................ 40
Form, Exchange and Registration and Transfer of Notes.................... 40
Book-Entry Notes......................................................... 40
The Depository Trust Company............................................. 42
Clearstream, Luxembourg.................................................. 43
Euroclear System......................................................... 43
Distributions on Book-Entry Notes........................................ 44
Global Clearance and Settlement Procedures............................... 44
Definitive Notes......................................................... 45
Replacement of Notes..................................................... 46
Sources of Funds to Pay the Notes......................................... 46
The Collateral Certificate............................................... 46
3
Page
----
Deposit and Application of Funds.......................................... 49
Issuer Accounts........................................................... 50
Derivative Agreements..................................................... 51
Sale of Credit Card Receivables........................................... 51
Limited Recourse to the Issuer; Security for the Notes.................... 52
The Indenture.............................................................. 52
Indenture Trustee......................................................... 52
Issuer Covenants.......................................................... 53
Early Redemption Events................................................... 53
Events of Default......................................................... 55
Events of Default Remedies................................................ 55
Meetings.................................................................. 57
Voting.................................................................... 58
Amendments to the Indenture and Indenture Supplements..................... 58
Tax Opinions for Amendments............................................... 61
Addresses for Notices..................................................... 61
Issuer's Annual Compliance Statement...................................... 61
Indenture Trustee's Annual Report......................................... 61
List of Noteholders....................................................... 62
Reports................................................................... 62
MBNA's Credit Card Activities.............................................. 62
General................................................................... 62
Acquisition and Use of Credit Card Accounts............................... 63
MBNA Hallmark............................................................. 64
Interchange............................................................... 64
Master Trust II............................................................ 65
General................................................................... 65
Master Trust II Trustee................................................... 65
The Receivables........................................................... 66
Investor Certificates..................................................... 67
Transfer and Assignment of Receivables.................................... 68
Addition of Master Trust II Assets........................................ 68
Removal of Accounts....................................................... 70
Page
----
Collection and Other Servicing Procedures................................. 71
Master Trust II Accounts.................................................. 71
Investor Percentage....................................................... 72
Transfer of Annual Membership Fees........................................ 72
Application of Collections................................................ 72
Defaulted Receivables; Rebates and Fraudulent Charges..................... 74
Master Trust II Termination............................................... 74
Pay Out Events............................................................ 75
Servicing Compensation and Payment of Expenses............................ 76
New Issuances............................................................. 78
Representations and Warranties............................................ 79
Certain Matters Regarding MBNA as Seller and as Servicer.................. 81
Servicer Default.......................................................... 83
Evidence as to Compliance................................................. 83
Amendments to the Master Trust II Agreement............................... 84
Certificateholders Have Limited Control of Actions........................ 86
Material Legal Aspects of the Receivables.................................. 87
Transfer of the Receivables and the Collateral Certificate................ 87
Certain Matters Relating to Conservatorship or Receivership............... 87
Consumer Protection Laws.................................................. 89
Federal Income Tax Consequences............................................ 90
General................................................................... 90
Tax Characterization of the Issuer and the Notes.......................... 91
Consequences to Holders of the Offered Notes.............................. 92
State and Local Tax Consequences.......................................... 95
Benefit Plan Investors..................................................... 95
Prohibited Transactions................................................... 96
4
Page
----
Potential Prohibited Transactions from Investment in Notes............... 96
Prohibited Transactions between the Benefit Plan and a Party in
Interest................................................................ 96
Prohibited Transactions between the Issuer or Master Trust II and a Party
in Interest............................................................. 97
Investment by Benefit Plan Investors..................................... 98
Page
----
Tax Consequences to Benefit Plans......................................... 98
Plan of Distribution....................................................... 98
Legal Matters.............................................................. 99
Where You Can Find More Information........................................ 99
Glossary of Defined Terms.................................................. 101
5
Prospectus Summary
This summary does not contain all the information you may need to make an
informed investment decision. You should read the entire prospectus and any
supplement to this prospectus before you purchase any notes. The accompanying
supplement to this prospectus may supplement disclosure in this prospectus.
Securities Offered
The issuer will be offering notes. The notes will be issued pursuant to an
indenture between the issuer and The Bank of New York, as indenture trustee.
Risk Factors
Investment in notes involves risks. You should consider carefully the risk
factors beginning on page 15 in this prospectus and any risk factors disclosed
in the accompanying prospectus supplement.
Issuer
MBNA Credit Card Master Note Trust, a Delaware trust, will be the issuer of the
notes. The address of the issuer will be MBNA Credit Card Master Note Trust,
c/o Wilmington Trust Company, Rodney Square North 100 N. Market Street,
Wilmington, Delaware 19890-0001. Its telephone number will be (302) 651-1284.
Master Trust II
The issuer's primary asset will be the collateral certificate issued by the
MBNA Master Credit Card Trust II, which is referred to in this prospectus and
in the accompanying prospectus supplement as master trust II. For a description
of the collateral certificate, see "Sources of Funds to Pay the Notes--The
Collateral Certificate." Master trust II's assets consist primarily of credit
card receivables arising in a portfolio of consumer revolving credit card
accounts. In addition, MBNA is permitted to add to master trust II
participations representing interests in a pool of assets primarily consisting
of receivables arising under consumer revolving credit card accounts owned by
MBNA and collections thereon. For a description of master trust II, see "Master
Trust II."
MBNA
MBNA America Bank, National Association formed master trust II and has
transferred and may continue to transfer credit card receivables to master
trust II. MBNA will be responsible for servicing, managing and making
collections on the credit card receivables in master trust II.
MBNA will be the originator and beneficiary of the issuer.
Indenture Trustee
The Bank of New York will be the indenture trustee under the indenture for the
notes.
Series, Classes and Tranches of Notes
The notes will be issued in series. Each series is entitled to its allocable
share of the issuer's assets. It is expected that most series will consist of
multiple classes. A class designation determines the relative seniority for
receipt of cash flows and
6
funding of uncovered defaults on principal receivables in master trust II
allocated to the related series of notes. For example, subordinated classes of
notes provide credit enhancement for senior classes of notes in the same
series.
Some series of notes will be multiple tranche series, meaning that they may
have classes consisting of multiple tranches. Tranches of notes within a class
may be issued on different dates and have different stated principal amounts,
rates of interest, interest payment dates, expected principal payment dates,
legal maturity dates and other material terms as described in the related
prospectus supplement.
In a multiple tranche series, the expected principal payment dates and the
legal maturity dates of the senior and subordinated classes of such series may
be different. As such, certain subordinated tranches of notes may have expected
principal payment dates and legal maturity dates earlier than some or all of
the senior notes of such series. However, subordinated notes will not be repaid
before their legal maturity dates, unless, after payment, the remaining
subordinated notes provide the required enhancement for the senior notes. In
addition, senior notes will not be issued unless, after issuance, there are
enough outstanding subordinated notes to provide the required subordinated
amount for the senior notes. See "The Notes--Issuance of New Series, Classes
and Tranches of Notes."
Some series may not be multiple tranche series. For these series, there will be
only one tranche per class and each class will generally be issued on the same
date. The expected principal payment dates and legal maturity dates of the
subordinated classes of such a series will either be the same as or later than
those of the senior classes of that series.
Interest Payments
Each tranche of notes, other than discount notes, will bear interest from the
date and at the rate set forth or as determined in the related prospectus
supplement. Interest on the notes will be paid on the interest payment dates
specified in the related prospectus supplement.
Expected Principal Payment Date and Legal Maturity Date
Unless otherwise specified in the related prospectus supplement, it is expected
that the issuer will pay the stated principal amount of each note in one
payment on that note's expected principal payment date. The expected principal
payment date of a note is generally 29 months before its legal maturity date.
The legal maturity date is the date on which a note is legally required to be
fully paid in accordance with its terms. The expected principal payment date
and legal maturity date for a note will be specified in the related prospectus
supplement.
The issuer will be obligated to pay the stated principal amount of a note on
its expected principal payment date, or upon the occurrence of an early
redemption event or event of default and acceleration or other optional or
mandatory redemption, only to the extent that funds are available for that
purpose and only to the extent that payment is permitted by the subordination
provisions of the senior notes of the same series. The
7
remedies a noteholder may exercise following an event of default and
acceleration or on the legal maturity date are described in "The Indenture --
Events of Default Remedies" and "Sources of Funds to Pay the Notes--Sale of
Credit Card Receivables."
Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal
Liquidation Amount of Notes
Each note has a stated principal amount, an outstanding dollar principal amount
and a nominal liquidation amount.
. Stated Principal Amount. The stated principal amount of a note is the amount
that is stated on the face of the note to be payable to the holder. It can be
denominated in U.S. dollars or a foreign currency.
. Outstanding Dollar Principal Amount. For U.S. dollar notes (other than
discount notes), the outstanding dollar principal amount is the same as the
initial dollar principal amount of the notes (as set forth in the applicable
supplement to this prospectus), less principal payments to noteholders. For
foreign currency notes, the outstanding dollar principal amount is the U.S.
dollar equivalent of the initial dollar principal amount of the notes (as set
forth in the related prospectus supplement), less dollar payments to
derivative counterparties with respect to principal. For discount notes, the
outstanding dollar principal amount is an amount stated in, or determined by
a formula described in, the related prospectus supplement.
In addition, a note may have an adjusted outstanding dollar principal amount.
The adjusted outstanding dollar principal amount is the same as the
outstanding dollar principal amount, less any funds on deposit in the
principal funding subaccount for that note.
. Nominal Liquidation Amount. The nominal liquidation amount of a note is a
U.S. dollar amount based on the outstanding dollar principal amount of the
note, but after deducting:
--that note's share of reallocations of available principal amounts used to
pay interest on senior classes of notes or a portion of the master trust II
servicing fee allocated to its series;
--that note's share of charge-offs resulting from uncovered defaults on
principal receivables in master trust II;
--amounts on deposit in the principal funding subaccount for that note;
and adding back all reimbursements from excess available funds allocated to
that note of (i) reallocations of available principal amounts used to pay
interest on senior classes of notes or the master trust II servicing fee or
(ii) charge-offs resulting from uncovered defaults on principal receivables in
master trust II. Excess available funds are available funds that remain after
the payment of interest and other required payments with respect to the notes.
The nominal liquidation amount of a note corresponds to the portion of the
investor interest of the collateral certificate that is allocated to support
that note.
8
The aggregate nominal liquidation amount of all of the notes is equal to the
investor interest of the collateral certificate. The investor interest of the
collateral certificate corresponds to the amount of principal receivables in
master trust II that is allocated to support the collateral certificate. For a
more detailed discussion, see the definition of investor interest in the
glossary. Anything that increases or decreases the aggregate nominal
liquidation amount of the notes will also increase or decrease the investor
interest of the collateral certificate.
Upon a sale of credit card receivables held by master trust II (i) following
the insolvency of MBNA, (ii) following an event of default and acceleration for
a note, or (iii) on a note's legal maturity date, each as described in "Sources
of Funds to Pay the Notes--Sale of Credit Card Receivables," the nominal
liquidation amount of a note will be reduced to zero.
For a detailed discussion of nominal liquidation amount, see "The Notes--Stated
Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation
Amount."
Subordination
Unless otherwise specified in the prospectus supplement, payment of principal
of and interest on subordinated classes of notes will be subordinated to the
payment of principal of and interest on senior classes of notes.
Unless otherwise specified in the prospectus supplement, available principal
amounts allocable to the notes of a series may be reallocated to pay interest
on senior classes of notes in that series or a portion of the master trust II
servicing fee allocable to that series. In addition, the nominal liquidation
amount of a subordinated class of notes will generally be reduced for charge-
offs resulting from uncovered defaults on principal receivables in master trust
II prior to any reductions in the nominal liquidation amount of the senior
classes of notes of the same series. While in a multiple tranche series charge-
offs from uncovered defaults on principal receivables in master trust II
allocable to the series will be initially allocated to each tranche pro rata,
these charge-offs will then be reallocated from tranches in the senior classes
to tranches in the subordinated classes to the extent credit enhancement in the
form of subordination is still available to such senior tranches.
In addition, available principal amounts are first utilized to fund targeted
deposits to the principal funding subaccounts of senior classes before being
applied to the principal funding subaccounts of the subordinated classes.
In a multiple tranche series, subordinated notes that reach their expected
principal payment date, or that have an early redemption event, event of
default or other optional or mandatory redemption, will not be paid to the
extent that those notes are necessary to provide the required subordination for
senior classes of notes of the same series. If a tranche of subordinated notes
cannot be paid because of the subordination provisions of its respective
indenture supplement, prefunding of the principal funding subaccounts for the
senior notes of the same series will begin, as described in the related
prospectus supplement. After that time, the
9
subordinated notes will be paid only to the extent that:
. the principal funding subaccounts for the senior classes of notes of that
series are prefunded in an amount such that the subordinated notes that have
reached their expected principal payment date are no longer necessary to
provide the required subordination;
. new tranches of subordinated notes of that series are issued so that the
subordinated notes that have reached their expected principal payment date
are no longer necessary to provide the required subordination;
. enough notes of senior classes of that series are repaid so that the
subordinated notes that have reached their expected principal payment date
are no longer necessary to provide the required subordination; or
. the subordinated notes reach their legal maturity date.
On the legal maturity date of a tranche of notes, available principal amounts,
if any, allocable to that tranche and proceeds from any sale of receivables
will be paid to the noteholders of that tranche, even if payment would reduce
the amount of available subordination below the required subordination for the
senior classes of that series.
Limit on Repayment of All Notes
You may not receive full repayment of your notes if:
. the nominal liquidation amount of your notes has been reduced by charge-offs
due to uncovered defaults on principal receivables in master trust II or as a
result of reallocations of available principal amounts to pay interest on
senior classes of notes or a portion of the master trust II servicing fee,
and those amounts have not been reimbursed from available funds; or
. receivables are sold (i) following the insolvency of MBNA, (ii) following an
event of default and acceleration or (iii) on the legal maturity date, and
the proceeds from the sale of receivables, plus any available amounts on
deposit in the applicable subaccounts allocable to your notes are
insufficient.
Sources of Funds to Pay the Notes
The issuer will have the following sources of funds to pay principal of and
interest on the notes:
. Collateral Certificate. The collateral certificate is an investor certificate
issued as "Series 2001-D" by master trust II to the issuer. It represents an
undivided interest in the assets of master trust II. Master trust II owns
primarily receivables arising in selected MasterCard and VISA consumer
revolving credit card accounts. MBNA has transferred, and may continue to
transfer, credit card receivables to master trust II in accordance with the
terms of the master trust II agreement. Both collections of principal
receivables and finance charge receivables will be allocated among holders of
interests in master trust II--including the collateral certificate--based
generally on the investment in principal receivables of each interest in
master trust II. If collections of receivables allocable to the collateral
certificate are less than expected, payments of principal of and interest on
the notes could be delayed or remain unpaid.
10
The collateral certificate will receive an investment grade rating from at
least one nationally recognized rating agency.
. Derivative Agreements. Some notes may have the benefit of one or more
derivative agreements, including interest rate or currency swaps, or other
similar agreements with various counterparties. A description of the specific
terms of each derivative agreement and each derivative counterparty will be
included in the applicable prospectus supplement.
. The Issuer Accounts. The issuer will establish a collection account for the
purpose of receiving collections of finance charge receivables and principal
receivables and other related amounts from master trust II payable under the
collateral certificate. If so specified in the prospectus supplement, the
issuer may establish supplemental accounts for any series, class or tranche
of notes.
Each month, distributions on the collateral certificate will be deposited into
the collection account. Those deposits will then be allocated among each series
of notes and applied as described in the accompanying prospectus supplement.
Early Redemption of Notes
The issuer will be required to redeem any note upon the occurrence of an early
redemption event with respect to that note, but only to the extent funds are
available for such redemption after giving effect to all allocations and
reallocations and, in the case of subordinated notes of a multiple tranche
series, only to the extent that payment is permitted by the subordination
provisions of the senior notes of the same series.
However, if so specified in the accompanying prospectus supplement, subject to
certain exceptions, any notes that have the benefit of a derivative agreement
will not be redeemed prior to such notes' expected principal payment date.
Early redemption events include, unless otherwise provided in the related
prospectus supplement, the following:
. the occurrence of a note's expected principal payment date;
. each of the pay out events applicable to the collateral certificate, as
described under "Master Trust II--Pay Out Events";
. the issuer becoming an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; or
. any additional early redemption events specified in the accompanying
prospectus supplement.
It is not an event of default if the issuer fails to redeem a note because it
does not have sufficient funds available or because payment of the note is
delayed because it is necessary to provide required subordination for a senior
class of notes.
If so specified in the accompanying prospectus supplement, under certain
circumstances the servicer may direct the issuer to redeem the notes of any
series, class or tranche before the applicable expected principal payment date
on the terms described in such prospectus supplement.
Events of Default
The documents that govern the terms and conditions of the notes include a list
of adverse events known as events of default. Some events of default result in
an automatic acceleration of the notes, and others result in the right of the
holders of the affected series, class or tranche of notes to demand
acceleration after an affirmative
11
vote by holders of more than 50% of the outstanding dollar principal amount of
the affected series, class or tranche of notes.
Events of default for any series, class or tranche of notes include the
following:
. with respect to any tranche of notes, the issuer's failure, for a period of
35 days, to pay interest upon such notes when such interest becomes due and
payable;
. with respect to any tranche of notes, the issuer's failure to pay the
principal amount of such notes on the applicable legal maturity date;
. the issuer's default in the performance, or breach, of any other of its
covenants or warranties in the indenture for a period of 60 days after either
the indenture trustee or the holders of 25% of the aggregate outstanding
dollar principal amount of the outstanding notes of the affected series,
class or tranche has provided written notice requesting remedy of such
breach, and, as a result of such default, the interests of the related
noteholders are materially and adversely affected and continue to be
materially and adversely affected during the 60 day period;
. the occurrence of certain events of bankruptcy, insolvency, conservatorship
or receivership of the issuer; and
. with respect to any series, class or tranche of notes, any additional events
of default specified in the accompanying prospectus supplement.
An event of default with respect to one series, class or tranche of notes will
not necessarily be an event of default with respect to any other series, class
or tranche of notes.
Events of Default Remedies
After an event of default and acceleration of a series, class or tranche of
notes, funds on deposit in the applicable issuer accounts for the affected
notes will be applied to pay principal of and interest on those notes. Then, in
each following month, available principal amounts and available funds allocated
to those 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 legal maturity date of those notes. However, subordinated notes of a
multiple tranche series will receive payment of principal of those notes prior
to the legal maturity date of such notes only if and to the extent that funds
are available for that payment and, after giving effect to that payment, the
required subordination will be maintained for senior notes in that series.
If an event of default of a series, class or tranche of notes occurs and that
series, class or tranche of notes is accelerated, the indenture trustee may,
and at the direction of the majority of the noteholders of the affected series,
class or tranche will, direct master trust II to sell credit card receivables.
However, this sale of receivables may occur only if:
. the conditions specified in "The Indenture--Events of Default" are satisfied
and, for subordinated notes of a multiple tranche series, only to the extent
that payment is permitted by the
12
subordination provisions of the senior notes of the same series; or
. on the legal maturity date of those notes.
The holders of the accelerated notes will be paid their allocable share of the
proceeds of a sale of credit card receivables. Upon the sale of the
receivables, the nominal liquidation amount of those accelerated notes will be
reduced to zero. See "Sources of Funds to Pay the Notes--Sale of Credit Card
Receivables."
Security for the Notes
The notes of all series are secured by a shared security interest in the
collateral certificate and the collection account, but each tranche of notes is
entitled to the benefits of only that portion of those assets allocated to it
under the indenture and the indenture supplement.
Each tranche of notes is also secured by:
. a security interest in any applicable supplemental account; and
. a security interest in any derivative agreement for that tranche.
Limited Recourse to the Issuer
The sole source of payment for principal of or interest on a tranche of notes
is provided by:
. the portion of collections of principal receivables and finance charge
receivables received by the issuer under the collateral certificate and
available to that tranche of notes after giving effect to all allocations and
reallocations;
. funds in the applicable issuer accounts for that tranche of notes; and
. payments received under any applicable derivative agreement for that tranche
of notes.
Noteholders will have no recourse to any other assets of the issuer or any
other person or entity for the payment of principal of or interest on the
notes.
If there is a sale of credit card receivables (i) following the insolvency of
MBNA, (ii) following an event of default and acceleration, or (iii) on the
applicable legal maturity date, each as described in "Sources of Funds to Pay
the Notes--Sale of Credit Card Receivables," following such sale those
noteholders have recourse only to the proceeds of that sale, investment
earnings on those proceeds and any funds previously deposited in any applicable
issuer account for such noteholders.
Registration, Clearance and Settlement
The notes offered by this prospectus will be registered in the name of The
Depository Trust Company or its nominee, and purchasers of notes will only be
entitled to receive a definitive certificate under limited circumstances.
Owners of notes may elect to hold their notes through The Depository Trust
Company in the United States or through Clearstream, Luxembourg or the
Euroclear System in Europe. Transfers will be made in accordance with the rules
and operating procedures of those clearing systems. See "The Notes--Book-Entry
Notes."
ERISA Eligibility
The indenture permits benefit plans to purchase notes of every class offered
13
pursuant to this prospectus and a related prospectus supplement. A fiduciary of
a benefit plan should consult its counsel as to whether a purchase of notes by
the plan is permitted by ERISA and the Internal Revenue Code. See "Benefit Plan
Investors."
Tax Status
Subject to important considerations described under "Federal Income Tax
Consequences" in this prospectus, Orrick, Herrington & Sutcliffe LLP, as
special tax counsel to the issuer, is of the opinion that, for United States
federal income tax purposes (1) the notes will be treated as indebtedness and
(2) the issuer will not be an association or a publicly traded partnership
taxable as a corporation. In addition, noteholders will agree, by acquiring
notes, to treat the notes as debt for federal, state and local income and
franchise tax purposes.
Denominations
The notes offered by this prospectus will be issued in denominations of $1,000
and multiples of $1,000 in excess of that amount.
Record Date
The record date for payment of the notes will be the last day of the month
before the related payment date.
14
Risk Factors
The risk factors disclosed in this section of the prospectus and in the
accompanying prospectus supplement describe the principal risk factors of an
investment in the notes.
Some liens or interests may be given priority over
your notes which could cause your receipt of payments
to be delayed or reduced.
MBNA will represent and warrant that its transfer of
receivables to master trust II is either (1) an
absolute sale of those receivables or (2) the grant
of a security interest in those receivables. For a
description of master trust II's rights if these
representations and warranties are not true, see
"Master Trust II--Representations and Warranties" in
this prospectus. In addition, MBNA will represent and
warrant that its transfer of the collateral
certificate to the issuer is either (1) an absolute
sale of the collateral certificate or (2) the grant
of a security interest in the collateral certificate.
MBNA will take steps under the Uniform Commercial
Code to perfect master trust II's interest in the
receivables and the issuer's and the indenture
trustee's interest in the collateral certificate.
Nevertheless, if the UCC does 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.
MBNA will represent, warrant, and covenant that both
its transfer of receivables to master trust II and
its transfer of the collateral certificate to the
issuer is perfected and free and clear of the lien or
interest of any other entity. If this is not true,
master trust II's interest in the receivables and the
issuer's and the indenture trustee's interest in the
collateral certificate 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 master trust II, or a prior or
subsequent transferee of the collateral certificate
could have an interest in the collateral
certificate superior to the interest of the issuer
and the indenture trustee;
. a tax, governmental, or other nonconsensual lien
that attaches to the property of MBNA could have
priority over the interest of master trust II in
the receivables and the interest of the issuer and
the indenture trustee in the collateral
certificate; and
15
. the administrative expenses of a conservator or
receiver for MBNA could be paid from collections on
the receivables or distributions on the collateral
certificate before master trust II, the issuer or
the indenture trustee receives any payments.
If a conservator or receiver were appointed for MBNA,
delays or reductions in payment of your notes could
occur.
MBNA is chartered as a national banking association
and is regulated and supervised by the Office of the
Comptroller of the Currency, which is authorized to
appoint the Federal Deposit Insurance Corporation as
conservator or receiver for MBNA if certain events
occur relating to MBNA's financial condition or the
propriety of its actions. In addition, the FDIC could
appoint itself as conservator or receiver for MBNA.
Although MBNA will treat both its transfer of the
receivables to master trust II and its transfer of
the collateral certificate to the issuer as sales for
accounting purposes, each of these transfers may
constitute the grant of a security interest under
general applicable law. Nevertheless, the FDIC has
issued regulations surrendering certain rights under
the Federal Deposit Insurance Act, as amended by the
Financial Institutions Reform, Recovery and
Enforcement Act of 1989, to reclaim, recover, or
recharacterize a financial institution's transfer of
financial assets such as the receivables and the
collateral certificate if (i) the transfer involved a
securitization of the financial assets and meets
specified conditions for treatment as a sale under
relevant accounting principles, (ii) the financial
institution received adequate consideration for the
transfer, (iii) the parties intended that the
transfer constitute a sale for accounting purposes,
and (iv) the financial assets were not transferred
fraudulently, in contemplation of the financial
institution's insolvency, or with the intent to
hinder, delay, or defraud the financial institution
or its creditors. The master trust II agreement and
MBNA's transfer of the receivables, as well as the
trust agreement and MBNA's transfer of the collateral
certificate, are intended to satisfy all of these
conditions.
If a condition required under the FDIC's regulations
were found not to have been met, however, the FDIC
could reclaim, recover, or recharacterize MBNA's
transfer of the receivables or the collateral
certificate. The FDIA would limit master trust II's,
the issuer's or the indenture trustee's damages in
this event to its "actual direct compensatory
damages" determined
16
as of the date that the FDIC was appointed as
conservator or receiver for MBNA. The FDIC, moreover,
could delay its decision whether to reclaim, recover,
or recharacterize MBNA's transfer of the receivables
or the collateral certificate for a reasonable period
following its appointment as conservator or receiver
for MBNA. Therefore, if the FDIC were to reclaim,
recover, or recharacterize MBNA's transfer of the
receivables or the collateral certificate, payments
to you could be delayed or reduced.
Even if the conditions set forth in the regulations
were satisfied and the FDIC did not reclaim, recover,
or recharacterize MBNA's transfer of the receivables
or the collateral certificate, you could suffer a
loss on your investment if (i) the master trust II
agreement, the trust agreement, or MBNA's transfer of
the receivables or the collateral certificate were
found to violate the regulatory requirements of the
FDIA, (ii) master trust II, the master trust II
trustee, the issuer, or the indenture trustee were
required to comply with the claims process
established under the FDIA in order to collect
payments on the receivables or the collateral
certificate, (iii) the FDIC were to request a stay of
any action by master trust II, the master trust II
trustee, the issuer, or the indenture trustee to
enforce the master trust II agreement, the trust
agreement, the indenture, the collateral certificate,
or the notes, or (iv) the FDIC were to repudiate
other parts of the master trust II agreement or the
trust agreement, such as any obligation to collect
payments on or otherwise service the receivables or
to manage the issuer.
In addition, regardless of the terms of the master
trust II agreement, the trust agreement, or the
indenture, and regardless of the instructions of
those authorized to direct the master trust II
trustee's, the issuer's or the indenture trustee's
actions, the FDIC as conservator or receiver for MBNA
may have the power (i) to prevent or require the
commencement of an early redemption of the notes,
(ii) to prevent, limit, or require the early
liquidation of receivables or the collateral
certificate and termination of master trust II or the
issuer, or (iii) to require, prohibit, or limit the
continued transfer of receivables or payments on the
collateral certificate. Furthermore, regardless of
the terms of the master trust II agreement or the
trust agreement, the FDIC (i) could prevent the
appointment of a successor servicer or another
manager for the issuer or (ii) could authorize MBNA
to stop servicing the receivables or
17
managing the issuer. If any of these events were to
occur, payments to you could be delayed or reduced.
In addition, if insolvency proceedings were commenced
by or against MBNA, or if certain time periods were
to pass, master trust II, the issuer and the
indenture trustee may lose any perfected security
interest in collections held by MBNA and commingled
with its other funds. See "Sources of Funds to Pay
the Notes--The Collateral Certificate" and "Master
Trust II--Application of Collections."
Changes to consumer protection laws may impede
collection efforts or alter timing and amount of
collections which may result in an acceleration of or
reduction in payments on your notes.
Receivables that do not comply with consumer
protection laws may not be valid or enforceable under
their terms against the obligors of those
receivables.
Federal and state consumer protection laws regulate
the creation and enforcement of consumer loans.
Congress and the states could further regulate the
credit card and consumer credit industry in ways that
make it more difficult for MBNA as servicer of master
trust II to collect payments on the receivables or
that reduce the finance charges and other fees that
MBNA as seller to master trust II can charge on
credit card account balances. For example, if MBNA
were required to reduce its finance charges and other
fees, resulting in a corresponding decrease in the
credit card accounts' effective yield, this could
lead to an early redemption event and could result in
an acceleration of payment or reduced payments on
your notes. See "Material Legal Aspects of the
Receivables--Consumer Protection Laws" in this
prospectus.
If a cardholder sought protection under federal or
state bankruptcy or debtor relief laws, a court could
reduce or discharge completely the cardholder's
obligations to repay amounts due on its account and,
as a result, the related receivables would be written
off as uncollectible. The noteholders could suffer a
loss if no funds are available from credit
enhancement or other sources. See "Master Trust II--
Defaulted Receivables; Rebates and Fraudulent
Charges" in this prospectus.
18
Competition in the credit card industry may result in
a decline in ability to generate new receivables.
This may result in the payment of principal earlier
or later than the expected principal payment date, or
in reduced amounts.
The credit card industry is highly competitive. As
new credit card companies enter the market and
companies try to expand their market share, effective
advertising, target marketing and pricing strategies
grow in importance. MBNA's ability to compete in this
environment will affect its ability to generate new
receivables and might also affect payment patterns on
the receivables. If the rate at which MBNA generates
new receivables declines significantly, MBNA might be
unable to transfer additional receivables or
designate additional credit card accounts to master
trust II and a pay out event could occur, resulting
in payment of principal sooner than expected or in
reduced amounts. If the rate at which MBNA generates
new receivables decreases significantly at a time
when noteholders are scheduled to receive principal,
noteholders might receive principal more slowly than
planned or in reduced amounts.
Payment patterns of cardholders may not be consistent
over time and variations in these payment patterns
may result in reduced payment of principal, or
receipt of payment of principal earlier or later than
expected.
Collections of principal receivables available to pay
your notes on any principal payment date or to make
deposits into an issuer account will depend on many
factors, including:
. the rate of repayment of credit card balances by
cardholders, which may be slower or faster than
expected which may cause payment on the notes to
be earlier or later than expected;
. the extent of credit card usage by cardholders,
and the creation of additional receivables in
the accounts designated to master trust II; and
. the rate of default by cardholders.
Changes in payment patterns and credit card usage
result from a variety of economic, competitive,
social and legal factors. Economic factors include
the rate of inflation, unemployment levels and
relative interest rates. The availability of
incentive or other award programs may also affect
cardholders' actions.
19
Social factors include consumer confidence levels and
the public's attitude about incurring debt and the
consequences of personal bankruptcy. We cannot
predict how these or other factors will affect
repayment patterns or card use and, consequently, the
timing and amount of payments on your notes.
Allocations of defaulted principal receivables and
reallocation of available principal amounts could
result in a reduction in payment on your notes.
MBNA, as servicer, will write off the principal
receivables arising in credit card accounts in the
master trust II portfolio if the principal
receivables become uncollectible. Your notes will be
allocated a portion of these defaulted principal
receivables. In addition, available principal amounts
may be reallocated to pay interest on senior classes
of notes or to pay a portion of the master trust II
servicing fee. You may not receive full repayment of
your notes and full payment of interest due if
(i) the nominal liquidation amount of your notes has
been reduced by charge-offs resulting from uncovered
default amounts on principal receivables in master
trust II or as the result of reallocations of
available principal amounts to pay interest and a
portion of the master trust II servicing fee, and
(ii) those amounts have not been reimbursed from
available funds. For a discussion of nominal
liquidation amount, see "The Notes--Stated Principal
Amount, Outstanding Dollar Principal Amount and
Nominal Liquidation Amount."
The note interest rate and the receivables interest
rate may re-set at different times or fluctuate
differently, resulting in a delay or reduction in
payments on your notes.
Some credit card accounts may have finance charges
set at a variable rate based on a designated index
(for example, the prime rate). A series, class or
tranche of notes may bear interest either at a fixed
rate or at a floating rate based on a different
index. If the rate charged on the credit card
accounts declines, collections of finance charge
receivables allocated to the collateral certificate
may be reduced without a corresponding reduction in
the amounts payable as interest on the notes and
other amounts paid from collections of finance charge
receivables. This could result in delayed or reduced
principal and interest payments to you.
20
Issuance of additional notes or master trust II
investor certificates may affect the timing and
amount of payments to you.
The issuer expects to issue notes from time to time,
and master trust II may issue new investor
certificates from time to time. New notes and master
trust II investor certificates may be issued without
notice to existing noteholders, and without their
consent, and may have different terms from
outstanding notes and investor certificates. For a
description of the conditions that must be met before
master trust II can issue new investor certificates
or the issuer can issue new notes, see "Master Trust
II--New Issuances" and "The Notes--Issuances of New
Series, Classes and Tranches of Notes."
The issuance of new notes or master trust II investor
certificates could adversely affect the timing and
amount of payments on outstanding notes. For example,
if notes in your series issued after your notes have
a higher interest rate than your notes, this could
result in a reduction in the available funds used to
pay interest on your notes. Also, when new notes or
investor certificates are issued, the voting rights
of your notes will be diluted. See "Risk Factors--You
may have limited or no ability to control actions
under the indenture and the master trust II
agreement."
Addition of credit card accounts to master trust II
may decrease the credit quality of the assets
securing the repayment of your notes. If this occurs,
your receipt of payments of principal and interest
may be reduced, delayed or accelerated.
The assets of master trust II, and therefore the
assets allocable to the collateral certificate held
by the issuer, change every day. MBNA may choose, or
may be required, to add credit card receivables to
master trust II. The credit card accounts from which
these receivables arise may have different terms and
conditions from the credit card accounts already
designated for master trust II. For example, the new
credit card accounts may have higher or lower fees or
interest rates, or different payment terms. We cannot
guarantee that new credit card accounts will be of
the same credit quality as the credit card accounts
currently or historically designated for master trust
II. If the credit quality of the assets in master
trust II were to deteriorate, the issuer's ability to
make payments on the notes could be adversely
affected. See "Master Trust II--Addition of Master
Trust II Assets."
21
MBNA may not be able to generate new receivables or
designate new credit card accounts to master trust II
when required by the master trust II agreement. This
could result in an acceleration of or reduction in
payments on your notes.
The issuer's ability to make payments on the notes
will be impaired if sufficient new credit card
receivables are not generated by MBNA. We do not
guarantee that new credit card receivables will be
created, that any credit card receivables will be
added to master trust II or that credit card
receivables will be repaid at a particular time or
with a particular pattern.
The master trust II agreement provides that MBNA must
add additional credit card receivables to master
trust II if the total amount of principal receivables
in master trust II falls below specified percentages
of the total investor interests of investor
certificates in master trust II. There is no
guarantee that MBNA will have enough receivables to
add to master trust II. If MBNA does not make an
addition of receivables within five business days
after the date it is required to do so, a pay out
event will occur with respect to the collateral
certificate. This would constitute an early
redemption event and could result in an early payment
of your notes. See "Master Trust II --Addition of
Master Trust II Assets," "--Pay Out Events" and
"Indenture--Early Redemption Events."
MBNA may change the terms of the credit card accounts
in a way that reduces or slows collections. These
changes may result in reduced, accelerated or delayed
payments to you.
MBNA transfers the receivables to master trust II but
continues to own the credit card accounts. As owner
of the credit card accounts, MBNA retains the right
to change various credit card account terms
(including finance charges and other fees it charges
and the required monthly minimum payment). An early
redemption event could occur if MBNA reduced the
finance charges and other fees it charges and a
corresponding decrease in the collection of finance
charges and fees resulted. In addition, changes in
the credit card account terms may alter payment
patterns. If payment rates decrease significantly at
a time when you are scheduled to receive principal,
you might receive principal more slowly than planned.
MBNA will not reduce the interest rate it charges on
the receivables or other fees if that action would
cause a master trust II pay out event or cause an
early redemption event with
22
respect to the notes unless MBNA is required by law
or determines it is necessary to maintain its credit
card business, based on its good faith assessment of
its business competition.
MBNA will not change the terms of the credit card
accounts or its servicing practices (including the
reduction of the required minimum monthly payment and
the calculation of the amount or the timing of
finance charges, other fees and charge-offs) unless
MBNA reasonably believes a master trust II pay out
event would not occur for any master trust II series
of investor certificates and an early redemption
event would not occur with respect to any tranche of
notes and takes the same action on other
substantially similar credit card accounts, to the
extent permitted by those credit card accounts.
For a discussion of early redemption events, see the
prospectus supplement.
MBNA has no restrictions on its ability to change the
terms of the credit card accounts except as described
above or in the accompanying prospectus supplement.
Changes in relevant law, changes in the marketplace
or prudent business practices could cause MBNA to
change credit card account terms.
If MBNA breaches representations and warranties
relating to the receivables, payments on your notes
may be reduced.
MBNA, as seller of the receivables, makes
representations and warranties relating to the
validity and enforceability of the receivables
arising under the credit card accounts in the master
trust II portfolio, and as to the perfection and
priority of the master trust II trustee's interests
in the receivables. However, the master trust II
trustee will not make any examination of the
receivables or the related assets for the purpose of
determining 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 MBNA may claim rights to the master
trust II assets. If a representation or warranty is
violated, MBNA may have an opportunity to cure the
violation. If it is unable to cure the violation,
subject to certain conditions described under "The
Notes--Representations and Warranties" in this
prospectus, MBNA must accept reassignment of each
receivable affected by the violation.
23
These reassignments are the only remedy for breaches
of representations and warranties, even if your
damages exceed your share of the reassignment price.
See "Master Trust II--Representations and Warranties"
in this prospectus.
There is no public market for the notes. As a result
you may be unable to sell your notes or the price of
the notes may suffer.
The underwriters of the notes may assist in resales
of the notes but they are not required to do so. A
secondary market for any notes may not develop. If a
secondary market does develop, it might not continue
or it might not be sufficiently liquid to allow you
to resell any of your notes.
In addition, some notes have a more limited trading
market and experience more price volatility. There
may be a limited number of buyers when you decide to
sell those notes. This may affect the price you
receive for the notes or your ability to sell the
notes. You should not purchase notes unless you
understand and know you can bear the investment
risks.
You may not be able to reinvest any early redemption
proceeds in a comparable security.
If your notes are redeemed at a time when prevailing
interest rates are relatively low, you may not be
able to reinvest the redemption proceeds in a
comparable security with an effective interest rate
equivalent to that of your notes.
If the ratings of the notes are lowered or withdrawn,
their market value could decrease.
The initial rating of a note addresses the likelihood
of the payment of interest on that note when due and
the ultimate payment of principal of that note by its
legal maturity date. The ratings do not address the
likelihood of payment of principal of a note on its
expected principal payment date. In addition, the
ratings do not address the possibility of early
payment or acceleration of a note, which could be
caused by an early redemption event or an event of
default. See "The Indenture--Early Redemption Events"
and "--Events of Default."
The ratings of the notes are not a recommendation to
buy, hold or sell the notes. The ratings of the notes
may be lowered or withdrawn entirely at any time by
the applicable rating agency.
24
The market value of the notes could decrease if the
ratings are lowered or withdrawn.
You may have limited or no ability to control actions
under the indenture and the master trust II
agreement. This may result in, among other things,
payment of principal being accelerated when it is in
your interest to receive payment of principal on the
expected principal payment date, or it may result in
payment of principal not being accelerated when it is
in your interest to receive early payment of
principal.
Under the indenture, some actions require the consent
of noteholders holding a specified percentage of the
aggregate outstanding dollar principal amount of
notes of a series, class or tranche or all the notes.
These actions include consenting to amendments
relating to the collateral certificate. In the case
of votes by series or votes by holders of all of the
notes, the outstanding dollar principal amount of the
senior-most classes of notes will generally be
substantially greater than the outstanding dollar
principal amount of the subordinated classes of
notes. Consequently, the noteholders of the senior-
most class of notes will generally have the ability
to determine whether and what actions should be
taken. The subordinated noteholders will generally
need the concurrence of the senior-most noteholders
to cause actions to be taken.
The collateral certificate is an investor certificate
under the master trust II agreement, and noteholders
have indirect consent rights under the master trust
II agreement. See "The Indenture--Voting." Under the
master trust II agreement, some actions require the
vote of a specified percentage of the aggregate
principal amount of all of the investor certificates.
These actions include consenting to amendments to the
master trust II agreement. In the case of votes by
holders of all of the investor certificates, the
outstanding principal amount of the collateral
certificate is and may continue to be substantially
smaller than the outstanding principal amount of the
other series of investor certificates issued by
master trust II. Consequently, the holders of
investor certificates--other than the collateral
certificate--will generally have the ability to
determine whether and what actions should be taken.
The noteholders, in exercising their voting powers
under the collateral certificate, will generally need
the concurrence of the holders of the other investor
certificates to cause actions to be taken.
25
If an event of default occurs, your remedy options
may be limited and you may not receive full payment
of principal and accrued interest.
Your remedies may be limited if an event of default
under your series, class or tranche of notes occurs.
After an event of default affecting your series,
class or tranche of notes and an acceleration of your
notes, any funds in an issuer account with respect to
that series, class or tranche of notes will be
applied to pay principal of and interest on those
notes. Then, in each following month, available
principal amounts and available funds will be
deposited into the applicable issuer account, and
applied to make monthly principal and interest
payments on those notes until the legal maturity date
of those notes.
However, if your notes are subordinated notes of a
multiple tranche series, you generally will receive
payment of principal of those notes only if and to
the extent that, after giving effect to that payment,
the required subordination will be maintained for the
senior classes of notes in that series.
Following an event of default and acceleration,
holders of the affected notes will have the ability
to direct a sale of credit card receivables held by
master trust II only under the limited circumstances
as described in "The Indenture--Events of Default"
and "Sources of Funds to Pay the Notes--Sale of
Credit Card Receivables."
However, following an event of default and
acceleration with respect to subordinated notes of a
multiple tranche series, if the indenture trustee or
a majority of the noteholders of the affected class
or tranche directs master trust II to sell credit
card receivables, the sale will occur only if, after
giving effect to that payment, the required
subordination will be maintained for the senior notes
in that series by the remaining notes or if such sale
occurs on the legal maturity date. However, if
principal of or interest on a tranche of notes has
not been paid in full on its legal maturity date, the
sale will automatically take place on that date
regardless of the subordination requirements of any
senior classes of notes.
Even if a sale of receivables is permitted, we can
give no assurance that the proceeds of the sale will
be enough to pay unpaid principal of and interest on
the accelerated notes.
26
The effect on noteholders of certain litigation
against MBNA is unclear.
In May 1996, Andrew B. Spark filed a lawsuit against
MBNA Corporation, MBNA and certain of its officers
and its subsidiary, MBNA Marketing Systems, Inc. The
case is pending in the United States District Court
for the District of Delaware. This suit is a
purported class action. The plaintiff alleges that
MBNA's advertising of its cash promotional annual
percentage rate program was fraudulent and deceptive.
The plaintiff seeks unspecified damages including
actual, treble and punitive damages and attorneys'
fees for an alleged breach of contract, violation of
the Delaware Deceptive Trade Practices Act and
violation of the federal Racketeer Influenced and
Corrupt Organizations Act. In February 1998, a class
was certified by the district court. In September
2000, the court gave preliminary approval to a
settlement of this suit for approximately $8.7
million. A hearing on final approval will be held in
May 2001. This case should have no effect with
respect to the collateral certificate or the
noteholders' interests. In October 1998, Gerald D.
Broder filed a lawsuit against MBNA Corporation and
MBNA in the Supreme Court of New York, County of New
York. This suit is a purported class action. The
plaintiff alleges that MBNA's advertising of its cash
promotional annual percentage rate program was
fraudulent and deceptive. The plaintiff seeks
unspecified damages including actual, treble and
punitive damages and attorneys' fees for an alleged
breach of contract, common law fraud and violation of
New York consumer protection statutes. In April 2000,
summary judgment was granted to MBNA Corporation and
MBNA on the common law fraud claim and a class was
certified by the Court. In May 2000, MBNA Corporation
and MBNA filed an appeal from the order certifying a
class. In March 2001, the order was affirmed by the
appellate court. In October 2000, the plaintiff filed
a motion for partial summary judgment. That motion is
pending. MBNA Corporation and MBNA believe that their
advertising practices were and are proper under
applicable federal and state law and intend to defend
this action vigorously. It is not clear at this point
in time what effect, if any, this case will have with
respect to the collateral certificate or the
noteholders' interests. See "Master Trust II--
Representations and Warranties" in this prospectus.
27
Glossary
This prospectus uses defined terms. You can find a listing of defined terms
in the "Glossary of Defined Terms" beginning on page 101 in this prospectus.
The Issuer
MBNA Credit Card Master Note Trust will be the issuer of the notes. The
issuer's principal offices will be at Rodney Square North 100 N. Market Street,
Wilmington, Delaware 19890-0001, in care of Wilmington Trust Company, as owner
trustee.
The issuer's activities will be limited to:
. acquiring and holding the collateral certificate, and other certificates
of beneficial interest in master trust II, and the other assets of the
issuer and the proceeds from these assets;
. issuing notes;
. making payments on the notes; and
. engaging in other activities that are necessary or incidental to
accomplish these limited purposes.
The assets of the issuer will consist primarily of:
. the collateral certificate;
. 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 issuer accounts.
It is not expected that the issuer will have any other significant assets.
UCC financing statements will be filed to perfect the ownership or security
interests of the issuer and the indenture trustee described herein.
The issuer will operate pursuant to a trust agreement between MBNA and
Wilmington Trust Company, the owner trustee. The issuer will not have any
officers or directors. Its sole beneficiary will be MBNA. As beneficiary, MBNA
will generally direct the actions of the issuer.
MBNA and the owner trustee may amend the trust agreement without the consent
of the noteholders or the indenture trustee so long as the amendment will not
(i) adversely affect in any material respect the interests of the noteholders
or (ii) significantly change the purpose and powers of the issuer, as set forth
in the trust agreement. Accordingly, neither the indenture trustee nor any
holder of any note will be entitled to vote on any such amendment.
28
In addition, if holders of not less than (a) in the case of a significant
change in the purpose and powers of the issuer which is not reasonably expected
to have a material adverse effect on the noteholders, a majority of the
aggregate outstanding dollar principal amount of the notes affected by an
amendment consent, and (b) in all other cases, 66 2/3% of the aggregate
outstanding dollar principal amount of the notes affected by an amendment
consent, the trust agreement may also be amended for the purpose of (i) adding,
changing or eliminating any provisions of the trust agreement or of modifying
the rights of those noteholders or (ii) significantly changing the purposes and
powers of the issuer.
In addition, a noteholder will not have any right to consent to any amendment
to the trust agreement providing for a change in the beneficiary or other
related amendments in connection with replacing MBNA, as seller under the
master trust II agreement, with a bankruptcy-remote special purpose entity.
See "The Indenture--Tax Opinions for Amendments" for additional conditions to
amending the trust agreement.
Use of Proceeds
The net proceeds from the sale of each series, class and tranche of notes
offered hereby will be paid to MBNA. MBNA will use such proceeds for its
general corporate purposes.
MBNA and MBNA Corporation
MBNA America Bank, National Association, a national banking association
located in Wilmington, Delaware, conducts nationwide consumer lending programs
principally comprised of credit card related activities. MBNA has two wholly
owned foreign bank subsidiaries, MBNA Europe Bank Limited, located in the
United Kingdom and MBNA Canada Bank, located in Canada.
MBNA conducts all direct customer contact processes with respect to the
cardholder. This involves a 24 hour, 365 day per year Customer Service
telephone staff, Credit Decisions, Correspondence Resolution, Security and
Collection Operations.
MBNA is a wholly-owned subsidiary of MBNA Corporation. MBNA was established
in January 1991 in connection with a restructuring of the former MBNA America
Bank, N.A., a wholly-owned subsidiary of MNC Financial, Inc. MBNA Corporation
is a bank holding company organized under the laws of Maryland in 1990 and
registered under the Bank Holding Company Act of 1956, as amended. The
principal asset of MBNA Corporation is the capital stock of MBNA.
The Notes
The notes will be issued pursuant to the indenture and a related indenture
supplement. The following discussion and the discussions under "The Indenture"
in this prospectus and certain sections in the related prospectus supplement
summarize the material terms of the notes, the indenture and the indenture
supplements. These summaries do not purport to be complete and are qualified in
their entirety by reference to the provisions of the indenture and the
indenture supplements. The indenture does not limit the aggregate stated
principal amount of notes that may be issued.
29
The notes will be issued in series. Each series of notes will represent a
contractual debt obligation of the issuer which shall be in addition to the
debt obligations of the issuer represented by any other series of notes. Each
series will be issued pursuant to the indenture and an indenture supplement,
copies of the forms of which are filed as exhibits to the registration
statement of which this prospectus is a part. Each prospectus supplement will
describe the provisions specific to the related series, class or tranche of
notes.
The following summaries describe certain provisions common to each series of
notes.
General
Each series of notes is expected to consist of multiple classes of notes.
Some series, if so specified in the accompanying prospectus supplement, may be
multiple tranche series, meaning they have classes consisting of multiple
tranches. Whenever a "class" of notes is referred to in this prospectus or any
prospectus supplement, it also includes all tranches of that class, unless the
context otherwise requires.
The issuer may issue different tranches of notes of a multiple tranche series
at the same time or at different times, but no senior tranche of notes of a
series may be issued unless a sufficient amount of subordinated notes (or other
form of credit enhancement) of that series will be issued on that date or has
previously been issued and is outstanding and available as subordination (or
other credit enhancement) for such senior tranche of notes. See "--Required
Subordinated Amount."
If so specified in the related prospectus supplement, the notes of a series
may be included in a group of series for purposes of sharing Available
Principal Amounts and Available Funds.
The issuer may offer notes denominated in U.S. dollars or any foreign
currency. We will describe the specific terms of any note denominated in a
foreign currency in the related prospectus supplement.
If so specified in the related prospectus supplement, the noteholders of a
particular series, class or tranche may have the benefit of a derivative
agreement, including an interest rate or currency swap, cap, collar, guaranteed
investment contract or other similar agreement with various counterparties. The
specific terms of each derivative agreement and a description of each
counterparty will be included in the related prospectus supplement.
The issuer will pay principal of and interest on a series, class or tranche
of notes solely from the portion of Available Funds and Available Principal
Amounts which are allocable to that series, class or tranche of notes after
giving effect to all allocations and reallocations, amounts in any issuer
accounts relating to that series, class or tranche of notes, and amounts
received under any derivative agreement relating to that series, class or
tranche of notes. If those sources are not sufficient to pay the notes, those
noteholders will have no recourse to any other assets of the issuer or any
other person or entity for the payment of principal of or interest on those
notes.
Holders of notes of any outstanding series, class or tranche will not have
the right to prior review of, or consent to, any subsequent issuance of notes.
30
Interest
Interest will accrue on the notes, except on discount notes, from the
relevant issuance date at the applicable note rate, which may be a fixed,
floating or other type of rate as specified in the accompanying prospectus
supplement. Interest will be distributed or deposited with respect to
noteholders on the dates described in the related prospectus supplement.
Interest payments or deposits will be funded from Available Funds allocated to
the notes during the preceding month or months, from any applicable credit
enhancement, if necessary, and from certain other amounts specified in the
accompanying prospectus supplement.
For each issuance of fixed rate notes, we will designate in the related
prospectus supplement the fixed rate of interest at which interest will accrue
on those notes. For each issuance of floating rate notes, we will designate in
the related prospectus supplement the interest rate index or other formula on
which the interest is based. A discount note will be issued at a price lower
than the stated principal amount payable on the expected principal payment date
of that note. Until the expected principal payment date for a discount note,
accreted principal will be capitalized as part of the principal of the note and
reinvested in the collateral certificate, so long as an early redemption event
or an event of default and acceleration has not occurred. If applicable, the
related prospectus supplement will specify the interest rate to be borne by a
discount note after an event of default or after its expected principal payment
date.
Each payment of interest on a note will include all interest accrued from the
preceding interest payment date--or, for the first interest period, from the
issuance date--through the day preceding the current interest payment date, or
any other period as may be specified in the related prospectus supplement. We
refer to each period during which interest accrues as an "interest period."
Interest on a note will be due and payable on each interest payment date.
If interest on a note is not paid within 35 days after such interest is due,
an event of default will occur with respect to that note. See "Indenture--
Events of Default."
Principal
The timing of payment of principal of a note will be specified in the related
prospectus supplement.
Principal of a note may be paid later than its expected principal payment
date if sufficient funds are not allocated from master trust II to the
collateral certificate or are not allocable to the series, class or tranche of
the note to be paid. It is not an event of default if the principal of a note
is not paid on its expected principal payment date. However, if the principal
amount of a note is not paid in full by its legal maturity date, an event of
default will occur with respect to that note. See "The Indenture--Events of
Default."
Principal of a note may be paid earlier than its expected principal payment
date if an early redemption event or an event of default and acceleration
occurs. See "The Indenture --Early Redemption Events" and "--Events of
Default."
31
See "Risk Factors" for a discussion of factors that may affect the timing of
principal payments on the notes.
Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal
Liquidation Amount
Each note has a stated principal amount, an outstanding dollar principal
amount and a nominal liquidation amount.
Stated Principal Amount
The stated principal amount of a note is the amount that is stated on the
face of the notes to be payable to the holder. It can be denominated in U.S.
dollars or in a foreign currency.
Outstanding Dollar Principal Amount
For dollar notes, the outstanding dollar principal amount is the initial
dollar principal amount (as set forth in the applicable supplement to this
prospectus) of the notes, less principal payments to the noteholders. For
foreign currency notes, the outstanding dollar principal amount is the dollar
equivalent of the initial dollar principal amount (as set forth in the
applicable supplement to this prospectus) of the notes, less dollar payments to
derivative counterparties or, in the event the derivative agreement is non-
performing, less dollar payments converted to make payments to noteholders,
each with respect to principal. For discount notes, the outstanding dollar
principal amount is an amount stated in, or determined by a formula described
in, the related prospectus supplement. The outstanding dollar principal amount
of a discount note will increase over time as principal accretes. The
outstanding dollar principal amount of any note will decrease as a result of
each payment of principal of the note.
In addition, a note may have an Adjusted Outstanding Dollar Principal Amount.
The Adjusted Outstanding Dollar Principal Amount of a note is the outstanding
dollar principal amount, less any funds on deposit in the principal funding
subaccount for that note. The Adjusted Outstanding Dollar Principal Amount of
any note will decrease as a result of each deposit into the principal funding
subaccount for such note.
Nominal Liquidation Amount
The nominal liquidation amount of a note is a dollar amount based on the
initial outstanding dollar principal amount of that note, but with some
reductions--including reductions from reallocations of Available Principal
Amounts, allocations of charge-offs for uncovered defaults allocable to the
collateral certificate and deposits in a principal funding subaccount for such
note--and increases described below. The aggregate nominal liquidation amount
of all of the notes will always be equal to the Investor Interest of the
collateral certificate, and the nominal liquidation amount of any particular
note corresponds to the portion of the Investor Interest of the collateral
certificate that would be allocated to that note if master trust II were
liquidated.
32
The nominal liquidation amount of a note may be reduced as follows:
. If Available Funds allocable to a series of notes are insufficient to
fund the portion of defaults on principal receivables in master trust II
allocable to such series of notes (which will be allocated to each
series of notes pro rata based on the Weighted Average Available Funds
Allocation Amount of all notes in such series) such uncovered defaults
will result in a reduction of the nominal liquidation amount of such
series. Within each series, unless otherwise specified in the related
prospectus supplement, subordinated classes of notes will bear the risk
of reduction in their nominal liquidation amount due to charge-offs
resulting from uncovered defaults before senior classes of notes.
In a multiple tranche series, while these reductions will be initially
allocated pro rata to each tranche of notes, they will then be
reallocated to the subordinated classes of notes in that series in
succession, beginning with the most subordinated classes. However, these
reallocations will be made from senior notes to subordinated notes only
to the extent that such senior notes have not used all of their required
subordinated amount. For any tranche, the required subordinated amount
will be specified in the related prospectus supplement. For multiple
tranche series, these reductions will generally be allocated within each
class pro rata to each outstanding tranche of the related class based on
the Weighted Average Available Funds Allocation Amount of such tranche.
Reductions that cannot be reallocated to a subordinated tranche will
reduce the nominal liquidation amount of the tranche to which the
reductions were initially allocated.
. If Available Principal Amounts are reallocated from subordinated notes
of a series to pay interest on senior notes, any shortfall in the
payment of the master trust II servicing fee or any other shortfall with
respect to Available Funds which Available Principal Amounts are
reallocated to cover, the nominal liquidation amount of those
subordinated notes will be reduced by the amount of the reallocations.
The amount of the reallocation of Available Principal Amounts will be
applied to reduce the nominal liquidation amount of the subordinated
classes of notes in that series in succession, to the extent of such
senior tranches' required subordinated amount of the related
subordinated notes, beginning with the most subordinated classes. No
Available Principal Amounts will be reallocated to pay interest on a
senior class of notes or any portion of the master trust II servicing
fee if such reallocation would result in the reduction of the nominal
liquidation amount of such senior class of notes. For a multiple tranche
series, these reductions will generally be allocated within each class
pro rata to each outstanding tranche of the related class based on the
Weighted Average Available Funds Allocation Amount of such tranche.
. The nominal liquidation amount of a note will be reduced by the amount
on deposit in its respective principal funding subaccount.
. The nominal liquidation amount of a note will be reduced by the amount
of all payments of principal of that note.
33
. Upon a sale of credit card receivables after the insolvency of MBNA, an
event of default and acceleration or on the legal maturity date of a
note, the nominal liquidation amount of such note will be automatically
reduced to zero. See "Sources of Funds to Pay the Notes--Sale of Credit
Card Receivables."
The nominal liquidation amount of a note can be increased in two ways.
. For discount notes, the nominal liquidation amount will increase over
time as principal accretes, to the extent that Available Funds are
allocated for that purpose.
. If Available Funds are available, they will be applied to reimburse
earlier reductions in the nominal liquidation amount from charge-offs
for uncovered defaults on principal receivables in master trust II, or
from reallocations of Available Principal Amounts from subordinated
classes to pay shortfalls of Available Funds. Within each series, the
increases will be allocated first to the senior-most class with a
deficiency in its nominal liquidation amount and then, in succession, to
the subordinated classes with a deficiency in the nominal liquidation
amount. In a multiple tranche series, the increases will be further
allocated to each tranche of a class pro rata based on the deficiency in
the nominal liquidation amount in each tranche.
In most circumstances, the nominal liquidation amount of a note, together
with any accumulated Available Principal Amounts held in a principal funding
subaccount, will be equal to the outstanding dollar principal amount of that
note. However, if there are reductions in the nominal liquidation amount as a
result of reallocations of Available Principal Amounts from that note to pay
interest on senior classes or the master trust II servicing fee, or as a result
of charge-offs for uncovered defaults on principal receivables in master trust
II allocable to the collateral certificate, there will be a deficit in the
nominal liquidation amount of that note. Unless that deficiency is reimbursed
through the reinvestment of Available Funds in the collateral certificate, the
stated principal amount of that note will not be paid in full.
A subordinated note's nominal liquidation amount represents the maximum
amount of Available Principal Amounts that may be reallocated from such note to
pay interest on senior notes or the master trust II servicing fee of the same
series and the maximum amount of charge-offs for uncovered defaults on the
principal receivables in master trust II that may be allocated to such note.
The nominal liquidation amount is also used to calculate the amount of
Available Principal Amounts that can be allocated for payment of principal of a
class or tranche of notes, or paid to the counterparty to a derivative
agreement, if applicable. This means that if the nominal liquidation amount of
a class or tranche of notes has been reduced by charge-offs for uncovered
defaults on principal receivables in master trust II or by reallocations of
Available Principal Amounts to pay interest on senior notes or the master trust
II servicing fee, the holders of notes with the reduced nominal liquidation
amount will receive less than the full stated principal amount of their notes,
either because the amount of dollars allocated to pay them is less than the
outstanding dollar principal amount of the notes, or because the amount of
dollars allocated to pay the counterparty to a derivative agreement is less
than the amount necessary to obtain enough of the applicable foreign currency
for payment of their notes in full.
34
The nominal liquidation amount of a note may not be reduced below zero, and
may not be increased above the outstanding dollar principal amount of that
note, less any amounts on deposit in the applicable principal funding
subaccount.
If a note held by MBNA, the issuer or any of their affiliates is canceled,
the nominal liquidation amount of that note is automatically reduced to zero,
with a corresponding automatic reduction in the Investor Interest of the
collateral certificate.
The cumulative amount of reductions of the nominal liquidation amount of any
class or tranche of notes due to the reallocation of Available Principal
Amounts to pay Available Funds shortfalls will be limited as described in the
related prospectus supplement.
Allocations of charge-offs for uncovered defaults on principal receivables in
master trust II and reallocations of Available Principal Amounts to cover
Available Funds shortfalls reduce the nominal liquidation amount of outstanding
notes only and do not affect notes that are issued after that time.
Final Payment of the Notes
Noteholders will generally not receive payment of principal in excess of the
highest outstanding dollar principal amount of that series, class or tranche,
or in the case of foreign currency notes, any amount received by the issuer
under a derivative agreement with respect to principal.
Following the insolvency of MBNA, following an event of default and
acceleration or on the legal maturity date of a series, class or tranche of
notes, credit card receivables in an aggregate amount not to exceed the nominal
liquidation amount, plus any past due, accrued and additional interest, of the
related series, class or tranche will be sold by master trust II. The proceeds
of such sale will be applied to the extent available to pay the outstanding
principal amount of, plus any accrued, past due and additional interest on,
those notes on the date of the sale.
A series, class or tranche of notes will be considered to be paid in full,
the holders of those notes will have no further right or claim, and the issuer
will have no further obligation or liability for principal or interest, on the
earliest to occur of:
. the date of the payment in full of the stated principal amount of and
all accrued, past due and additional interest on those notes;
. the date on which the outstanding dollar principal amount of the notes
is reduced to zero and all accrued, past due and additional interest on
those notes is paid in full; or
. the legal maturity date of those notes, after giving effect to all
deposits, allocations, reallocations, sale of credit card receivables
and payments to be made on that date.
Subordination of Interest and Principal
Interest and principal payments on subordinated classes of notes of a series
may be subordinated as described in the related prospectus supplement.
35
Available Principal Amounts may be reallocated to pay interest on senior
classes of notes of, or a portion of the master trust II servicing fee
allocated to, that series. In addition, unless otherwise indicated in the
related prospectus supplement, subordinated classes of notes bear the risk of
reduction in their nominal liquidation amount due to charge-offs for uncovered
defaults on principal receivables in master trust II before senior classes of
notes. In a multiple tranche series, charge-offs from uncovered defaults on
principal receivables in master trust II are generally allocated first to each
class of a series and then reallocated to the subordinated classes of such
series, reducing the nominal liquidation amount of such subordinated classes to
the extent credit enhancement in the form of subordination is still available
for the senior classes. See "The Notes--Stated Principal Amount, Outstanding
Dollar Principal Amount and Nominal Liquidation Amount--Nominal Liquidation
Amount."
Required Subordinated Amount
The required subordinated amount of a senior class or tranche of notes is the
amount of a subordinated class that is required to be outstanding and available
to provide subordination for that senior class or tranche on the date when the
senior class or tranche of notes is issued. Such amount will be specified in
the applicable prospectus supplement. No notes of a series may be issued unless
the required subordinated amount for that class or tranche of notes is
available at the time of its issuance, as described in the related prospectus
supplement. The required subordinated amount is also used, in conjunction with
usage, to determine whether a subordinated class or tranche of a multiple
tranche series may be repaid before its legal maturity date while senior notes
of that series are outstanding.
The issuer may change the required subordination amount for any tranche of
notes at any time, without the consent of any noteholders, so long as the
issuer has (i) received confirmation from the rating agencies that have rated
any outstanding notes of the related series that the change in the required
subordination amount will not result in the reduction or withdrawal of the
ratings of any outstanding notes in that series that are rated by that rating
agency and (ii) delivered to the indenture trustee and the rating agencies a
master trust II tax opinion and issuer tax opinion, as described under "The
Indenture--Tax Opinions for Amendments."
Early Redemption of Notes
Each series, class and tranche of notes will be subject to mandatory
redemption on its expected principal payment date, which will generally be 29
months before its legal maturity date. In addition, if any other early
redemption event occurs, the issuer will be required to redeem each series,
class or tranche of the affected notes before the expected principal payment
date of that series, class or tranche of notes; however, for any such affected
notes with the benefit of a derivative agreement, subject to certain
exceptions, such redemption will not occur earlier than such notes' expected
principal payment date if so specified in the accompanying prospectus
supplement. The issuer will give notice to holders of the affected notes before
an early redemption date. See "The Indenture--Early Redemption Events" for a
description of the early redemption events and their consequences to
noteholders.
Whenever the issuer redeems a series, class or tranche of notes, it will do
so only to the extent of Available Funds and Available Principal Amounts
allocated to that series, class or
36
tranche of notes, and only to the extent that the notes to be redeemed are not
required to provide required subordination for senior notes. A noteholder will
have no claim against the issuer if the issuer fails to make a required
redemption of notes before the legal maturity date because no funds are
available for that purpose or because the notes to be redeemed are required to
provide subordination for senior notes. The failure to redeem before the legal
maturity date under these circumstances will not be an event of default.
If so specified in the accompanying prospectus supplement, the servicer may
direct the issuer to redeem the notes of any series, class or tranche before
its expected principal payment date. The prospectus supplement will indicate at
what times and under what conditions the issuer may exercise that right of
redemption and if the redemption may be made in whole or in part, as well as
other terms of the redemption. The issuer will give notice to holders of the
affected notes before any optional redemption date.
Issuances of New Series, Classes and Tranches of Notes
Unless otherwise specified in the accompanying prospectus supplement, the
issuer may issue new notes of any series, class or tranche only if the
conditions of issuance are met (or waived as described below). These conditions
include:
. on or before the third Business Day before a new issuance of notes, the
issuer gives the indenture trustee and the rating agencies written
notice of the issuance;
. on or prior to the date that the new issuance is to occur, the issuer
delivers to the indenture trustee and each rating agency a certificate
to the effect that:
--the issuer reasonably believes that the new issuance will not at the
time of its occurrence or at a future date (i) cause an early
redemption event or event of default, (ii) adversely affect the amount
of funds available to be distributed to noteholders of any series,
class or tranche of notes or (iii) adversely affect the security
interest of the indenture trustee in the collateral securing the
outstanding notes;
--all instruments furnished to the indenture trustee conform to the
requirements of the indenture and constitute sufficient authority under
the indenture for the indenture trustee to authenticate and deliver the
notes;
--the form and terms of the notes have been established in conformity
with the provisions of the indenture;
--all laws and requirements with respect to the execution and delivery by
the issuer of the notes have been complied with, the issuer has the
power and authority to issue the notes, and the notes have been duly
authorized and delivered by the issuer, and, assuming due
authentication and delivery by the indenture trustee, constitute legal,
valid and binding obligations of the issuer enforceable in accordance
with their terms (subject to certain limitations and conditions), and
are entitled to the benefits of the indenture equally and ratably with
all other notes, if any, of such series, class or tranche outstanding
subject to the terms of the indenture, each indenture supplement and
each terms document; and
--the issuer shall have satisfied such other matters as the indenture
trustee may reasonably request;
37
. the issuer delivers to the indenture trustee and the rating agencies an
opinion of counsel that for federal income tax purposes (i) the new
issuance will not adversely affect the characterization as debt of any
outstanding series or class of investor certificates issued by master
trust II that were characterized as debt at the time of their issuance,
(ii) following the new issuance, master trust II will not be an
association, or a publicly traded partnership, taxable as a corporation,
and (iii) the new issuance will not cause or constitute an event in
which gain or loss would be recognized by any holder of an investor
certificate issued by master trust II;
. the issuer delivers to the indenture trustee and the rating agencies an
opinion of counsel that for federal income tax purposes (i) the new
issuance will not adversely affect the tax characterization as debt of
any outstanding series, class or tranche of notes that were
characterized as debt at the time of their issuance, (ii) following the
new issuance, the issuer will not be treated as an association, or
publicly traded partnership, taxable as a corporation, (iii) such
issuance will not cause or constitute an event in which gain or loss
would be recognized by any holder of such outstanding notes and (iv)
except as provided in the related indenture supplement, following the
new issuance of a series, class or tranche of notes, the newly issued
series, class or tranche of notes will be properly characterized as
debt;
. the issuer delivers to the indenture trustee an indenture supplement and
terms document relating to the applicable series, class or tranche of
notes;
. no Pay Out Event with respect to the collateral certificate has occurred
or is continuing as of the date of the new issuance;
. in the case of foreign currency notes, the issuer appoints one or more
paying agents in the appropriate countries;
. each rating agency that has rated any outstanding notes has provided
confirmation that the new issuance of notes will not cause a reduction
or withdrawal of the ratings of any outstanding notes rated by that
rating agency;
. the provisions governing required subordination amounts are satisfied;
and
. any other conditions specified in the accompanying prospectus supplement
are satisfied.
If the issuer obtains confirmation from each rating agency that has rated any
outstanding notes that the issuance of a new series, class or tranche of notes
will not cause a reduction or withdrawal of the ratings of any outstanding
notes rated by that rating agency, then some of the conditions described above
may be waived.
The issuer and the indenture trustee are not required to obtain the consent
of any noteholder of any outstanding series, class or tranche to issue any
additional notes of any series, class or tranche.
There are no restrictions on the timing or amount of any additional issuance
of notes of an outstanding tranche of a multiple issuance series, so long as
the conditions described
38
above are met or waived. As of the date of any additional issuance of an
outstanding tranche of notes, the stated principal amount, outstanding dollar
principal amount and nominal liquidation amount of that tranche will be
increased to reflect the principal amount of the additional notes. If the
additional notes are a tranche of notes that has the benefit of a derivative
agreement, the issuer will enter into a derivative agreement for the benefit of
the additional notes. The targeted deposits, if any, to the principal funding
subaccount will be increased proportionately to reflect the principal amount of
the additional notes.
When issued, the additional notes of a tranche will be equally and ratably
entitled to the benefits of the indenture and the related indenture supplement
applicable to such notes as the other outstanding notes of that tranche without
preference, priority or distinction.
Payments on Notes; Paying Agent
The notes offered by this prospectus and the accompanying prospectus
supplement will be delivered in book-entry form and payments of principal of
and interest on the notes will be made in U.S. dollars as described under "--
Book-Entry Notes" unless the stated principal amount of the notes is
denominated in a foreign currency.
The issuer, the indenture trustee and any agent of the issuer or the
indenture trustee will treat the registered holder of any note as the absolute
owner of that note, whether or not the note is overdue and notwithstanding any
notice to the contrary, for the purpose of making payment and for all other
purposes.
The issuer will make payments on a note to the registered holder of the note
at the close of business on the record date established for the related payment
date.
The issuer will designate the corporate trust office of The Bank of New York
in New York City as its paying agent for the notes of each series. The issuer
will identify any other entities appointed to serve as paying agents on notes
of a series, class or tranche in a supplement to this prospectus. The issuer
may at any time designate additional paying agents or rescind the designation
of any paying agent or approve a change in the office through which any paying
agent acts. However, the issuer will be required to maintain a paying agent in
each place of payment for a series, class or tranche of notes.
After notice by publication, all funds paid to a paying agent for the payment
of the principal of or interest on any note of any series which remains
unclaimed at the end of two years after the principal or interest becomes due
and payable will be repaid to the issuer. After funds are repaid to the issuer,
the holder of that note may look only to the issuer for payment of that
principal or interest.
Denominations
The notes offered by this prospectus will be issued in denominations of
$1,000 and multiples of $1,000 in excess of that amount.
39
Record Date
The record date for payment of the notes will be the last day of the month
before the related payment date.
Governing Law
The laws of the State of New York will govern the notes and the indenture.
Form, Exchange and Registration and Transfer of Notes
The notes offered by this prospectus will be issued in registered form. The
notes will be represented by one or more global notes registered in the name of
The Depository Trust Company, as depository, or its nominee. We refer to each
beneficial interest in a global note as a "book-entry note." For a description
of the special provisions that apply to book-entry notes, see "--Book-Entry
Notes."
A holder of notes may exchange those notes for other notes of the same class
or tranche of any authorized denominations and of the same aggregate stated
principal amount, expected principal payment date and legal maturity date, and
of like terms.
Any holder of a note may present that note for registration of transfer, with
the form of transfer properly executed, at the office of the note registrar or
at the office of any transfer agent that the issuer designates. Unless
otherwise provided in the note to be transferred or exchanged, holders of notes
will not be charged any service charge for the exchange or transfer of their
notes. Holders of notes that are to be transferred or exchanged will be liable
for the payment of any taxes and other governmental charges described in the
indenture before the transfer or exchange will be completed. The note registrar
or transfer agent, as the case may be, will effect a transfer or exchange when
it is satisfied with the documents of title and identity of the person making
the request.
The issuer will appoint The Bank of New York as the registrar for the notes.
The issuer also may at any time designate additional transfer agents for any
series, class or tranche of notes. The issuer may at any time rescind the
designation of any transfer agent or approve a change in the location through
which any transfer agent acts. However, the issuer will be required to maintain
a transfer agent in each place of payment for a series, class or tranche of
notes.
Book-Entry Notes
The notes offered by this prospectus will be delivered in book-entry form.
This means that, except under the limited circumstances described in this
subheading under "--Definitive Notes," purchasers of notes will not be entitled
to have the notes registered in their names and will not be entitled to receive
physical delivery of the notes in definitive paper form. Instead, upon
issuance, all the notes of a class will be represented by one or more fully
registered permanent global notes, without interest coupons.
Each global note will be deposited with a securities depository named The
Depository Trust Company and will be registered in the name of its nominee,
Cede & Co. No global note representing book-entry notes may be transferred
except as a whole by DTC to a
40
nominee of DTC, or by a nominee of DTC to another nominee of DTC. Thus, DTC or
its nominee will be the only registered holder of the notes and will be
considered the sole representative of the beneficial owners of notes for
purposes of the indenture.
The registration of the global notes in the name of Cede & Co. will not
affect beneficial ownership and is performed merely to facilitate subsequent
transfers. The book-entry system, which is also the system through which most
publicly traded common stock is held, is used because it eliminates the need
for physical movement of securities. The laws of some jurisdictions, however,
may require some purchasers to take physical delivery of their notes in
definitive form. These laws may impair the ability to own or transfer book-
entry notes.
Purchasers of notes in the United States may hold interests in the global
notes through DTC, either directly, if they are participants in that system--
such as a bank, brokerage house or other institution that maintains securities
accounts for customers with DTC or its nominee--or otherwise indirectly through
a participant in DTC. Purchasers of notes in Europe may hold interests in the
global notes through Clearstream, Luxembourg, or through Euroclear Bank
S.A./N.V., as operator of the Euroclear system.
Because DTC will be the only registered owner of the global notes,
Clearstream, Luxembourg and Euroclear will hold positions through their
respective U.S. depositories, which in turn will hold positions on the books of
DTC.
As long as the notes are in book-entry form, they will be evidenced solely by
entries on the books of DTC, its participants and any indirect participants.
DTC will maintain records showing:
. the ownership interests of its participants, including the U.S.
depositories; and
. all transfers of ownership interests between its participants.
The participants and indirect participants, in turn, will maintain records
showing:
. the ownership interests of their customers, including indirect
participants, that hold the notes through those participants; and
. all transfers between these persons.
Thus, each beneficial owner of a book-entry note will hold its note
indirectly through a hierarchy of intermediaries, with DTC at the "top" and the
beneficial owner's own securities intermediary at the "bottom."
The issuer, the indenture trustee and their agents will not be liable for the
accuracy of, and are not responsible for maintaining, supervising or reviewing
DTC's records or any participant's records relating to book-entry notes. The
issuer, the indenture trustee and their agents also will not be responsible or
liable for payments made on account of the book-entry notes.
Until Definitive Notes are issued to the beneficial owners as described in
this subheading under "--Definitive Notes," all references to "holders" of
notes means DTC.
41
The issuer, the indenture trustee and any paying agent, transfer agent or
securities registrar may treat DTC as the absolute owner of the notes for all
purposes.
Beneficial owners of book-entry notes should realize that the issuer will
make all distributions of principal and interest on their notes to DTC and will
send all required reports and notices solely to DTC as long as DTC is the
registered holder of the notes. DTC and the participants are generally required
by law to receive and transmit all distributions, notices and directions from
the indenture trustee to the beneficial owners through the chain of
intermediaries.
Similarly, the indenture trustee will accept notices and directions solely
from DTC. Therefore, in order to exercise any rights of a holder of notes under
the indenture, each person owning a beneficial interest in the notes must rely
on the procedures of DTC and, in some cases, Clearstream, Luxembourg or
Euroclear. If the beneficial owner is not a participant in that system, then it
must rely on the procedures of the participant through which that person owns
its interest. DTC has advised the issuer that it will take actions under the
indenture only at the direction of its participants, which in turn will act
only at the direction of the beneficial owners. Some of these actions, however,
may conflict with actions it takes at the direction of other participants and
beneficial owners.
Notices and other communications by DTC to participants, by participants to
indirect participants, and by participants and indirect participants to
beneficial owners will be governed by arrangements among them.
Beneficial owners of book-entry notes should also realize that book-entry
notes may be more difficult to pledge because of the lack of a physical note.
Beneficial owners may also experience delays in receiving distributions on
their notes since distributions will initially be made to DTC and must be
transferred through the chain of intermediaries to the beneficial owner's
account.
The Depository Trust Company
DTC is a limited-purpose trust company organized under the New York Banking
Law and is a "banking institution" within the meaning of the New York Banking
Law. DTC is also 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 Section 17A of the Securities Exchange Act
of 1934. DTC was created to hold securities deposited by its participants and
to facilitate the clearance and settlement of securities transactions among its
participants through electronic book-entry changes in accounts of the
participants, thus eliminating the need for physical movement of securities.
DTC is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc. The rules applicable to DTC and its participants
are on file with the Securities and Exchange Commission.
42
Clearstream, Luxembourg
Clearstream, Luxembourg is registered as a bank in Luxembourg and is
regulated by the Banque Centrale du Luxembourg, the Luxembourg Central Bank,
which supervises Luxembourg banks. Clearstream, Luxembourg holds securities for
its customers and facilitates the clearance and settlement of securities
transactions by electronic book-entry transfers between their accounts.
Clearstream, Luxembourg provides various services, including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream, Luxembourg also deals with
domestic securities markets in over 30 countries through established depository
and custodial relationships. Clearstream, Luxembourg has established an
electronic bridge with Euroclear in Brussels to facilitate settlement of trades
between Clearstream, Luxembourg and Euroclear. Clearstream, Luxembourg
currently accepts over 110,000 securities issues on its books.
Clearstream, Luxembourg's customers are worldwide financial institutions
including underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations. Clearstream, Luxembourg's U.S. customers are limited
to securities brokers and dealers and banks. Currently, Clearstream, Luxembourg
has approximately 2,000 customers located in over 80 countries, including all
major European countries, Canada, and the United States. Indirect access to
Clearstream, Luxembourg is available to other institutions that clear through
or maintain a custodial relationship with an account holder of Clearstream,
Luxembourg.
Euroclear System
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment. This
system eliminates the need for physical movement of securities and any risk
from lack of simultaneous transfers of securities and cash. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries. The Euroclear operator
is Euroclear Bank S.A./N.V. The Euroclear operator conducts all operations. All
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator. The Euroclear operator establishes policy
for Euroclear 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.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
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 Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific securities to
specific
43
securities clearance accounts. The Euroclear operator acts under the Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
This information about DTC, Clearstream, Luxembourg and Euroclear has been
provided by each of them for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
Distributions on Book-Entry Notes
The issuer will make distributions of principal of and interest on book-entry
notes to DTC. These payments will be made in immediately Available Funds by the
issuer's paying agent, The Bank of New York, at the office of the paying agent
in New York City that the issuer designates for that purpose.
In the case of principal payments, the global notes must be presented to the
paying agent in time for the paying agent to make those payments in immediately
Available Funds in accordance with its normal payment procedures.
Upon receipt of any payment of principal of or interest on a global note, DTC
will immediately credit the accounts of its participants on its book-entry
registration and transfer system. DTC will credit those accounts with payments
in amounts proportionate to the participants' respective beneficial interests
in the stated principal amount of the global note as shown on the records of
DTC. Payments by participants to beneficial owners of book-entry notes will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of those participants.
Distributions on book-entry notes held beneficially through Clearstream,
Luxembourg will be credited to cash accounts of Clearstream, Luxembourg
participants in accordance with its rules and procedures, to the extent
received by its U.S. depository.
Distributions on book-entry notes held beneficially through Euroclear will be
credited to the cash accounts of Euroclear participants in accordance with the
Terms and Conditions, to the extent received by its U.S. depository.
In the event Definitive Notes are issued, distributions of principal and
interest on Definitive Notes will be made directly to the holders of the
Definitive Notes in whose names the Definitive Notes were registered at the
close of business on the related record date.
Global Clearance and Settlement Procedures
Initial settlement for the notes will be made in immediately Available Funds.
Secondary market trading between DTC participants will occur in the ordinary
way in accordance with DTC's rules and will be settled in immediately Available
Funds using DTC's Same-Day Funds Settlement System. Secondary market trading
between Clearstream, Luxembourg participants and/or Euroclear participants will
occur in the ordinary way in accordance with
44
the applicable rules and operating procedures of Clearstream, Luxembourg and
Euroclear and will be settled using the procedures applicable to conventional
eurobonds in immediately Available Funds.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC's rules on behalf of the relevant European international
clearing system by the U.S. depositories. However, cross-market transactions of
this type 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 U.S.
depository to take action to effect final settlement on its behalf by
delivering or receiving notes in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Clearstream, Luxembourg participants and Euroclear participants may not
deliver instructions directly to DTC.
Because of time-zone differences, credits to notes received in Clearstream,
Luxembourg or Euroclear as a result of a transaction with a DTC participant
will be made during subsequent securities settlement processing and will be
credited the Business Day following a DTC settlement date. The credits to or
any transactions in the notes settled during processing will be reported to the
relevant Euroclear or Clearstream, Luxembourg participants on that Business
Day. Cash received in Clearstream, Luxembourg or Euroclear as a result of sales
of notes by or through a Clearstream, Luxembourg participant or a Euroclear
participant to a DTC participant will be received with value on the DTC
settlement date, but will be available in the relevant Clearstream, Luxembourg
or Euroclear cash account only as of the Business Day following settlement in
DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to these
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 these procedures and these procedures may be
discontinued at any time.
Definitive Notes
Beneficial owners of book-entry notes may exchange those notes for Definitive
Notes registered in their name only if:
. DTC is unwilling or unable to continue as depository for the global
notes or ceases to be a registered "clearing agency" and the issuer is
unable to find a qualified replacement for DTC;
. the issuer, in its sole discretion, elects to terminate the book-entry
system through DTC; or
. any event of default has occurred with respect to those book-entry notes
and beneficial owners evidencing not less than 50% of the unpaid
outstanding dollar
45
principal amount of the notes of that class advise the indenture trustee
and DTC that the continuation of a book-entry system is no longer in the
best interests of those beneficial owners.
If any of these three events occurs, DTC is required to notify the beneficial
owners through the chain of intermediaries that the Definitive Notes are
available. The appropriate global note will then be exchangeable in whole for
Definitive Notes in registered form of like tenor and of an equal aggregate
stated principal amount, in specified denominations. Definitive Notes will be
registered in the name or names of the person or persons specified by DTC in a
written instruction to the registrar of the notes. DTC may base its written
instruction upon directions it receives from its participants. Thereafter, the
holders of the Definitive Notes will be recognized as the "holders" of the
notes under the indenture.
Replacement of Notes
The issuer will replace at the expense of the holder any mutilated note upon
surrender of that note to the indenture trustee. The issuer will replace at the
expense of the holder any notes that are destroyed, lost or stolen upon
delivery to the indenture trustee of evidence of the destruction, loss or theft
of those notes satisfactory to the issuer and the indenture trustee. In the
case of a destroyed, lost or stolen note, the issuer and the indenture trustee
may require the holder of the note to provide an indemnity satisfactory to the
indenture trustee and the issuer before a replacement note will be issued, and
the issuer may require the payment of a sum sufficient to cover any tax or
other governmental charge, and any other expenses (including the fees and
expenses of the indenture trustee) in connection with the issuance of a
replacement note.
Sources of Funds to Pay the Notes
The Collateral Certificate
The primary source of funds for the payment of principal of and interest on
the notes will be the collateral certificate issued by master trust II to the
issuer. The following discussion and certain discussions in the related
prospectus supplement summarize the material terms of the collateral
certificate. These summaries do not purport to be complete and are qualified in
their entirety by reference to the provisions of the master trust II agreement
and the collateral certificate. For a description of master trust II and its
assets, see "Master Trust II." The collateral certificate is the only master
trust II investor certificate issued pursuant to Series 2001-D.
The collateral certificate represents an undivided interest in the assets of
master trust II. The assets of master trust II consist primarily of credit card
receivables arising in selected MasterCard and VISA revolving credit card
accounts that have been transferred by MBNA. The amount of credit card
receivables in master trust II will fluctuate from day to day as new
receivables are generated or added to or removed from master trust II and as
other receivables are collected, charged off as uncollectible, or otherwise
adjusted.
46
The collateral certificate has no specified interest rate. The issuer, as
holder of the collateral certificate, is entitled to receive its allocable
share of defaults and of collections of finance charge receivables and
principal receivables payable by master trust II.
Finance charge receivables are all periodic finance charges, annual
membership fees, cash advance fees and late charges on amounts charged for
merchandise and services, and some other fees designated by MBNA. Principal
receivables are all amounts charged by cardholders for merchandise and
services, amounts advanced to cardholders as cash advances and all other fees
billed to cardholders on the credit card accounts. Interchange, which
represents fees received by MBNA from MasterCard International and VISA as
partial compensation for taking credit risk, absorbing fraud losses and funding
receivables for a limited period before initial billing, will be treated as
collections of finance charge receivables. Interchange varies from
approximately 1% to 2% of the transaction amount, but these amounts may be
changed by MasterCard International or VISA.
Each month, master trust II will allocate collections of finance charge
receivables and principal receivables and defaults to the investor certificates
outstanding under master trust II, including the collateral certificate.
Allocations of defaults and collections of finance charge receivables are
made pro rata among each series of investor certificates issued by master trust
II, including the collateral certificate, based on its respective Investor
Interest, and the Seller, based on the Seller Interest. In general, the
Investor Interest of each series of investor certificates (including the
collateral certificate) issued by master trust II will equal the stated dollar
amount of the investor certificates (including the collateral certificate)
issued to investors in that series, less unreimbursed charge-offs for uncovered
defaults on principal receivables in master trust II allocated to those
investors, reallocations of collections of principal receivables to cover
certain shortfalls in collections of finance charge receivables and principal
payments deposited to a master trust II principal funding account or made to
those investors.
The collateral certificate has a fluctuating Investor Interest, representing
the investment of that certificate in principal receivables. The Investor
Interest of the collateral certificate will equal the total nominal liquidation
amount of the outstanding notes secured by the collateral certificate. For a
discussion of Investor Interest, see the definition of Investor Interest in the
glossary. The Seller Interest, which is owned by MBNA, represents the interest
in the principal receivables in master trust II not represented by any master
trust II series of investor certificates. For example, if the total principal
receivables in master trust II at the end of the month is 500, the Investor
Interest of the collateral certificate is 100, the Investor Interests of the
other investor certificates are 200 and the Seller Interest is 200, the
collateral certificate is entitled, in general, to 1/5--or 100/500--of the
defaults and collections of finance charge receivables for the applicable
month.
Collections of principal receivables are allocated similarly to the
allocation of collections of finance charge receivables when no principal
amounts are needed for deposit into a principal funding account or needed to
pay principal to investors. However, collections of principal receivables are
allocated differently when principal amounts need
47
to be deposited into master trust II principal funding accounts or paid to
master trust II investors. When the principal amount of a master trust II
investor certificate other than the collateral certificate begins to accumulate
or amortize, collections of principal receivables continue to be allocated to
the series as if the Investor Interest of that series had not been reduced by
principal collections deposited to a master trust II principal funding account
or paid to master trust II investors. During this time, allocations of
collections of principal receivables to the investors in a series of
certificates issued by master trust II, other than the collateral certificate,
is based on the Investor Interest of the series "fixed" at the time immediately
before the first deposit of principal collections into a principal funding
account or the time immediately before the first payment of principal
collections to investors.
The collateral certificate is allocated collections of principal receivables
at all times based on an Investor Interest calculation which is an aggregate of
the nominal liquidation amounts for each individual class or tranche of notes.
For classes and tranches of notes which do not require principal amounts to be
deposited into a principal funding account or paid to noteholders, the nominal
liquidation amount calculation will be "floating," i.e. calculated as of the
end of the prior month. For classes or tranches of notes which require
principal amounts to be deposited into a principal funding account or paid to
noteholders, the nominal liquidation amount will be "fixed" immediately before
the issuer begins to allocate Available Principal Amounts to the principal
funding subaccount for that class or tranche, i.e. calculated as of the end of
the month prior to any reductions for deposits or payments of principal.
For a detailed description of the percentage used in allocating finance
charge collections and defaults to the collateral certificate, see the
definition of "Floating Investor Percentage" in the glossary. For a detailed
description of the percentage used in allocating principal collections to the
collateral certificate, see the definition of "Principal Investor Percentage"
in the glossary.
If collections of principal receivables allocated to the collateral
certificate are needed for reallocation to cover certain shortfalls in
Available Funds, to pay the notes or to make a deposit into the issuer accounts
within a month, they will be deposited into the issuer's collection account.
Otherwise, collections of principal receivables allocated to the collateral
certificate will be reallocated to other series of master trust II investor
certificates which have principal collection shortfalls--which does not reduce
the Investor Interest of the collateral certificate--or reinvested in master
trust II to maintain the Investor Interest of the collateral certificate. If
the collateral certificate has a shortfall in collections of principal
receivables, but other series of investor certificates issued by master trust
II have excess collections of principal receivables, a portion of the excess
collections of principal receivables allocated to other series of investor
certificates issued by master trust II will be reallocated to the collateral
certificate and any other master trust II investor certificate which may have a
shortfall in collections of principal receivables and the collateral
certificate's share of the excess collections of principal receivables from the
other series will be paid to the issuer and treated as Available Principal
Amounts.
48
The collateral certificate will also be allocated a portion of the net
investment earnings, if any, on amounts in the master trust II finance charge
account and the master trust II principal account, as more specifically
described below in "--Deposit and Application of Funds." Such net investment
earnings will be treated as Available Funds.
Upon a sale of credit card receivables, or interests therein, following an
insolvency of MBNA, following an event of default and acceleration, or on the
applicable legal maturity date for a series, class or tranche of notes, as
described in the accompanying prospectus supplement, the portion of the nominal
liquidation amount, and thereby the portion of the Investor Interest, related
to that series, class or tranche will be reduced to zero and that series, class
or tranche will no longer receive any allocations of collections of finance
charge receivables or principal receivables from master trust II and any
allocations of Available Funds or Available Principal Amounts from the issuer.
Following a Pay Out Event with respect to the collateral certificate, which
is an early redemption event for the notes, all collections of principal
receivables for any month allocated to the Investor Interest of the collateral
certificate will be used to cover principal payments to the issuer as holder of
the collateral certificate.
For a detailed description of the application of collections and allocation
of defaults by master trust II, see "Master Trust II--Application of
Collections" and "--Defaulted Receivables; Rebates and Fraudulent Charges" in
this prospectus.
Deposit and Application of Funds
Collections of finance charge receivables allocated and paid to the issuer,
as holder of the collateral certificate, as described in "--The Collateral
Certificate" above and "Master Trust II--Application of Collections" in this
prospectus, will be treated as Available Funds. Such Available Funds will be
allocated pro rata to each series of notes in an amount equal to the sum of:
.the sum of the Daily Available Funds Amounts for each day during such
month for such series of notes,
.such series' pro rata portion of the net investment earnings, if any, in
the master trust II finance charge account that are allocated to the
collateral certificate with respect to the related Transfer Date, based
on the ratio of the aggregate amount on deposit in the master trust II
finance charge account with respect to such series of notes to the
aggregate amount on deposit in the master trust II finance charge account
with respect to all series of notes, and
.such series' pro rata portion of the net investment earnings, if any, in
the master trust II principal account that are allocated to the
collateral certificate with respect to the related Transfer Date, based
on the ratio of the aggregate amount on deposit in the master trust II
principal account with respect to such series of notes to the aggregate
amount on deposit in the master trust II principal account with respect
to all series of notes.
49
Collections of principal receivables allocated and paid to the issuer, as
holder of the collateral certificate, as described in "--The Collateral
Certificate" above and "Master Trust--Application of Collections" in this
prospectus, will be treated as Available Principal Amounts. Such Available
Principal Amounts, after any reallocations of Available Principal Amounts, will
be allocated to each series of notes with a monthly principal payment for such
month in an amount equal to:
.such series's monthly principal payment; or
.in the event that Available Principal Amounts for any month are less than
the aggregate monthly principal payments for all series of notes,
Available Principal Amounts will be allocated to each series of notes
with a monthly principal payment for such month to the extent needed by
each such series to cover its monthly principal payment in an amount
equal to the lesser of (a) the sum of the Daily Principal Amounts for
each day during such month for such series of notes and (b) the monthly
principal payment for such series of notes for such month.
If Available Principal Amounts for any month are less than the aggregate
monthly principal payments for all series of notes, and any series of notes has
excess Available Principal Amounts remaining after its application of its
allocation described above, then any such excess will be applied to each series
of notes to the extent such series still needs to cover a monthly principal
payment pro rata based on the ratio of the Weighted Average Principal
Allocation Amount for the related series of notes for such month to the
Weighted Average Principal Allocation Amount for all series of notes with an
unpaid monthly principal payment for such month.
In the case of a series of notes having more than one class or tranche,
Available Principal Amounts and Available Funds allocated to that series will
be further allocated and applied to each class or tranche in the manner and
order of priority described in the accompanying prospectus supplement.
Issuer Accounts
The issuer will establish a collection account for the purpose of receiving
payments of finance charge collections and principal collections and other
amounts from master trust II payable under the collateral certificate.
If so specified in the accompanying prospectus supplement, the issuer may
direct the indenture trustee to establish and maintain in the name of the
indenture trustee supplemental accounts for any series, class or tranche of
notes for the benefit of the related noteholders.
Each month, distributions on the collateral certificate will be deposited
into one or more supplemental accounts, to make payments of interest on and
principal of the notes, to make payments under any applicable derivative
agreements, and for the other purposes as specified in the accompanying
prospectus supplement.
The supplemental accounts described in this section are referred to as issuer
accounts. Amounts maintained in issuer accounts may only be invested in
Permitted Investments.
50
Derivative Agreements
Some notes may have the benefit of one or more derivative agreements, which
may be a currency, interest rate or other swap, a cap, a collar, a guaranteed
investment contract or other similar arrangements with various counterparties.
In general, the issuer will receive payments from counterparties to the
derivative agreements in exchange for the issuer's payments to them, to the
extent required under the derivative agreements. Payments received from
derivative counterparties with respect to interest payments on dollar notes in
a series, class or tranche will generally be treated as Available Funds for
such series, class or tranche. The specific terms of a derivative agreement
applicable to a series, class or tranche of notes and a description of the
related counterparty will be included in the related prospectus supplement.
Sale of Credit Card Receivables
In addition to a sale of receivables following an insolvency of MBNA, if a
series, class or tranche of notes has an event of default and is accelerated
before its legal maturity date, master trust II will sell credit card
receivables, or interests therein, if the conditions described in "The
Indenture--Events of Default" and "--Events of Default Remedies" are satisfied,
and with respect to subordinated notes of a multiple tranche series, only to
the extent that payment is permitted by the subordination provisions of the
senior notes of the same series. This sale will take place at the direction of
the indenture trustee or at the direction of the holders of a majority of
aggregate outstanding dollar principal amount of notes of that series, class or
tranche.
Any sale of receivables for a subordinated tranche of notes in a multiple
tranche series may be delayed until the senior classes of notes of the same
series are prefunded, enough notes of senior classes are repaid, or new
subordinated notes have been issued, in each case, to the extent that the
subordinated tranche is no longer needed to provide the required subordination
for the senior notes of that series. In a multiple tranche series, if a senior
tranche of notes directs a sale of credit card receivables, then after the sale
that tranche will no longer be entitled to subordination from subordinated
classes of notes of the same series.
If principal of or interest on a tranche of notes has not been paid in full
on its legal maturity date, the sale will automatically take place on that date
regardless of the subordination requirements of any senior classes of notes.
Proceeds from such sale will be immediately paid to the noteholders of the
related tranche.
The amount of credit card receivables sold will be up to the nominal
liquidation amount of, plus any accrued, past due and additional interest on,
the related notes. The nominal liquidation amount of such notes will be
automatically reduced to zero upon such sale. No more Available Principal
Amounts or Available Funds will be allocated to those notes. Noteholders will
receive the proceeds of such sale in an amount not to exceed the outstanding
principal amount of, plus any past due, accrued and additional interest on,
such notes. Such notes are no longer outstanding under the indenture once the
sale occurs.
51
After giving effect to a sale of receivables for a series, class or tranche
of notes, the amount of proceeds on deposit in a principal funding account or
subaccount may be less than the outstanding dollar principal amount of that
series, class or tranche. This deficiency can arise because the nominal
liquidation amount of that series, class or tranche was reduced before the sale
of receivables or because the sale price for the receivables was less than the
outstanding dollar principal amount and accrued, past due and additional
interest. Unless otherwise specified in the prospectus supplement, these types
of deficiencies will not be reimbursed.
Limited Recourse to the Issuer; Security for the Notes
Only the portion of Available Funds and Available Principal Amounts allocable
to a series, class or tranche of notes after giving effect to all allocations
and reallocations thereof, funds on deposit in the applicable issuer accounts,
any applicable derivative agreement and proceeds of sales of credit card
receivables provide the source of payment for principal of or interest on any
series, class or tranche of notes. Noteholders will have no recourse to any
other assets of the issuer or any other person or entity for the payment of
principal of or interest on the notes.
The notes of all series are secured by a shared security interest in the
collateral certificate and the collection account, but each series, class or
tranche of notes is entitled to the benefits of only that portion of those
assets allocated to it under the indenture and the related indenture
supplement. Each series, class or tranche of notes is also secured by a
security interest in any applicable supplemental account and any applicable
derivative agreement.
The Indenture
The notes will be issued pursuant to the terms of the indenture and a related
indenture supplement. The following discussion and the discussions under "The
Notes" in this prospectus and certain sections in the prospectus summary
summarize the material terms of the notes, the indenture and the indenture
supplements. These summaries do not purport to be complete and are qualified in
their entirety by reference to the provisions of the notes, the indenture and
the indenture supplements.
Indenture Trustee
The Bank of New York is the trustee under the indenture for the notes. Its
principal corporate trust office is located at 101 Barclay Street, Floor 12
East, New York, New York 10286.
The indenture trustee may resign at any time. The issuer may also remove the
indenture trustee if the indenture trustee is no longer eligible to act as
trustee under the indenture or if the indenture trustee becomes insolvent. In
all circumstances, the issuer must appoint a successor indenture trustee for
the notes. Any resignation or removal of the indenture trustee and appointment
of a successor indenture trustee will not become effective until the successor
indenture trustee accepts the appointment.
The issuer or its affiliates may maintain accounts and other banking or
trustee relationships with the indenture trustee and its affiliates.
52
Issuer Covenants
The issuer will not, among other things:
. claim any credit on or make any deduction from the principal and
interest payable on the notes, other than amounts withheld in good faith
from such payments under the Internal Revenue Code or other applicable
tax law,
. voluntarily dissolve or liquidate, or
. permit (A) the validity or effectiveness of the indenture to be
impaired, or permit the lien created by 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, (B) any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien created by the
indenture) to be created on or extend to or otherwise arise upon or
burden the collateral securing the notes or proceeds thereof or (C) the
lien of the indenture not to constitute a valid first priority security
interest in the collateral securing the notes.
The issuer may not engage in any activity other than the activities described
in "The Issuer" in this prospectus. The issuer will not incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the notes.
The issuer will also covenant that if:
. the issuer defaults in the payment of interest on any series, class or
tranche of notes when such interest becomes due and payable and such
default continues for a period of 35 days following the date on which
such interest became due and payable, or
. the issuer defaults in the payment of the principal of any series, class
or tranche of notes on its legal maturity date,
and any such default continues beyond any specified period of grace provided
with respect to such series, class or tranche of notes, the issuer will, upon
demand of the indenture trustee, pay to the indenture trustee, for the benefit
of the holders of any such notes of the affected series, class or tranche, the
whole amount then due and payable on any such notes for principal and interest,
with interest, to the extent that payment of such interest will be legally
enforceable, upon the overdue principal and upon overdue installments of
interest. In addition, the issuer will pay an amount sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the indenture trustee, its agents and
counsel and all other compensation due to the indenture trustee. If the issuer
fails to pay such amounts upon such demand, the indenture trustee may institute
a judicial proceeding for the collection of the unpaid amounts described above.
Early Redemption Events
The issuer will be required to redeem in whole or in part, to the extent that
funds are available for that purpose and, with respect to subordinated notes of
a multiple tranche
53
series, to the extent payment is permitted by the subordination provisions of
the senior notes of the same series, each affected series, class or tranche of
notes upon the occurrence of an early redemption event. Early redemption events
include the following:
. with respect to any tranche of notes, the occurrence of such note's
expected principal payment date;
. each of the Pay Out Events applicable to the collateral certificate, as
described under "Master Trust II--Pay Out Events";
. the issuer becoming an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; and
. with respect to any series, class or tranche of notes, any additional
early redemption event specified in the accompanying prospectus
supplement.
The redemption price of a note so redeemed will be the outstanding principal
amount of that note, plus accrued, past due and additional interest to but
excluding the date of redemption, which will be the next payment date. If the
amount of Available Funds and Available Principal Amounts allocable to the
series, class or tranche of notes to be redeemed, together with funds on
deposit in the applicable principal funding subaccount, interest funding
subaccount and Class C reserve subaccount and any amounts payable to the issuer
under any applicable derivative agreement are insufficient to pay the
redemption price in full on the next payment date after giving effect to the
subordination provisions and allocations to any other notes ranking equally
with that note, monthly payments on the notes to be redeemed will thereafter be
made on each payment date until the outstanding principal amount of the notes
plus all accrued, past due and additional interest are paid in full, or the
legal maturity date of the notes occurs, whichever is earlier. However, if so
specified in the accompanying prospectus supplement, subject to certain
exceptions, any notes that have the benefit of a derivative agreement will not
be redeemed prior to such notes' expected principal payment date.
No Available Principal Amounts will be allocated to a series, class or
tranche of notes with a nominal liquidation amount of zero, even if the stated
principal amount of that series, class or tranche has not been paid in full.
However, any funds previously deposited in the applicable principal funding
subaccount, interest funding subaccount and Class C reserve subaccount and any
amounts received from an applicable derivative agreement will still be
available to pay principal of and interest on that series, class or tranche of
notes. In addition, if Available Funds are available, they can be applied to
reimburse reductions in the nominal liquidation amount of that series, class or
tranche resulting from reallocations of Available Principal Amounts to pay
interest on senior classes of notes or the master trust II servicing fee, or
from charge-offs for uncovered defaults on principal receivables in master
trust II.
Payments on redeemed notes will be made in the same priority as described in
the related prospectus supplement. The issuer will give notice to holders of
the affected notes before an early redemption date.
54
Events of Default
Each of the following events is an event of default for any affected series,
class or tranche of notes:
. with respect to any tranche of notes, the issuer's failure, for a period
of 35 days, to pay interest on such notes when such interest becomes due
and payable;
. with respect to any tranche of notes, the issuer's failure to pay the
principal amount of such notes on the applicable legal maturity date;
. the issuer's default in the performance, or breach, of any other of its
covenants or warranties in the indenture, for a period of 60 days after
either the indenture trustee or the holders of at least 25% of the
aggregate outstanding dollar principal amount of the outstanding notes
of the affected series, class or tranche has provided written notice
requiring remedy of such breach, and, as a result of such default, the
interests of the related noteholders are materially and adversely
affected and continue to be materially and adversely affected during the
60 day period;
. the occurrence of certain events of bankruptcy, insolvency,
conservatorship or receivership of the issuer; and
. with respect to any series, class or tranche, any additional events of
default specified in the prospectus supplement relating to the series,
class or tranche.
Failure to pay the full stated principal amount of a note on its expected
principal payment date will not constitute an event of default. An event of
default with respect to one series, class or tranche of notes will not
necessarily be an event of default with respect to any other series, class or
tranche of notes.
Events of Default Remedies
The occurrence of some events of default involving the bankruptcy or
insolvency of the issuer results in an automatic acceleration of all of the
notes. If other events of default occur and are continuing with respect to any
series, class or tranche, either the indenture trustee or the holders of more
than a majority in aggregate outstanding dollar principal amount of the notes
of that series, class or tranche may declare by written notice to the issuer
the principal of all those outstanding notes to be immediately due and payable.
This declaration of acceleration may generally be rescinded by the holders of a
majority in aggregate outstanding dollar principal amount of outstanding notes
of that series, class or tranche.
If a series, class or tranche of notes is accelerated before its legal
maturity date, the indenture trustee may at any time thereafter, and at the
direction of the holders of a majority of aggregate outstanding dollar
principal amount of notes of that series, class or tranche at any time
thereafter will, direct master trust II to sell credit card receivables, in an
amount up to the nominal liquidation amount of the affected series, class or
tranche of notes plus any accrued, past due and additional interest on the
affected series, class or tranche, as described
55
in "Sources of Funds to Pay the Notes--Sale of Credit Card Receivables," but
only if at least one of the following conditions is met:
. the noteholders of 90% of the aggregate outstanding dollar principal
amount of the accelerated series, class or tranche of notes consent; or
. the net proceeds of such sale (plus amounts on deposit in the applicable
subaccounts and payments to be received from any applicable derivative
agreement) would be sufficient to pay all outstanding amounts due on the
accelerated series, class or tranche of notes; or
. if the indenture trustee determines that the funds to be allocated to
the accelerated series, class or tranche of notes may not be sufficient
on an ongoing basis to make all payments on such notes as such payments
would have become due if such obligations had not been declared due and
payable, and the holders of not less than 66 2/3% of the aggregate
outstanding principal dollar amount of notes of the accelerated series,
class or tranche, as applicable, consent to the sale.
In addition, a sale of receivables following an event of default and
acceleration of a subordinated tranche of notes of a multiple tranche series
may be delayed as described under "Source of Funds to Pay the Notes--Sale of
Credit Card Receivables" if the payment is not permitted by the subordination
provisions of the senior notes of the same series.
If an event of default occurs relating to the failure to pay principal of or
interest on a series, class or tranche of notes in full on the legal maturity
date, the issuer will automatically direct master trust II to sell credit card
receivables on the date, as described in "Sources of Funds to Pay the Notes--
Sale of Credit Card Receivables."
Any money or other property collected by the indenture trustee with respect
to a series, class or tranche of notes in connection with a sale of credit card
receivables following an event of default will be applied in the following
priority, at the dates fixed by the indenture trustee:
. first, to pay all compensation owed to the indenture trustee for
services rendered in connection with the indenture, reimbursements to
the indenture trustee for all reasonable expenses, disbursements and
advances incurred or made in accordance with the indenture, or
indemnification of the indenture trustee for any and all losses,
liabilities or expenses incurred without negligence or bad faith on its
part, arising out of or in connection with its administration of the
issuer;
. second, to pay the amounts of interest and principal then due and unpaid
on the notes of that series, class or tranche; and
. third, any remaining amounts will be paid to the issuer.
If a sale of credit card receivables does not take place following an
acceleration of a series, class or tranche of notes, then:
. The issuer will continue to hold the collateral certificate, and
distributions on the collateral certificate will continue to be applied
in accordance with the distribution provisions of the indenture and the
indenture supplement.
56
. Principal will be paid on the accelerated series, class or tranche of
notes to the extent funds are received from master trust II and
available to the accelerated series, class or tranche after giving
effect to all allocations and reallocations and payment is permitted by
the subordination provisions of the senior notes of the same series.
. If the accelerated notes are a subordinated tranche of notes of a
multiple tranche series, and the subordination provisions prevent the
payment of the accelerated subordinated tranche, prefunding of the
senior classes of that series will begin, as provided in the applicable
indenture supplement. Thereafter, payment will be made to the extent
provided in the applicable indenture supplement.
. On the legal maturity date of the accelerated notes, if the notes have
not been paid in full, the indenture trustee will direct master trust II
to sell credit card receivables as provided in the applicable indenture
supplement.
The holders of a majority in aggregate outstanding dollar principal amount of
any accelerated series, class or tranche of notes have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the indenture trustee, or exercising any trust or power conferred on the
indenture trustee. However, this right may be exercised only if the direction
provided by the noteholders does not conflict with applicable law or the
indenture or the related indenture supplement or have a substantial likelihood
of involving the indenture trustee in personal liability. The holder of any
note will have the right to institute suit for the enforcement of payment of
principal of and interest on such note on the legal maturity date expressed in
such note.
Generally, if an event of default occurs and any notes are accelerated, the
indenture trustee is not obligated to exercise any of its rights or powers
under the indenture unless the holders of affected notes offer the indenture
trustee reasonable indemnity. Upon acceleration of the maturity of a series,
class or tranche of notes following an event of default, the indenture trustee
will have a lien on the collateral for those notes ranking senior to the lien
of those notes for its unpaid fees and expenses.
The indenture trustee has agreed, and the noteholders will agree, that they
will not at any time institute against the issuer, MBNA or master trust II any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
Meetings
The indenture trustee may call a meeting of the holders of notes of a series,
class or tranche at any time. The indenture trustee will call a meeting upon
request of the issuer or the holders of at least 10% in aggregate outstanding
dollar principal amount of the outstanding notes of the series, class or
tranche. In any case, a meeting will be called after notice is given to holders
of notes in accordance with the indenture.
The quorum for a meeting is a majority of the holders of the outstanding
dollar principal amount of the related series, class or tranche of notes, as
the case may be, unless a
57
higher percentage is specified for approving action taken at the meeting, in
which case the quorum is the higher percentage.
Voting
Any action or vote to be taken by the holders of a majority, or other
specified percentage, of any series, class or tranche of notes may be adopted
by the affirmative vote of the holders of a majority, or the applicable other
specified percentage, of the aggregate outstanding dollar principal amount of
the outstanding notes of that series, class or tranche, as the case may be.
Any action or vote taken at any meeting of holders of notes duly held in
accordance with the indenture will be binding on all holders of the affected
notes or the affected series, class or tranche of notes, as the case may be.
Notes held by the issuer, MBNA or their affiliates will not be deemed
outstanding for purposes of voting or calculating quorum at any meeting of
noteholders.
Amendments to the Indenture and Indenture Supplements
The issuer and the indenture trustee may amend, supplement or otherwise
modify the indenture or any indenture supplement without the consent of any
noteholders to provide for the issuance of any series, class or tranche of
notes (as described under "The Notes--Issuances of New Series, Classes and
Tranches of Notes") and to set forth the terms thereof.
In addition, upon delivery of a master trust II tax opinion and issuer tax
opinion, as described under "--Tax Opinions for Amendments" below, and upon
delivery by the issuer to the indenture trustee of an officer's certificate to
the effect that the issuer reasonably believes that such amendment will not and
is not reasonably expected to (i) result in the occurrence of an early
redemption event or event of default, (ii) adversely affect the amount of funds
available to be distributed to the noteholders of any series, class or tranche
of notes or the timing of such distributions, or (iii) adversely affect the
security interest of the indenture trustee in the collateral securing the
notes, the indenture or any indenture supplement may be amended, supplemented
or otherwise modified without the consent of any noteholders to:
. evidence the succession of another entity to the issuer, and the
assumption by such successor of the covenants of the issuer in the
indenture and the notes;
. add to the covenants of the issuer, or have the issuer surrender any of
its rights or powers under the indenture, for the benefit of the
noteholders of any or all series, classes or tranches;
. cure any ambiguity, correct or supplement any provision in the indenture
which may be inconsistent with any other provision in the indenture, or
make any other provisions with respect to matters or questions arising
under the indenture;
. add to the indenture certain provisions expressly permitted by the Trust
Indenture Act, as amended;
58
. establish any form of note, or to add to the rights of the holders of
the notes of any series, class or tranche;
. provide for the acceptance of a successor indenture trustee under the
indenture with respect to one or more series, classes or tranches of
notes and add to or change any of the provisions of the indenture as
will be necessary to provide for or facilitate the administration of the
trusts under the indenture by more than one indenture trustee;
. add any additional early redemption events or events of default with
respect to the notes of any or all series, classes or tranches;
. provide for the consolidation of master trust II and the issuer or the
transfer of assets in master trust II to the issuer after the
termination of all series of master trust II investor certificates
(other than the collateral certificate);
. if one or more sellers are added to, or replaced under, the master trust
II agreement, or one or more beneficiaries are added to, or replaced
under, the trust agreement, make any necessary changes to the indenture
or any other related document;
. provide for the addition of collateral securing the notes and the
issuance of notes backed by any such additional collateral;
. provide for additional or alternative credit enhancement for any tranche
of notes; or
. qualify for sale treatment under generally accepted accounting
principles.
The indenture or any indenture supplement may also be amended without the
consent of the indenture trustee or any noteholders upon delivery of a master
trust II tax opinion and issuer tax opinion, as described under "--Tax Opinions
for Amendments" below, for the purpose of adding provisions to, or changing in
any manner or eliminating any of the provisions of, the indenture or any
indenture supplement or of modifying in any manner the rights of the holders of
the notes under the indenture or any indenture supplement, provided, however,
that the issuer shall (i) deliver to the indenture trustee and the owner
trustee an officer's certificate to the effect that the issuer reasonably
believes that such amendment will not and is not reasonably expected to (a)
result in the occurrence of an early redemption event or event of default, (b)
adversely affect the amount of funds available to be distributed to the
noteholders or any series, class or tranche of notes or the timing of such
distributions, or (c) adversely affect the security interest of the indenture
trustee in the collateral securing the notes and (ii) receive written
confirmation from each rating agency that such amendment will not result in the
reduction or withdrawal of the ratings of any outstanding notes which it has
rated.
The issuer and the indenture trustee, upon delivery of a master trust II tax
opinion and issuer tax opinion, as described under "--Tax Opinions for
Amendments," may modify and amend the indenture or any indenture supplement,
for reasons other than those stated in the prior paragraphs, with prior notice
to each rating agency and the consent of the holders of not less than 66 2/3%
of the outstanding dollar principal amount of each class or tranche of notes
affected by that modification or amendment. However, if the modification or
amendment would result in any of the following events occurring, it may be made
only with
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the consent of the holders of 100% of each outstanding series, class or tranche
of notes affected by the modification or amendment:
. a change in any date scheduled for the payment of interest on any note,
or the expected principal payment date or legal maturity date of any
note;
. a reduction of the stated principal amount of, or interest rate on, any
note, or a change in the method of computing the outstanding dollar
principal amount, the Adjusted Outstanding Dollar Principal Amount, or
the nominal liquidation amount in a manner that is adverse to any
noteholder;
. a reduction of the amount of a discount note payable upon the occurrence
of an early redemption event or other optional or mandatory redemption
or upon the acceleration of its maturity;
. an impairment of the right to institute suit for the enforcement of any
payment on any note;
. a reduction of the percentage in outstanding dollar principal amount of
the notes of any outstanding series, class or tranche, the consent of
whose holders is required for modification or amendment of any indenture
supplement or for waiver of compliance with provisions of the indenture
or for waiver of defaults and their consequences provided for in the
indenture;
. a modification of any of the provisions governing the amendment of the
indenture, any indenture supplement or the issuer's agreements not to
claim rights under any law which would affect the covenants or the
performance of the indenture or any indenture supplement, except to
increase any percentage of noteholders required to consent to any such
amendment or to provide that certain other provisions of the indenture
cannot be modified or waived without the consent of the holder of each
outstanding note affected by such modification;
. permission being given to create any lien or other encumbrance on the
collateral securing any notes ranking senior to the lien of the
indenture;
. a change in the city or political subdivision so designated with respect
to any series, class or tranche of notes where any principal of, or
interest on, any note is payable;
. a change in the method of computing the amount of principal of, or
interest on, any note on any date; or
. any other amendment other than those explicitly permitted by the
indenture without the consent of noteholders.
The holders of a majority in aggregate outstanding dollar principal amount of
the notes of a series, class or tranche, may waive, on behalf of the holders of
all the notes of that series, class or tranche, compliance by the issuer with
specified restrictive provisions of the indenture or the indenture supplement.
The holders of a majority in aggregate outstanding dollar principal amount of
the notes of an affected series, class or tranche may, on behalf of all holders
of notes of that series, class
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or tranche, waive any past default under the indenture or the indenture
supplement with respect to notes of that series, class or tranche. However, the
consent of the holders of all outstanding notes of a series, class or tranche
is required to waive any past default in the payment of principal of, or
interest on, any note of that series, class or tranche or in respect of a
covenant or provision of the indenture that cannot be modified or amended
without the consent of the holders of each outstanding note of that series,
class or tranche.
Tax Opinions for Amendments
No amendment to the indenture, any indenture supplement, the master trust II
agreement or the trust agreement will be effective unless the issuer has
delivered to the indenture trustee, the owner trustee and the rating agencies
an opinion of counsel that:
. for federal income tax purposes (1) the amendment will not adversely
affect the tax characterization as debt of any outstanding series or
class of investor certificates issued by master trust II that were
characterized as debt at the time of their issuance, (2) the amendment
will not cause or constitute an event in which gain or loss would be
recognized by any holder of investor certificates issued by master trust
II, and (3) following the amendment, master trust II will not be an
association, or publicly traded partnership, taxable as a corporation;
and
. for federal income tax purposes (1) the amendment will not adversely
affect the tax characterization as debt of any outstanding series, class
or tranche of notes that were characterized as debt at the time of their
issuance, (2) following the amendment, the issuer will not be treated as
an association, or publicly traded partnership, taxable as a corporation
and (3) the amendment will not cause or constitute an event in which
gain or loss would be recognized by any holder of any such note.
Addresses for Notices
Notices to holders of notes will be given by mail sent to the addresses of
the holders as they appear in the note register.
Issuer's Annual Compliance Statement
The issuer will be required to furnish annually to the indenture trustee a
statement concerning its performance or fulfillment of covenants, agreements or
conditions in the indenture as well as the presence or absence of defaults
under the indenture.
Indenture Trustee's Annual Report
To the extent required by the Trust Indenture Act, as amended, the indenture
trustee will mail each year to all registered noteholders a report concerning:
. its eligibility and qualifications to continue as trustee under the
indenture,
. any amounts advanced by it under the indenture,
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. the amount, interest rate and maturity date or indebtedness owing by the
issuer to it in the indenture trustee's individual capacity,
. the property and funds physically held by it as indenture trustee,
. any release or release and substitution of collateral subject to the
lien of the indenture that has not previously been reported, and
. any action taken by it that materially affects the notes and that has
not previously been reported.
List of Noteholders
Three or more holders of notes of any series, each of whom has owned a note
for at least six months, may, upon written request to the indenture trustee,
obtain access to the current list of noteholders of the issuer for purposes of
communicating with other noteholders concerning their rights under the
indenture or the notes. The indenture trustee may elect not to give the
requesting noteholders access to the list if it agrees to mail the desired
communication or proxy to all applicable noteholders.
Reports
Monthly reports containing information on the notes and the collateral
securing the notes will be filed with the Securities and Exchange Commission.
These reports will not be sent to noteholders. See "Where You Can Find More
Information" in this prospectus for information as to how these reports may be
accessed.
On or before August 31 of each calendar year beginning in 2002, the paying
agent, on behalf of the indenture trustee, will furnish to each person who at
any time during the prior calendar year was a noteholder of record a statement
containing the information required to be provided by an issuer of indebtedness
under the Internal Revenue Code. See "Federal Income Tax Consequences" in this
prospectus.
MBNA's Credit Card Activities
General
The receivables conveyed or to be conveyed to master trust II by MBNA
pursuant to the master trust II agreement have been or will be generated from
transactions made by holders of selected MasterCard and VISA credit card
accounts from the portfolio of MasterCard and VISA accounts owned by MBNA
called the Bank Portfolio. MBNA currently services the Bank Portfolio in the
manner described below. Certain data processing and administrative functions
associated with the servicing of the Bank Portfolio are performed on behalf of
MBNA by MBNA Hallmark Information Services, Inc. See "--MBNA Hallmark" below.
MBNA Hallmark is a wholly-owned subsidiary of MBNA.
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Acquisition and Use of Credit Card Accounts
MBNA primarily relies on affinity marketing in the acquisition of new credit
card accounts. Affinity marketing involves the solicitation of prospective
cardholders from identifiable groups with a common interest or a common cause.
Affinity marketing is conducted through two approaches: (1) solicitation of
members of organized membership groups with the endorsement of such group's
leadership; and (2) direct solicitation of purchased list prospects. This may
be supplemented by the purchase of affinity relationships, including related
credit card receivables. MBNA also relies on targeted direct response marketing
in the acquisition of new accounts.
The credit risk associated with each applicant is evaluated through the
combination of human judgment and the application of various credit scoring
models and other statistical techniques. The scoring models and other
statistical techniques use the information available about the applicant on his
or her application and in his or her credit report. This provides a general
indication of the applicant's willingness and ability to repay his or her
obligations. Models for credit scoring are developed and modified using
statistics to evaluate common applicant characteristics and their correlation
to credit risk. Periodically, the scoring models are validated and if
necessary, realigned to maintain their predictability.
Generally, a credit analyst decides whether or not to approve an account,
although certain applications are declined through an automated decisioning
process. Credit applications that are ultimately approved are generally
reviewed by a credit analyst. A limited number of applications from cardholders
who already have an account with MBNA are approved through an automated system
based on the cardholder's favorable credit history with MBNA. Credit analysts
are encouraged to call applicants when they feel additional information, such
as an explanation of delinquencies or debt levels, may assist the analyst in
making the appropriate credit decision. The credit analyst approves
applications and assigns credit lines based upon an assessment of the
applicant's current and projected capacity to repay, and their willingness to
repay debt. Important factors in performing this assessment include income,
debt-to-income levels, residence and employment stability, rate at which new
credit is being acquired and the manner in which the applicant has handled the
repayment of previously granted credit. An applicant who has favorable capacity
and history characteristics is more likely to be approved and to receive a
relatively higher credit line assignment. Favorable characteristics might
include low debt-to-income levels, a long history of steady employment, and
little or no history of making delinquent payments on other debt.
Once the credit analyst makes a decision, further levels of review are
automatically triggered based on an analysis of the risk of each decision. This
analysis is derived from previous experiential data and makes use of credit
scores and other statistical techniques. Credit analysts also review
applications obtained through pre-approved offers to ensure adherence to credit
standards and assign an appropriate credit limit as an additional approach to
managing credit risk. MBNA's Loan Review Department independently reviews
selected applications to ensure quality and consistency. Less than half of all
credit applications are approved.
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MBNA and its affiliates have made portfolio acquisitions in the past and may
make additional acquisitions in the future. Prior to acquiring a portfolio,
MBNA reviews the historical performance and seasoning of the portfolio
(including the portfolio's delinquency and loss characteristics, the average
balances, attrition rates and collections performance) and reviews the account
management and underwriting policies and procedures of the entity selling the
portfolio. Credit card accounts that have been purchased by MBNA were
originally opened using criteria established by institutions other than MBNA
and may not have been subject to the same level of credit review as accounts
established by MBNA. Once these accounts have been purchased and transferred to
MBNA for servicing, they are managed in accordance with the same policies and
procedures as accounts originated by MBNA. It is expected that portfolios of
credit card accounts purchased by MBNA from other credit card issuers will be
added to master trust II from time to time.
Each cardholder is subject to an agreement with MBNA governing the terms and
conditions of the related MasterCard or VISA account. Under each such
agreement, MBNA reserves the right, upon advance notice to the cardholder, to
add or to change any terms, conditions, services or features of its MasterCard
or VISA accounts at any time, including increasing or decreasing periodic
finance charges, other charges or minimum payment terms. The agreement with
each cardholder provides that MBNA may apply such changes, when applicable, to
current outstanding balances as well as to future transactions. The cardholder
can avoid certain changes in terms by giving timely written notification to
MBNA and by not using the account.
A cardholder may use the credit card for two types of transactions: purchases
and cash advances. Cardholders make purchases when using the credit card to pay
for goods or services. A cash advance is made when a credit card is used to
obtain cash from a financial institution or an automated teller machine.
Cardholders may use special cash advance checks issued by MBNA to draw against
their MasterCard or VISA credit lines. Cardholders may draw against their MBNA
credit lines as a cash advance by transferring balances owed to other creditors
to their MBNA accounts.
MBNA Hallmark
Credit card processing services performed by MBNA Hallmark include data
processing, payment processing, statement rendering, card production and
network services. MBNA Hallmark's data network provides an interface to
MasterCard International Inc. and VISA U.S.A., Inc. for performing
authorizations and funds transfers. Most data processing and network functions
are performed at MBNA Hallmark's facility in Addison, Texas.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees called interchange from VISA and MasterCard as partial
compensation for taking credit risk, absorbing fraud losses and funding
receivables for a limited period prior to initial billing. Under the VISA and
MasterCard systems, a portion of this interchange in connection with cardholder
charges for goods and services is passed from banks which clear the
transactions for
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merchants to credit card issuing banks. Interchange fees are set annually by
MasterCard and VISA and are based on the number of credit card transactions and
the amount charged per transaction. MBNA will be required to transfer to master
trust II a percentage of the interchange attributed to cardholder charges for
goods and services in the related accounts. Interchange arising under the
related accounts will be allocated to the collateral certificate and will be
treated as collections of finance charge receivables and will be used to pay
required monthly payments to the issuer and to pay a portion of the servicing
fee paid to the servicer.
Master Trust II
The following discussion summarizes the material terms of the pooling and
servicing agreement--dated August 4, 1994, between MBNA, as seller and
servicer, and The Bank of New York, as master trust II trustee, which has been
and may be amended from time to time, and is referred to in this prospectus as
the master trust II agreement--and the series supplements to the master trust
II agreement. The summary does not purport to be complete and is qualified in
its entirety by reference to the provisions of the master trust II agreement
and the series supplements.
General
Master trust II has been formed in accordance with the laws of the State of
Delaware. Master trust II is governed by the master trust II agreement. Master
trust II will only engage in the following business activities:
. acquiring and holding master trust II assets;
. issuing series of certificates and other interests in master trust II;
. receiving collections and making payments on the collateral certificate
and other interests; and
. engaging in related activities (including, with respect to any series,
obtaining any enhancement and entering into an enhancement agreement
relating thereto).
As a consequence, master trust II is not expected to have any need for
additional capital resources other than the assets of master trust II.
Master Trust II Trustee
The Bank of New York is the master trust II trustee under the master trust II
agreement. MBNA, the servicer and their respective affiliates may from time to
time enter into normal banking and trustee relationships with the master trust
II trustee and its affiliates. The master trust II trustee, MBNA, the servicer
and any of their respective affiliates may hold certificates in their own
names. For purposes of meeting the legal requirements of certain local
jurisdictions, the master trust II trustee will have the power to appoint a co-
master trust II trustee or separate master trust II trustees of all or any part
of master trust II. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the master trust II trustee by
the master trust II agreement will be conferred or imposed upon the
65
master trust II trustee and such separate trustee or co-trustee jointly, or, in
any jurisdiction in which the master trust II trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or co-
trustee who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the master trust II trustee.
The master trust II trustee may resign at any time, in which event MBNA will
be obligated to appoint a successor master trust II trustee. MBNA may also
remove the master trust II trustee if the master trust II trustee ceases to be
eligible to continue as such under the master trust II agreement or if the
master trust II trustee becomes insolvent. In such circumstances, MBNA will be
obligated to appoint a successor master trust II trustee. Any resignation or
removal of the master trust II trustee and appointment of a successor master
trust II trustee does not become effective until acceptance of the appointment
by the successor master trust II trustee.
The Receivables
The Master Trust II Portfolio consists of receivables which arise in credit
card accounts selected from the Bank Portfolio on the basis of criteria set
forth in the master trust II agreement as applied on the Cut-Off Date and, with
respect to additional accounts, as of the date of their designation. MBNA will
have the right (subject to certain limitations and conditions set forth
therein), and in some circumstances will be obligated, to designate from time
to time additional eligible revolving credit card accounts to be included as
accounts and to transfer to master trust II all receivables of such additional
accounts, whether such receivables are then existing or thereafter created, or
to transfer to master trust II participations in receivables instead.
MBNA, as seller, will be required to designate additional credit card
accounts, to the extent available:
(a) to maintain the Seller Interest so that, during any period of 30
consecutive days, the Seller Interest averaged over that period equals or
exceeds the Minimum Seller Interest for the same period; and
(b) to maintain, for so long as master trust II investor certificates of
any series (including the collateral certificate) remain outstanding, an
aggregate amount of principal receivables equal to or greater than the
minimum aggregate principal receivables. Any additional credit card
accounts designated by MBNA must meet certain eligibility requirements on
the date of designation.
MBNA also has the right (subject to certain limitations and conditions) to
require the master trust II trustee to reconvey all receivables in credit card
accounts designated by MBNA for removal, whether such receivables are then
existing or thereafter created. Once a credit card account is removed,
receivables existing under that credit card account are not transferred to
master trust II.
Throughout the term of master trust II, the credit card accounts from which
the receivables arise will be the credit card accounts designated by MBNA on
the Cut-Off Date
66
plus any additional credit card accounts minus any removed credit card
accounts. With respect to each series of certificates issued by master trust
II, MBNA will represent and warrant to master trust II that, as of the date of
issuance of the related series and the date receivables are conveyed to master
trust II, such receivables meet certain eligibility requirements. See "--
Representations and Warranties" below.
The prospectus supplement relating to each series, class or tranche of notes
will provide certain information about the Master Trust II Portfolio as of the
date specified. Such information will include, but not be limited to, the
amount of principal receivables, the amount of finance charge receivables, the
range of principal balances of the credit card accounts and the average
thereof, the range of credit limits of the credit card accounts and the average
thereof, the range of ages of the credit card accounts and the average thereof,
the geographic distribution of the credit card accounts, the types of credit
card accounts and delinquency statistics relating to the credit card accounts.
Investor Certificates
Each series of master trust II certificates will represent interests in
certain assets of master trust II, including the right to the applicable
investor percentage of all cardholder payments on the receivables in master
trust II. For the collateral certificate, the Investor Interest on any date
will be equal to the sum of the nominal liquidation amounts of all notes
secured by the collateral certificate.
MBNA initially will own the Seller Interest which represents the interest in
master trust II not represented by the certificates issued and outstanding
under master trust II or the rights, if any, of any credit enhancement
providers to receive payments from master trust II. The holder of the Seller
Interest, subject to certain limitations, will have the right to the Seller
Percentage of all cardholder payments from the receivables in master trust II.
The Seller Interest may be transferred in whole or in part subject to certain
limitations and conditions set forth in the master trust II agreement. At the
discretion of MBNA, the Seller Interest may be held either in an uncertificated
form or in the form of a certificate representing the Seller Interest, called a
seller certificate. See "--Certain Matters Regarding MNBA as Seller and as
Servicer" below.
The amount of principal receivables in master trust II will vary each day as
new principal receivables are created and others are paid or charged-off as
uncollectible. The amount of the Seller Interest will fluctuate each day,
therefore, to reflect the changes in the amount of the principal receivables in
master trust II. As a result, the Seller Interest will generally increase to
reflect reductions in the Investor Interest for such series and will also
change to reflect the variations in the amount of principal receivables in
master trust II. The Seller Interest will generally decrease as a result of the
issuance of a new series of investor certificates by master trust II or as a
result of an increase in the collateral certificate due to the issuance of a
new series, class or tranche of notes or otherwise. See "--New Issuances" below
and "The Notes--Issuances of New Series, Classes and Tranches of Notes" in this
prospectus.
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Transfer and Assignment of Receivables
MBNA has transferred and assigned all of its right, title and interest in and
to the receivables in the credit card accounts and all receivables thereafter
created in the accounts.
In connection with each previous transfer of the receivables to master trust
II, MBNA indicated, and in connection with each subsequent transfer of
receivables to master trust II, MBNA will indicate, in its computer files that
the receivables have been conveyed to master trust II. In addition, MBNA has
provided to the master trust II trustee computer files or microfiche lists,
containing a true and complete list showing each credit card account,
identified by account number and by total outstanding balance on the date of
transfer. MBNA will not deliver to the master trust II trustee any other
records or agreements relating to the credit card accounts or the receivables,
except in connection with additions or removals of credit card accounts. Except
as stated above, the records and agreements relating to the credit card
accounts and the receivables in master trust II maintained by MBNA or the
servicer are not and will not be segregated by MBNA or the servicer 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 transfer of the
receivables to master trust II, but the computer records of MBNA are and will
be required to be marked to evidence such transfer. MBNA has filed Uniform
Commercial Code financing statements with respect to the receivables in master
trust II meeting the requirements of Delaware state law. See "Risk Factors" and
"Material Legal Aspects of the Receivables" in this prospectus.
Addition of Master Trust II Assets
As described above under "--The Receivables," MBNA has the right to designate
to master trust II, from time to time, additional credit card accounts for the
related receivables to be included as receivables transferred to master trust
II. MBNA will convey to master trust II its interest in all receivables of such
additional credit card accounts, whether such receivables are then existing or
thereafter created.
Each additional account, including each such account acquired by MBNA, must
be an Eligible Account at the time of its designation. However, additional
credit card accounts may not be of the same credit quality as the initial
credit card accounts transferred to master trust II. Additional credit card
accounts may have been originated by MBNA using credit criteria different from
those which were applied by MBNA to the initial credit card accounts
transferred to master trust II or may have been acquired by MBNA from an
institution which may have had different credit criteria.
In addition to or in lieu of additional credit card accounts, MBNA is
permitted to add to master trust II participations representing interests in a
pool of assets primarily consisting of receivables arising under consumer
revolving credit card accounts owned by MBNA and collections thereon.
Participations may be evidenced by one or more certificates of ownership issued
under a separate pooling and servicing agreement or similar agreement entered
into by MBNA which entitles the certificateholder to receive percentages of
collections generated by the pool of assets subject to such participation
agreement from time to time and to certain other rights and remedies specified
therein. Participations may have
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their own credit enhancement, Pay Out Events, servicing obligations and
Servicer Defaults, all of which are likely to be enforceable by a separate
trustee under the participation agreement and may be different from those
specified in this prospectus. The rights and remedies of master trust II as the
holder of a participation (and therefore the certificateholders) will be
subject to all the terms and provisions of the related participation agreement.
The master trust II agreement may be amended to permit the addition of a
participation in master trust II without the consent of the related
certificateholders if:
. MBNA delivers to the master trust II trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of MBNA,
such amendment will not as of the date of such amendment adversely affect
in any material respect the interest of such certificateholders; and
. such amendment will not result in a withdrawal or reduction of the rating
of any outstanding series under master trust II by any rating agency.
A conveyance by MBNA to master trust II of receivables in additional credit
card accounts or participations is subject to the following conditions, among
others:
. MBNA shall give the master trust II trustee, each rating agency and the
servicer written notice that such additional accounts or participations
will be included, which notice shall specify the approximate aggregate
amount of the receivables or interests therein to be transferred;
. MBNA shall have delivered to the master trust II trustee a written
assignment (including an acceptance by the master trust II trustee on
behalf of master trust II for the benefit of the certificateholders) as
provided in the assignment agreement relating to such additional
accounts or participations and, MBNA shall have delivered to the master
trust II trustee a computer file or microfiche list, dated as of the
Addition Date, containing a true and complete list of such additional
accounts or participations transferred to master trust II;
. MBNA shall represent and warrant that:
--each additional credit card account is, as of the Addition Date, an
Eligible Account, and each receivable in such additional credit card
account is, as of the Addition Date, an Eligible Receivable;
--no selection procedures believed by the seller to be materially
adverse to the interests of the certificateholders were utilized in
selecting the additional credit card accounts from the available
Eligible Accounts from the Bank Portfolio; and
--as of the Addition Date, MBNA is not insolvent;
. MBNA shall deliver certain opinions of counsel with respect to the
transfer of the receivables in the additional credit card accounts or
the participations to master trust II; and
. each rating agency then rating any series of certificates outstanding
under master trust II shall have previously, or, in certain limited
circumstances, within a three-month period, consented to the addition of
such additional credit card accounts or participations.
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In addition to the periodic reports otherwise required to be filed by the
servicer with the SEC pursuant to the Securities Exchange Act of 1934, as
amended, the servicer intends to file, on behalf of master trust II, a report
on Form 8-K with respect to any addition to master trust II of receivables in
additional credit card accounts or participations that would have a material
effect on the composition of the assets of master trust II.
Removal of Accounts
MBNA may, but shall not be obligated to, designate from time to time certain
credit card accounts to be removed accounts, all receivables in which shall be
subject to removal from master trust II. MBNA, however, may not make more than
one such designation in any month. MBNA will be permitted to designate and
require reassignment to it of the receivables from removed accounts only upon
satisfaction of the following conditions, among others:
. the removal of any receivables of any removed accounts shall not, in the
reasonable belief of MBNA, cause a Pay Out Event to occur;
. MBNA shall have delivered to master trust II for execution a written
assignment and a computer file or microfiche list, dated as of the
Removal Date, containing a true and complete list of all removed
accounts identified by account number and the aggregate amount of the
receivables in such removed accounts;
. MBNA shall represent and warrant that no selection procedures believed
by MBNA to be materially adverse to the interests of the holders of any
series of certificates outstanding under master trust II were utilized
in selecting the removed accounts to be removed from master trust II;
. each rating agency then rating each series of investor certificates
outstanding under master trust II shall have received notice of such
proposed removal of accounts and MBNA shall have received notice from
each such rating agency that such proposed removal will not result in a
downgrade or withdrawal of its then-current rating for any such series;
. the aggregate amount of principal receivables of the accounts then
existing in master trust II less the aggregate amount of principal
receivables of the removed accounts shall not be less than the amount
specified, if any, for any period specified;
. the principal receivables of the removed accounts shall not equal or
exceed 5% of the aggregate amount of the principal receivables in master
trust II at such time; except, that if any series of master trust II
investor certificates or tranche of notes has been paid in full, the
principal receivables in such removed accounts may not equal or exceed
the sum of:
--the initial Investor Interest or the aggregate principal amount of the
certificates of such series or tranche, as applicable, of such series;
plus
--5% of the aggregate amount of the principal receivables in master trust
II at such time after giving effect to the removal of accounts in an
amount approximately equal to the initial Investor Interest of such
series; and
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. MBNA shall have delivered to the master trust II trustee an officer's
certificate confirming the items set forth above.
In addition, MBNA's designation of any account as a removed account shall be
random, unless MBNA's designation of any such account is in response to a
third-party action or decision not to act.
MBNA will be permitted to designate as a removed account without the consent
of the master trust II trustee, certificateholders, noteholders or rating
agencies, and without having to satisfy the conditions described above, any
account that has a zero balance and which MBNA will remove from its computer
file.
Collection and Other Servicing Procedures
The servicer will be responsible for servicing and administering the
receivables in accordance with the servicer's policies and procedures for
servicing credit card receivables comparable to the receivables. The servicer
will be required to maintain fidelity bond coverage insuring against losses
through wrongdoing of its officers and employees who are involved in the
servicing of credit card receivables covering such actions and in such amounts
as the servicer believes to be reasonable from time to time.
The servicer may not resign from its obligations and duties under the master
trust II agreement, except upon determination that performance of its duties is
no longer permissible under applicable law. No such resignation will become
effective until the master trust II trustee or a successor to the servicer has
assumed the servicer's responsibilities and obligations under the master trust
II agreement. MBNA, as initial servicer, intends to delegate some of its
servicing duties to MBNA Hallmark; however, such delegation will not relieve it
of its obligation to perform such duties in accordance with the master trust II
agreement.
Master Trust II Accounts
The servicer will establish and maintain, in the name of master trust II, for
the benefit of certificateholders of all series, an account established for the
purpose of holding collections of receivables, called a master trust II
collection account, which will be a non-interest bearing segregated account
established and maintained with the servicer or with a Qualified Institution. A
Qualified Institution may also be a depository institution, which may include
the master trust II trustee, which is acceptable to each rating agency.
In addition, for the benefit of the investor certificateholders of
certificates issued by master trust II, the master trust II trustee will
establish and maintain in the name of master trust II two separate accounts,
called a finance charge account and a principal account, in segregated master
trust II accounts (which need not be deposit accounts). Funds in the principal
account and the finance charge account for master trust II will be invested, at
the direction of the servicer, in Permitted Investments.
Any earnings (net of losses and investment expenses) on funds in the finance
charge account or the principal account allocable to the collateral certificate
will be included in
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collections of finance charge receivables allocable to the collateral
certificate. The servicer will have the revocable power to withdraw funds from
the master trust II collection account and to instruct the master trust II
trustee to make withdrawals and payments from the finance charge account and
the principal account for the purpose of carrying out the servicer's duties.
Investor Percentage
The servicer will allocate between the Investor Interest of each series
issued and outstanding and the Seller Interest, all amounts collected on
finance charge receivables, all amounts collected on principal receivables and
all receivables in Defaulted Accounts, based on a varying percentage called the
investor percentage. The servicer will make each allocation by reference to the
applicable investor percentage of each series and the Seller Percentage, and,
in certain circumstances, the percentage interest of certain credit enhancement
providers, with respect to such series. For a description of how allocations
will be made to the collateral certificate by master trust II, see "Sources of
Funds to Pay the Notes--The Collateral Certificate."
Transfer of Annual Membership Fees
Before the Distribution Date following each annual membership fee processing
date, MBNA will accept reassignment of the receivables representing such annual
membership fee from master trust II. MBNA will pay to master trust II for such
receivable the amount of such annual membership fee. An amount equal to the
product of (a) the investor percentages with respect to all series issued by
master trust II with respect to finance charge receivables and (b) the amount
of such annual membership fee will be deposited by MBNA into the finance charge
account, and an amount equal to the product of (a) the Seller Percentage and
(b) the amount of such annual membership fee will be paid to the holder of the
Seller Interest. Simultaneously with such reassignment, MBNA will retransfer
the receivable representing such annual membership fee to master trust II. Upon
such retransfer, MBNA will make certain representations and warranties with
respect to such receivables, as provided above under "--Representations and
Warranties," as if such receivable were a new receivable created in an existing
account of master trust II. Further, the amount of the Seller Interest will be
increased to reflect the addition of such annual membership fee receivable to
master trust II. Collections with respect to such annual membership fees will
be treated as collections of prinicipal receivables.
Application of Collections
Except as otherwise provided below, the servicer will deposit into the master
trust II collection account, no later than the second Business Day following
the date of processing, any payment collected by the servicer on the
receivables in master trust II. On the same day as any such deposit is made,
the servicer will make the deposits and payments to the accounts and parties as
indicated below. MBNA, as servicer, may make such deposits and payments on a
monthly or other periodic basis on each Transfer Date in an amount equal to
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the net amount of such deposits and payments which would have been made on a
daily basis if:
. (i) the servicer provides to the master trust II trustee a letter of
credit covering collection risk of the servicer acceptable to the
specified rating agency, and(ii) MBNA shall not have received a notice
from such rating agency that such letter of credit would result in the
lowering of such rating agency's then-existing rating of any
series of certificates previously issued by master trust II and
then-outstanding; or
. the servicer has and maintains a certificate of deposit rating of P-1 by
Moody's and of A-1 by Standard & Poor's and deposit insurance.
Whether the servicer is required to make monthly or daily deposits from the
master trust II collection account into the finance charge account or the
principal account, with respect to any month:
. the servicer will only be required to deposit collections from the
master trust II collection account into the finance charge account, the
principal account or any series account established by a related series
supplement up to the required amount to be deposited into any such
deposit account or, without duplication, distributed or deposited on or
prior to the related Distribution Date to certificateholders; and
. if at any time prior to such Distribution Date the amount of collections
deposited in the master trust II collection account, finance charge
account or principal account exceeds the amount required to be deposited
pursuant to this section, the servicer, subject to certain limitations,
will be permitted to withdraw the excess from the master trust II
collection account, finance charge account or principal account, as
applicable.
The servicer will withdraw the following amounts from the master trust II
collection account for application as indicated:
(a) an amount equal to the Seller Percentage of the aggregate amount of
such deposits in respect of principal receivables will be:
--paid to the holder of the Seller Interest if, and only to the extent
that, the Seller Interest is greater than the Minimum Seller Interest;
or
--deposited in the principal account and treated as Unallocated Principal
Collections;
(b) an amount equal to the Seller Percentage of the aggregate amount of
such deposits in respect of finance charge receivables will be:
--deposited in the finance charge account (in an amount equal to the
amount of such deposits times the aggregate prefunded amount, if any,
on deposit in the principal funding subaccount for any tranche of notes
divided by the Seller Interest) and paid to the issuer on the following
Transfer Date (in amount not to exceed the positive difference, if any,
between (i) the amount of interest payable to noteholders and
derivative counterparties, if any, on such prefunded amount and (ii)
the net investment earnings on such prefunded amounts for such month);
or
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--otherwise paid to the holder of the Seller Interest;
(c) for master trust II certificates other than the collateral
certificate, an amount equal to the applicable investor percentage of the
aggregate amount of such deposits in respect of finance charge receivables
will be deposited into the finance charge account and the aggregate amount
of such deposits in respect of principal receivables will be deposited into
the principal account, in each case, for application and distribution in
accordance with the related series supplement; and
(d) for the collateral certificate, deposits in respect of finance charge
receivables and principal receivables will be allocated to the collateral
certificate as described in "Source of Funds to Pay the Notes--The
Collateral Certificate" in this prospectus, provided that with respect to
collections of principal receivables allocable to subordinated classes of
notes, MBNA, as servicer, will deposit such collections into the principal
account up to an amount equal to (i) 1.5 times the highest Investor Default
Rate in the 3 prior months times the aggregate Available Funds Allocation
Amount for all series of notes minus (ii) the amount of deposits in respect
of finance charge receivables in excess of the amount required to pay
interest and servicing fees previously deposited in the finance charge
account during such month, and the remaining collections of principal
receivables allocable to subordinated classes of notes will be commingled
with MBNA's other funds until the following Transfer Date.
Any Unallocated Principal Collections will be paid to and held in the
principal account and paid to the holder of the Seller Interest if, and only to
the extent that, the Seller Interest is greater than the Minimum Seller
Interest. Unallocated Principal Collections will be held for or distributed to
investor certificateholders of the series of certificates issued by master
trust II (including the collateral certificate) in accordance with related
series supplements.
Defaulted Receivables; Rebates and Fraudulent Charges
On each Determination Date, the servicer will calculate the Aggregate
Investor Default Amount for the preceding month, which will be equal to the
aggregate amount of the investor percentage of principal receivables in
Defaulted Accounts; that is, credit card accounts which in such month were
written off as uncollectible in accordance with the servicer's policies and
procedures for servicing credit card receivables comparable to the receivables
in master trust II.
If the servicer adjusts the amount of any principal receivable because of
transactions occurring in respect of a rebate or refund to a cardholder, or
because such principal receivable was created in respect of merchandise which
was refused or returned by a cardholder, then the Seller Interest will be
reduced by the amount of the adjustment. In addition, the Seller 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.
Master Trust II Termination
Master trust II will terminate on the Master Trust II Termination Date. Upon
the termination of master trust II and the surrender of the Seller Interest,
the master trust II
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trustee shall convey to the holder of the Seller Interest all right, title and
interest of master trust II in and to the receivables and other funds of master
trust II.
Pay Out Events
A Pay Out Event will cause the early redemption of the notes. A Pay Out Event
refers to any of the following events:
(a) failure on the part of MBNA (i) to make any payment or deposit on the
date required under the master trust II agreement or the Series 2001-D
supplement (or within the applicable grace period which shall not
exceed 5 days) or (ii) to observe or perform in any material respect
any other covenants or agreements of MBNA set forth in the master trust
II agreement or the Series 2001-D supplement, which failure has a
material adverse effect on the certificateholders and which continues
unremedied for a period of 60 days after written notice of such
failure, requiring the same to be remedied, and continues to materially
and adversely affect the interests of the certificateholders for such
period;
(b) any representation or warranty made by MBNA in the master trust II
agreement or the Series 2001-D supplement, or any information required
to be given by MBNA to the master trust II trustee to identify the
credit card 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
such failure, requiring the same to be remedied, and as a result of
which the interests of the certificateholders are materially and
adversely affected and continue to be materially and adversely affected
for such period, except that a Pay Out Event described in this
subparagraph (b) will not occur if MBNA has accepted reassignment of
the related receivable or all such receivables, if applicable, during
such period (or such longer period as the master trust II trustee may
specify) in accordance with the provisions of the master trust II
agreement;
(c) a failure by MBNA to convey receivables arising under additional credit
card accounts, or participations, to master trust II when required by
the master trust II agreement;
(d) any Servicer Default occurs which would have a material adverse effect
on the certificateholders;
(e) certain events of insolvency, conservatorship or receivership relating
to MBNA;
(f) MBNA becomes unable for any reason to transfer receivables to master
trust II in accordance with the provisions of the master trust II
agreement; or
(g) master trust II becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In the case of any event described in clause (a), (b) or (d) above, a Pay Out
Event will occur only if, after any applicable grace period, either the master
trust II trustee or the noteholders evidencing interests aggregating not less
than 50% of the Adjusted Outstanding
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Dollar Principal Amount of the outstanding notes, by written notice to MBNA and
the servicer (and to the master trust II trustee if given by the
certificateholders) declare that a Pay Out Event has occurred as of the date of
such notice.
In the case of any event described in clause (c), (e), (f) or (g), a Pay Out
Event will occur without any notice or other action on the part of the master
trust II trustee or the noteholders immediately upon the occurrence of such
event.
In addition to the consequences of a Pay Out Event discussed above and solely
to the extent the investor certificates of any series issued on or prior to
April 25, 2001 are outstanding, if pursuant to certain provisions of federal
law, MBNA voluntarily enters liquidation or a receiver is appointed for MBNA,
on the day of such event MBNA will immediately cease to transfer principal
receivables to master trust II and promptly give notice to the master trust II
trustee of such event. Within 15 days, the master trust II trustee will publish
a notice of the liquidation or the appointment stating that the master trust II
trustee intends to sell, dispose of, or otherwise liquidate the receivables in
master trust II. Unless otherwise instructed within a specified period by
certificateholders representing interests aggregating more than 50% of the
Investor Interest of each series issued and outstanding, the master trust II
trustee will use its best efforts to sell, dispose of, or otherwise liquidate
the receivables in master trust II through the solicitation of competitive bids
and on terms equivalent to the best purchase offer, as determined by the master
trust II trustee. The noteholders will be deemed to have disapproved of such
sale, liquidation or disposition. However, neither MBNA, nor any affiliate or
agent of MBNA, may purchase the receivables of master trust II in the event of
such sale, liquidation or disposition. The proceeds from the sale, disposition
or liquidation of such receivables will be treated as collections of the
receivables and applied as specified above in "--Application of Collections."
If the only Pay Out Event to occur is either the insolvency of MBNA or the
appointment of a conservator or receiver for MBNA, the conservator or receiver
may have the power to prevent the early sale, liquidation or disposition of the
receivables in master trust II and the commencement of a Rapid Amortization
Period. In addition, a conservator or receiver may have the power to cause the
early sale of the receivables in master trust II and the early retirement of
the certificates. See "Risk Factors."
On the date on which a Pay Out Event occurs, the Rapid Amortization Period
will commence. A Pay Out Event for the collateral certificate is also an early
redemption event for the notes. See "The Indenture--Early Redemption Events."
Servicing Compensation and Payment of Expenses
The share of the master trust II servicing fee allocable to the collateral
certificate for any Transfer Date, called the Investor Servicing Fee, will
equal one-twelfth of the product of (i) 2.0% and (ii) the Weighted Average
Floating Allocation Investor Interest for the collateral certificate for the
month preceding such Transfer Date, except that for the first Transfer Date,
the Investor Servicing Fee will be equal the product of (i) the Weighted
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Average Floating Allocation Investor Interest for the collateral certificate
for the first month (ii) 2.0% and (iii) a fraction, the numerator of which is
the actual number of days during the period from and including the initial
issuance date of any notes through and including the last day of the following
month and the denominator of which is 360. On each Transfer Date, if MBNA or
The Bank of New York is the servicer, servicer interchange for the related
month that is on deposit in the finance charge account will be withdrawn from
the finance charge account and paid to the servicer in payment of a portion of
the Investor Servicing Fee for such month.
The servicer interchange for any month for which MBNA or The Bank of New York
is the servicer will be an amount equal to the portion of collections of
finance charge receivables allocated to the Investor Interest for the
collateral certificate for such month that is attributable to interchange.
However, servicer interchange for a month will not exceed one-twelfth of the
product of (i) the Weighted Average Floating Allocation Investor Interest for
the collateral certificate for such month and (ii) 0.75%; except that for the
first Transfer Date, the servicer interchange may equal but shall not exceed
the product of (i) the Weighted Average Floating Allocation Investor Interest
for the collateral certificate for the first month, (ii) 0.75% and (iii) a
fraction, the numerator of which is the actual number of days during the period
from and including the initial issuance date of any notes through and including
the last day of the following month and the denominator of which is 360. In the
case of any insufficiency of servicer interchange on deposit in the finance
charge account, a portion of the Investor Servicing Fee allocable to the
collateral certificate with respect to such month will not be paid to the
extent of such insufficiency and in no event shall master trust II, the master
trust II trustee or the collateral certificateholder be liable for the share of
the servicing fee to be paid out of servicer interchange.
The share of the Investor Servicing Fee allocable to the collateral
certificate for any Transfer Date, called the Net Servicing Fee, is equal to
one-twelfth of the product of (i) the Weighted Average Floating Allocation
Investor Interest for the collateral certificate and (ii) 1.25%, or if MBNA or
The Bank of New York is not the servicer, 2.0%; except that for the first
Transfer Date the Net Servicing Fee will be equal to the product of (i) the
Weighted Average Floating Allocation Investor Interest for the collateral
certificate for the first month, (ii) 1.25%, or if MBNA or The Bank of New York
is not the servicer, 2.0% and (iii) a fraction, the numerator of which is the
actual number of days during the period from and including the initial issuance
date of any notes through and including the last day of the following month and
the denominator of which is 360.
The Investor Servicing Fee allocable to the collateral certificate will be
funded from collections of finance charge receivables allocated to the
collateral certificate. The remainder of the servicing fee for master trust II
will be allocable to the Seller Interest, the Investor Interests of any other
series of investor certificates issued by master trust II and any other
interests in master trust II, if any, with respect to such series. Neither
master trust II, the master trust II trustee nor the certificateholders of any
series of investor certificates issued by master trust II (including the
collateral certificate) will have any obligation to pay the portion of the
servicing fee allocable to the Seller Interest.
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The servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the receivables including, without
limitation, payment of the fees and disbursements of the master trust II
trustee, the owner trustee, the indenture trustee and independent certified
public accountants and other fees which are not expressly stated in the master
trust II agreement, the trust agreement or the indenture to be payable by
master trust II or the investor certificateholders other than federal, state
and local income and franchise taxes, if any, of master trust II.
New Issuances
The master trust II agreement provides that the holder of the Seller Interest
may cause the master trust II trustee to issue one or more new series of
certificates and may define all principal terms of such series. Each series
issued may have different terms and enhancements than any other series. None of
MBNA, the servicer, the master trust II trustee or master trust II is required
or intends to obtain the consent of any certificateholder of any other series
previously issued by master trust II or any noteholder of a series previously
issued by the issuer prior to the issuance of a new series of master trust II
investor certificates. However, as a condition of a new issuance, the holder of
the Seller Interest will deliver to the master trust II trustee 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.
Under the master trust II agreement, the holder of the Seller Interest may
cause a new issuance by notifying the master trust II trustee at least three
days in advance of the date upon which the new issuance is to occur. The notice
will state the designation of any series to be issued and:
. its initial principal amount (or method for calculating such amount)
which amount may not be greater than the current principal amount of the
Seller Interest;
. its certificate rate (or method of calculating such rate); and
. the provider of any credit enhancement.
The master trust II trustee will authenticate a new series only if it
receives the following, among others:
. a series supplement specifying the principal terms of such series;
. an opinion of counsel to the effect that, unless otherwise stated in the
related series supplement, the certificates of such series will be
characterized as indebtedness for federal income tax purposes;
. a master trust tax opinion;
. if required by the related series supplement, the form of credit
enhancement;
. if credit enhancement is required by the series supplement, an
appropriate credit enhancement agreement executed by MBNA and the credit
enhancer;
. written confirmation from each rating agency that the new issuance will
not result in such rating agency's reducing or withdrawing its rating on
any then outstanding series rated by it; and
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. an officer's certificate of MBNA to the effect that after giving effect
to the new issuance MBNA would not be required to add additional
accounts pursuant to the master trust II agreement and the Seller
Interest would be at least equal to the Minimum Seller Interest.
Representations and Warranties
MBNA has made in the master trust II agreement certain representations and
warranties to master trust II to the effect that, among other things:
. as of the issuance date, MBNA is duly incorporated and in good standing
and that it has the authority to consummate the transactions
contemplated by the master trust II agreement; and
. as of the Cut-Off Date (or as of the date of the designation of
additional accounts), each account is an Eligible Account (as defined in
the glossary).
If,
. any of these representations and warranties proves to have been
incorrect in any material respect when made, and continues to be
incorrect for 60 days after notice to MBNA by the master trust II
trustee or to the seller and the master trust II trustee by the
certificateholders holding more than 50% of the Investor Interest of the
related series; and
. as a result the interests of the certificateholders are materially and
adversely affected, and continue to be materially and adversely affected
during such period;
then the master trust II trustee or certificateholders holding more than 50% of
the Investor Interest may give notice to MBNA (and to the master trust II
trustee in the latter instance) declaring that a Pay Out Event has occurred,
thereby causing an early redemption event to occur with respect to the notes.
MBNA has also made representations and warranties to master trust II relating
to the receivables in master trust II to the effect that, among other things:
. as of the issuance date of the initial series of certificates issued by
master trust II, each of the receivables then existing in master trust
II is an Eligible Receivable; and
. as of the date of creation of any new receivable, such receivable is an
Eligible Receivable and the representation and warranty that the
transfer was a sale or the grant of a perfected security interest, as
described below, is true and correct with respect to such receivable.
In the event of a breach of any representation and warranty set forth in the
preceding paragraph, within 60 days, or such longer period (not to exceed 120
days) as may be agreed to by the master trust II trustee, of the earlier to
occur of the discovery of such breach by MBNA, as seller or as servicer, or
receipt by MBNA of written notice of such breach given by the master trust II
trustee, or, with respect to certain breaches relating to prior liens,
immediately upon the earlier to occur of such discovery or notice and as a
result of such breach, the receivables in the accounts of master trust II are
charged-off as uncollectible, master trust II's rights in, to or under the
receivables or its proceeds are impaired or the
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proceeds of such receivables are not available for any reason to master trust
II free and clear of any lien (except for certain tax, governmental and other
nonconsensual liens), then MBNA will be obligated to accept reassignment of
each related principal receivable as an ineligible receivable. Such
reassignment will not be required to be made, however, if, on any day within
the applicable period, or such longer period, the representations and
warranties shall then be true and correct in all material respects.
MBNA will accept reassignment of each ineligible receivable by directing the
servicer to deduct the amount of each such ineligible receivable from the
aggregate amount of principal receivables used to calculate the Seller
Interest. In the event that the exclusion of an ineligible receivable from the
calculation of the Seller Interest would cause the Seller Interest to be a
negative number, on the date of reassignment of such ineligible receivable MBNA
shall make a deposit in the principal account in immediately Available Funds in
an amount equal to the amount by which the Seller Interest would be reduced
below zero. Any such deduction or deposit shall be considered a repayment in
full of the ineligible receivable. The obligation of MBNA to accept
reassignment of any ineligible receivable is the sole remedy respecting any
breach of the representations and warranties set forth in this paragraph with
respect to such receivable available to the certificateholders or the master
trust II trustee on behalf of certificateholders.
MBNA has also represented and warranted to master trust II to the effect
that, among other things, as of the issuance date of the initial series of
certificates issued by master trust II:
. the master trust II agreement will constitute a legal, valid and binding
obligation of MBNA; and
. the transfer of receivables by it to master trust II under the master
trust II agreement will constitute either:
--a valid transfer and assignment to master trust II of all right, title
and interest of MBNA in and to the receivables in master trust II
(other than receivables in additional accounts), whether then existing
or thereafter created and the proceeds thereof (including amounts in
any of the accounts established for the benefit of
certificateholders); or
--the grant of a first priority perfected security interest in such
receivables (except for certain tax, governmental and other
nonconsensual liens) and the proceeds thereof (including amounts in
any of the accounts established for the benefit of
certificateholders), which is effective as to each such receivable
upon the creation thereof.
In the event of a breach of any of the representations and warranties
described in the preceding paragraph, either the master trust II trustee or the
holders of certificates evidencing interests in master trust II aggregating
more than 50% of the aggregate Investor Interest of all series outstanding
under master trust II may direct MBNA to accept reassignment of Master Trust II
Portfolio within 60 days of such notice, or within such longer period specified
in such notice. MBNA will be obligated to accept reassignment of such
receivables in master trust II on a Distribution Date occurring within such
applicable
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period. Such reassignment will not be required to be made, however, if at any
time during such applicable period, or such longer period, the representations
and warranties shall then be true and correct in all material respects. The
deposit amount for such reassignment will be equal to:
. the Investor Interest for each series outstanding under master trust II
on the last day of the month preceding the Distribution Date on which
the reassignment is scheduled to be made; minus
. the amount, if any, previously allocated for payment of principal to
such certificateholders (or other interest holders) on such Distribution
Date; plus
. an amount equal to all accrued and unpaid interest less the amount, if
any, previously allocated for payment of such interest on such
Distribution Date.
The payment of this reassignment deposit amount and the transfer of all other
amounts deposited for the preceding month in the distribution account will be
considered a payment in full of the Investor Interest for each such series
required to be repurchased and will be distributed upon presentation and
surrender of the certificates for each such series. If the master trust II
trustee or certificateholders give a notice as provided above, the obligation
of MBNA to make any such deposit will constitute the sole remedy respecting a
breach of the representations and warranties available to the master trust II
trustee or such certificateholders.
It is not required or anticipated that the master trust II trustee will make
any initial or periodic general examination of the receivables or any records
relating to the receivables for the purpose of establishing the presence or
absence of defects, compliance with MBNA's representations and warranties or
for any other purpose. The servicer, however, will deliver to the master trust
II trustee on or before March 31 of each year, beginning in 2002 (or such other
date specified in the accompanying prospectus supplement), an opinion of
counsel with respect to the validity of the security interest of master trust
II in and to the receivables and certain other components of master trust II.
Certain Matters Regarding MBNA as Seller and as Servicer
The master trust II agreement provides that the servicer will indemnify
master trust II and the master trust II trustee from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any
acts or omissions or alleged acts or omissions of the servicer with respect to
the activities of master trust II or the master trust II trustee. The servicer,
however, will not indemnify:
. the master trust II trustee for liabilities imposed by reason of fraud,
negligence, or willful misconduct by the master trust II trustee in the
performance of its duties under the master trust II agreement;
. master trust II, the certificateholders or the certificate owners for
liabilities arising from actions taken by the master trust II trustee at
the request of certificateholders;
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. master trust II, the certificateholders or the certificate owners for
any losses, claims, damages or liabilities incurred by any of them in
their capacities as investors, including without limitation, losses
incurred as a result of defaulted receivables or receivables which are
written off as uncollectible; or
. master trust II, the certificateholders or the certificate owners for
any liabilities, costs or expenses of master trust II, the
certificateholders or the certificate owners arising under any tax law,
including without limitation, any federal, state or local income or
franchise tax or any other tax imposed on or measured by income (or any
interest or penalties with respect thereto or arising from a failure to
comply therewith) required to be paid by master trust II, the
certificateholders or the certificate owners in connection with the
master trust II agreement to any taxing authority.
In addition, the master trust II agreement provides that, subject to certain
exceptions, MBNA will indemnify an injured party for any losses, claims,
damages or liabilities (other than those incurred by a certificateholder as an
investor in the certificates or those which arise from any action of a
certificateholder) arising out of or based upon the arrangement created by the
master trust II agreement as though the master trust II agreement created a
partnership under the Delaware Uniform Partnership Law in which MBNA is a
general partner.
Neither MBNA, the servicer nor any of their respective directors, officers,
employees or agents will be under any other liability to master trust II, the
master trust II trustee, the investor certificateholders of any certificates
issued by master trust II or any other person for any action taken, or for
refraining from taking any action, in good faith pursuant to the master trust
II agreement. Neither MBNA, the servicer nor any of their respective directors,
officers, employees or agents will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of MBNA, the servicer or any such person in the performance of its
duties or by reason of reckless disregard of obligations and duties thereunder.
In addition, the master trust II 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 master trust II
agreement and which in its opinion may expose it to any expense or liability.
MBNA may transfer its interest in all or a portion of the Seller Interest,
provided that prior to any such transfer:
. the master trust II trustee receives written notification from each
rating agency that such transfer will not result in a lowering of its
then-existing rating of the certificates of each outstanding series
rated by it; and
. the master trust II trustee receives a written opinion of counsel
confirming that such transfer would not adversely affect the treatment
of the certificates of each outstanding series issued by master trust II
as debt for federal income tax purposes.
Any person into which, in accordance with the master trust II agreement, MBNA
or the servicer may be merged or consolidated or any person resulting from any
merger or
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consolidation to which MBNA or the servicer is a party, or any person
succeeding to the business of MBNA or the servicer, upon execution of a
supplement to the master trust II agreement, delivery of an opinion of counsel
with respect to the compliance of the transaction with the applicable
provisions of the master trust II agreement, will be the successor to MBNA or
the servicer, as the case may be, under the master trust II agreement.
Servicer Default
In the event of any Servicer Default, either the master trust II trustee or
certificateholders representing interests aggregating more than 50% of the
Investor Interests for all series of certificates of master trust II, by
written notice to the servicer (and to the master trust II trustee if given by
the certificateholders), may terminate all of the rights and obligations of the
servicer under the master trust II agreement and the master trust II trustee
may appoint a new servicer. Any such termination and appointment is called a
service transfer. The rights and interest of MBNA under the master trust II
agreement and in the Seller Interest will not be affected by such termination.
The master trust II trustee shall as promptly as possible appoint a successor
servicer. If no such servicer has been appointed and has accepted such
appointment by the time the servicer ceases to act as servicer, all authority,
power and obligations of the servicer under the master trust II agreement will
pass to the master trust II trustee. Except when the Servicer Default is caused
by certain events of bankruptcy, insolvency, conservatorship or receivership of
the servicer, if the master trust II trustee is unable to obtain any bids from
eligible servicers and the servicer delivers an officer's certificate to the
effect that it cannot in good faith cure the Servicer Default which gave rise
to a transfer of servicing, and if the master trust II trustee is legally
unable to act as successor servicer, then the master trust II trustee shall
give MBNA the right of first refusal to purchase the receivables on terms
equivalent to the best purchase offer as determined by the master trust II
trustee.
Upon the occurrence of any Servicer Default, the servicer shall not be
relieved from using its best efforts to perform its obligations in a timely
manner in accordance with the terms of the master trust II agreement. The
servicer is required to provide the master trust II trustee, any provider of
enhancement and/or any issuer of any third-party credit enhancement, MBNA and
the holders of certificates of each series issued and outstanding under master
trust II prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts to perform
its obligations.
In the event of a Servicer Default, if a conservator or receiver is appointed
for the servicer and no Servicer Default other than such conservatorship or
receivership or the insolvency of the servicer exists, the conservator or
receiver may have the power to prevent either the master trust II trustee or
the majority of the certificateholders from effecting a service transfer.
Evidence as to Compliance
On or before August 31 of each calendar year, the servicer is required to
cause a firm of independent certified public accountants to furnish to the
master trust II trustee a report,
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based upon established criteria that meets the standards applicable to
accountants' reports intended for general distribution, attesting to the
fairness of the assertion of the servicer's management that its internal
controls over the functions performed as servicer of master trust II are
effective, in all material respects, in providing reasonable assurance that
master trust II assets are safeguarded against loss from unauthorized use or
disposition, on the date of such report, and that such servicing was conducted
in compliance with the sections of the master trust II agreement during the
period covered by such report (which shall be the period from July 1 (or for
the initial period, the relevant issuance date) of the preceding calendar year
to and including June 30 of such calendar year), except for such exceptions or
errors as such firm believes to be immaterial and such other exceptions as
shall be set forth in such statement.
The servicer is also required to provide an annual statement signed by an
officer of the servicer to the effect that the servicer has fully performed its
obligations under the master trust II agreement throughout the preceding year,
or, if there has been a default in the performance of any such obligation,
specifying the nature and status of the default.
Amendments to the Master Trust II Agreement
By accepting a note, a noteholder will be deemed to acknowledge that MBNA and
the master trust II trustee may amend the master trust II agreement and any
series supplement without the consent of any investor certificateholder
(including the issuer) or any noteholder, so long as the amendment will not
materially adversely affect the interest of any investor certificateholder
(including the holder of the collateral certificate).
For purposes of any provision of the master trust II agreement or the Series
2001-D supplement requiring or permitting actions with the consent of, or at
the direction of, certificateholders holding a specified percentage of the
aggregate unpaid principal amount of investor certificates:
. each noteholder will be deemed to be an investor certificateholder;
. each noteholder will be deemed to be the holder of an aggregate unpaid
principal amount of the collateral certificate equal to the Adjusted
Outstanding Dollar Principal Amount of such noteholder's notes;
. each series of notes under the indenture will be deemed to be a separate
series of master trust II certificates and the holder of a note of such
series will be deemed to be the holder of an aggregate unpaid principal
amount of such series of master trust II certificates equal to the
Adjusted Outstanding Dollar Principal Amount of such noteholder's notes
of such series;
. each tranche of notes under the indenture will be deemed to be a
separate class of master trust II certificates and the holder of a note
of such tranche will be deemed to be the holder of an aggregate unpaid
principal amount of such class of master trust II certificates equal to
the Adjusted Outstanding Dollar Principal Amount of such noteholder's
notes of such tranche, and
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. any notes owned by the issuer, the seller, the servicer, any other
holder of the Seller Interest or any affiliate thereof will be deemed
not to be outstanding, except that, in determining whether the master
trust II trustee shall be protected in relying upon any such consent or
direction, only notes which the trustee knows to be so owned shall be so
disregarded.
However, a noteholder will not have any right to consent to any amendment to
the master trust II agreement or the Series 2001-D supplement providing for (i)
the replacement of MBNA as seller under the master trust II agreement with a
bankruptcy-remote special purpose entity, or (ii) so long as the only series of
master trust II investor certificates outstanding is Series 2001-D, the
consolidation of master trust II and the issuer or the transfer of assets in
master trust II to the issuer.
No amendment to the master trust II agreement will be effective unless the
issuer delivers the opinions of counsel described under "The Indenture--Tax
Opinions for Amendments."
The master trust II agreement and any series supplement may be amended by
MBNA, the servicer and the master trust II trustee, without the consent of
certificateholders of any series then outstanding, for any purpose, so long as:
. MBNA delivers an opinion of counsel acceptable to the master trust II
trustee to the effect that such amendment will not adversely affect in
any material respect the interest of such certificateholders;
. such amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under master trust II; and
. such amendment will not cause a significant change in the permitted
activities of master trust II, as set forth in the master trust II
agreement.
The master trust II agreement and any related series supplement may be
amended by MBNA, the servicer and the master trust II trustee, without the
consent of the certificateholders of any series then outstanding, to provide
for additional enhancement or substitute enhancement with respect to a series,
to change the definition of Eligible Account or to provide for the addition to
master trust II of a participation, so long as:
. MBNA delivers to the master trust II trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of MBNA,
such amendment will not as of the date of such amendment adversely
affect in any material respect the interest of such certificateholders;
and
. such amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under master trust II.
The master trust II agreement and the related series supplement may be
amended by MBNA, the servicer and the master trust II trustee (a) with the
consent of holders of certificates evidencing interests aggregating not less
than 50% (or such other percentage specified in the related prospectus
supplement) of the Investor Interests for all series of master trust II, for
the purpose of effectuating a significant change in the permitted activities
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of master trust II which is not materially adverse to the certificateholders,
and (b) in all other cases, with the consent of the holders of certificates
evidencing interests aggregating not less than 66 2/3% (or such other
percentage specified in the accompanying prospectus supplement) of the Investor
Interests for all series of master trust II, for the purpose of adding any
provisions to, changing in any manner or eliminating any of the provisions of
the master trust II agreement or the related series supplement or of modifying
in any manner the rights of certificateholders of any outstanding series of
master trust II. No such amendment, however, may:
. reduce in any manner the amount of, or delay the timing of,
distributions required to be made on the related series or any series;
. change the definition of or the manner of calculating the interest of
any certificateholder of such series or any certificateholder of any
other series issued by master trust II; or
. reduce the aforesaid percentage of interests the holders of which are
required to consent to any such amendment,
in each case without the consent of all certificateholders of the related
series and certificateholders of all series adversely affected.
In addition, subject to any other applicable conditions described above, the
Series 2001-D supplement may be amended by MBNA without the consent of the
servicer, the master trust II trustee, the collateral certificateholder or any
noteholder if MBNA provides the master trust II trustee with (a) an opinion of
counsel to the effect that such amendment or modification would reduce the risk
that master trust II would be treated as taxable as a publicly traded
partnership pursuant to Section 7704 of the Internal Revenue Code of 1986, as
amended and (b) a certificate that such amendment or modification would not
materially and adversely affect any certificateholder, except that no such
amendment (i) shall be deemed effective without the master trust II trustee's
consent, if the master trust II trustee's rights, duties and obligations under
the Series 2001-D supplement are thereby modified or (ii) shall cause a
significant change in the permitted activities of master trust II, as set forth
in the master trust II agreement. Promptly after the effectiveness of any such
amendment, MBNA shall deliver a copy of such amendment to each of the servicer,
the master trust II trustee and each rating agency described in the Series
2001-D supplement.
Promptly following the execution of any amendment to the master trust II
agreement, the master trust II trustee will furnish written notice of the
substance of such amendment to each certificateholder. Any series supplement
and any amendments regarding the addition or removal of receivables from master
trust II will not be considered an amendment requiring certificateholder
consent under the provisions of the master trust II agreement and any series
supplement.
Certificateholders Have Limited Control of Actions
Certificateholders of any series or class within a series may need the
consent or approval of a specified percentage of the Investor Interest of other
series or a class of such
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other series to take or direct certain actions, including to require the
appointment of a successor servicer after a Servicer Default, to amend the
master trust II agreement in some cases, and to direct a repurchase of all
outstanding series after certain violations of MBNA's representations and
warranties. The interests of the certificateholders of any such series may not
coincide with yours, making it more difficult for any particular
certificateholder to achieve the desired results from such vote.
Material Legal Aspects of the Receivables
Transfer of the Receivables and the Collateral Certificate
MBNA will represent and warrant that its transfer of receivables to master
trust II is either (1) an absolute sale of those receivables or (2) the grant
of a security interest in those receivables. For a description of master trust
II's rights if these representations and warranties are not true, see "Master
Trust II--Representations and Warranties" in this prospectus. In addition, MBNA
will represent and warrant that its transfer of the collateral certificate to
the issuer is either (1) an absolute sale of the collateral certificate or (2)
the grant of a security interest in the collateral certificate.
MBNA will take steps under the UCC to perfect master trust II's interest in
the receivables and the issuer's and the indenture trustee's interest in the
collateral certificate. Nevertheless, if the UCC does 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.
MBNA will represent, warrant, and covenant that both its transfer of
receivables to master trust II and its transfer of the collateral certificate
to the issuer is perfected and free and clear of the lien or interest of any
other entity. If this is not true, master trust II's interest in the
receivables and the issuer's and the indenture trustee's interest in the
collateral certificate 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 master trust II, or a
prior or subsequent transferee of the collateral certificate could have
an interest in the collateral certificate superior to the interest of
the issuer and the indenture trustee;
. a tax, governmental, or other nonconsensual lien that attaches to the
property of MBNA could have priority over the interest of master trust
II in the receivables and the interest of the issuer and the indenture
trustee in the collateral certificate; and
. the administrative expenses of a conservator or receiver for MBNA could
be paid from collections on the receivables or distributions on the
collateral certificate before master trust II, the issuer or the
indenture trustee receives any payments.
Certain Matters Relating to Conservatorship or Receivership
MBNA is chartered as a national banking association and is regulated and
supervised by the Office of the Comptroller of the Currency, which is
authorized to appoint the Federal
87
Deposit Insurance Corporation as conservator or receiver for MBNA if certain
events occur relating to MBNA's financial condition or the propriety of its
actions. In addition, the FDIC could appoint itself as conservator or receiver
for MBNA.
Although MBNA will treat both its transfer of the receivables to master trust
II and its transfer of the collateral certificate to the issuer as sales for
accounting purposes, each of these transfers may constitute the grant of a
security interest under general applicable law. Nevertheless, the FDIC has
issued regulations surrendering certain rights under the Federal Deposit
Insurance Act, as amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, to reclaim, recover, or recharacterize a financial
institution's transfer of financial assets such as the receivables and the
collateral certificate if (i) the transfer involved a securitization of the
financial assets and meets specified conditions for treatment as a sale under
relevant accounting principles, (ii) the financial institution received
adequate consideration for the transfer, (iii) the parties intended that the
transfer constitute a sale for accounting purposes, and (iv) the financial
assets were not transferred fraudulently, in contemplation of the financial
institution's insolvency, or with the intent to hinder, delay, or defraud the
financial institution or its creditors. The master trust II agreement and
MBNA's transfer of the receivables, as well as the trust agreement and MBNA's
transfer of the collateral certificate, are intended to satisfy all of these
conditions.
If a condition required under the FDIC's regulations were found not to have
been met, however, the FDIC could reclaim, recover, or recharacterize MBNA's
transfer of the receivables or the collateral certificate. The FDIA would limit
master trust II's, the issuer's or the indenture trustee's damages in this
event to its "actual direct compensatory damages" determined as of the date
that the FDIC was appointed as conservator or receiver for MBNA. The FDIC,
moreover, could delay its decision whether to reclaim, recover, or
recharacterize MBNA's transfer of the receivables or the collateral certificate
for a reasonable period following its appointment as conservator or receiver
for MBNA. Therefore, if the FDIC were to reclaim, recover, or recharacterize
MBNA's transfer of the receivables or the collateral certificate, payments to
you could be delayed or reduced.
Even if the conditions set forth in the regulations were satisfied and the
FDIC did not reclaim, recover, or recharacterize MBNA's transfer of the
receivables or the collateral certificate, you could suffer a loss on your
investment if (i) the master trust II agreement, the trust agreement, or MBNA's
transfer of the receivables or the collateral certificate were found to violate
the regulatory requirements of the FDIA, (ii) master trust II, the master trust
II trustee, the issuer, or the indenture trustee were required to comply with
the claims process established under the FDIA in order to collect payments on
the receivables or the collateral certificate, (iii) the FDIC were to request a
stay of any action by master trust II, the master trust II trustee, the issuer,
or the indenture trustee to enforce the master trust II agreement, the trust
agreement, the indenture, the collateral certificate, or the notes, or (iv) the
FDIC were to repudiate other parts of the master trust II agreement or the
trust agreement, such as any obligation to collect payments on or otherwise
service the receivables or to manage the issuer.
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In addition, regardless of the terms of the master trust II agreement, the
trust agreement, or the indenture, and regardless of the instructions of those
authorized to direct the master trust II trustee's, the issuer's or the
indenture trustee's actions, the FDIC as conservator or receiver for MBNA may
have the power (i) to prevent or require the commencement of a Rapid
Amortization Period, (ii) to prevent, limit, or require the early liquidation
of receivables or the collateral certificate and termination of master trust II
or the issuer, or (iii) to require, prohibit, or limit the continued transfer
of receivables or payments on the collateral certificate. Furthermore,
regardless of the terms of the master trust II agreement or the trust
agreement, the FDIC (i) could prevent the appointment of a successor servicer
or another manager for the issuer or (ii) could authorize MBNA to stop
servicing the receivables or managing the issuer. If any of these events were
to occur, payments to you could be delayed or reduced.
In addition, if insolvency proceedings were commenced by or against MBNA, or
if certain time periods were to pass, master trust II, the issuer and the
indenture trustee may lose any perfected security interest in collections held
by MBNA and commingled with its other funds. See "Sources of Funds to Pay the
Notes--The Collateral Certificate" and "Master Trust II--Application of
Collections."
Consumer Protection Laws
The relationships of the cardholder and credit card issuer and the lender are
extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by MBNA, the most significant laws include the
federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair
Debt Collection Practice and Electronic Funds Transfer Acts. These statutes
impose disclosure requirements when a credit card account is advertised, when
it is opened, at the end of monthly billing cycles, and at year end. In
addition, these statutes limit customer liability for unauthorized use,
prohibit certain discriminatory practices in extending credit, and impose
certain limitations on the type of account-related charges that may be
assessed. Cardholders are entitled under these laws to have payments and
credits applied to the credit card accounts promptly, to receive prescribed
notices and to require billing errors to be resolved promptly.
Master trust II may be liable for certain violations of consumer protection
laws that apply to the receivables, either as assignee from MBNA with respect
to obligations arising before transfer of the receivables to master trust II or
as a party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert such violations by way of set-
off against his obligation to pay the amount of receivables owing. MBNA has
represented and warranted in the master trust II agreement that all of the
receivables have been and will be created in compliance with the requirements
of such laws. The servicer also agrees in the master trust II agreement to
indemnify master trust II, among other things, for any liability arising from
such violations caused by the servicer. For a discussion of master trust II's
rights arising from the breach of these warranties, see "Master Trust II--
Representations and Warranties" in this prospectus.
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Certain jurisdictions may attempt to require out-of-state credit card issuers
to comply with such jurisdiction's consumer protection laws (including laws
limiting the charges imposed by such credit card issuers) in connection with
their operations in such jurisdictions. A successful challenge by such a
jurisdiction could have an adverse impact on MBNA's credit card operations or
the yield on the receivables in master trust II.
If a cardholder sought protection under federal or state bankruptcy or debtor
relief laws, a court could reduce or discharge completely the cardholder's
obligations to repay amounts due on its account and, as a result, the related
receivables would be written off as uncollectible. The certificateholders could
suffer a loss if no funds are available from credit enhancement or other
sources. See "Master Trust II--Defaulted Receivables; Rebates and Fraudulent
Charges" in this prospectus.
Federal Income Tax Consequences
General
The following summary describes the material United States federal income tax
consequences of the purchase, ownership and disposition of the notes.
Additional federal income tax considerations relevant to a particular tranche
may be set forth in the accompanying prospectus supplement. The following
summary has been prepared and reviewed by Orrick, Herrington & Sutcliffe LLP as
special tax counsel to the issuer ("Special Tax Counsel"). The 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 prospective and retroactive
changes. 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 Internal Revenue 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 certain 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. Special Tax Counsel
is of the opinion that the following summary of federal income tax consequences
is correct in all material respects. An opinion of Special Tax Counsel,
however, is not binding on the Internal Revenue Service or the courts, and no
ruling on any of the issues discussed below will be sought from the Internal
Revenue Service. 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, it is suggested that persons
considering the purchase of notes should 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
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income tax laws, as well as the laws of any state, local or foreign taxing
jurisdictions, to their particular situations.
Tax Characterization of the Issuer and the Notes
Treatment of the Issuer and Master Trust II as Entities Not Subject to Tax
Special Tax Counsel is of the opinion that, although no transaction closely
comparable to that contemplated herein has been the subject of any Treasury
regulation, revenue ruling or judicial decision, each of the issuer and master
trust II will not be classified as an association or as a publicly traded
partnership taxable as a corporation for federal income tax purposes. As a
result, Special Tax Counsel is of the opinion that each of the issuer and
master trust II will not be subject to federal income tax. However, as
discussed above, this opinion is not binding on the Internal Revenue Service
and no assurance can be given that this characterization will prevail.
The precise tax characterization of the issuer and master trust II for
federal income tax purposes is not certain. They might be viewed as merely
holding assets on behalf of the transferor as collateral for notes issued by
the transferor. On the other hand, they could be viewed as one or more separate
entities for tax purposes issuing the notes. This distinction, however, should
not have a significant tax effect on noteholders except as stated below under
"Possible Alternative Characterizations."
Treatment of the Notes as Debt
Special tax counsel is of the opinion that, although no transaction closely
comparable to that contemplated herein has been the subject of any Treasury
regulation, revenue ruling or judicial decision, the notes will be
characterized as debt for United States federal income tax purposes.
Additionally, the issuer will agree by entering into the indenture, and the
noteholders will agree by their purchase and holding of notes, to treat the
notes as debt secured by the collateral certificate and other assets of the
issuer for United States federal income tax purposes.
Possible Alternative Characterizations
If, contrary to the opinion of Special Tax Counsel, the Internal Revenue
Service successfully asserted that a series or class of notes did not represent
debt for United States federal income tax purposes, those notes might be
treated as equity interests in the issuer, master trust II or some other entity
for such purposes. If so treated, investors could be treated either as partners
in a partnership or, alternatively, as shareholders in a taxable corporation
for such purposes. If an investor were treated as a partner in a partnership,
it would be taxed individually on its respective share of the partnership's
income, gain, loss, deductions and credits attributable to the partnership's
ownership of the collateral certificate and any other assets and liabilities of
the partnership without regard to whether there were
91
actual distributions of that income. As a result, the amount, timing, character
and source of items of income and deductions of an investor could differ if its
notes were held to constitute partnership interests rather than debt. Treatment
of a noteholder as a partner could have adverse tax consequences to certain
holders; for example, absent an applicable exemption, income to foreign persons
would be subject to United States tax and United States tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of partnership expenses.
Alternatively, the Internal Revenue Service could contend that some or all of
the notes, or separately some of the other securities that the issuer and
master trust II are permitted to issue (and which are permitted to constitute
debt or equity for federal income tax purposes), constitute equity in a
partnership that should be classified as a publicly traded partnership taxable
as a corporation for federal income tax purposes. Any such partnership would be
classified as a publicly traded partnership and could be taxable as a
corporation if its equity interests were traded on an "established securities
market," or are "readily tradable" on a "secondary market" or its "substantial
equivalent." The transferor intends to take measures designed to reduce the
risk that either of the issuer or master trust II could be classified as a
publicly traded partnership; although the transferor expects that such measures
will ultimately be successful, certain of the actions that may be necessary for
avoiding the treatment of such other securities as "readily tradable" on a
"secondary market" or its "substantial equivalent" are not fully within the
control of the transferor. As a result, there can be no assurance that the
measures the transferor intends to take will in all circumstances be sufficient
to prevent the issuer and master trust II from being classified as publicly
traded partnerships. If the issuer or master trust II were treated in whole or
in part as one or more publicly traded partnerships taxable as a corporation,
corporate tax imposed with respect to such corporation could materially reduce
cash available to make payments on the notes, and foreign investors could be
subject to withholding taxes. Additionally, no distributions from the
corporation would be deductible in computing the taxable income of the
corporation, except to the extent that any notes or other securities were
treated as debt of the corporation and distributions to the related noteholders
or other security holders were treated as payments of interest thereon.
Further, distributions to noteholders not treated as holding debt would be
dividend income to the extent of the current and accumulated earnings and
profits of the corporation (possibly without the benefit of any dividends
received deduction). Prospective investors should consult their own tax
advisors with regard to the consequences of possible alternative
characterizations to them in their particular circumstances; the following
discussion assumes that the characterization of the notes as debt and the
issuer and master trust II as entities not subject to federal income tax is
correct.
Consequences to Holders of the Offered Notes
Interest and Original Issue Discount
Stated interest on a note will be includible in gross income as it accrues or
is received in accordance with an noteholder's usual method of tax accounting.
If a class of notes is issued with original issue discount, the provisions of
Sections 1271 through 1273 and 1275 of the Internal Revenue Code will apply to
those notes. Under those provisions, a holder of
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such a note (including a cash basis holder) would be required to include the
original issue discount on a note in income for federal income tax purposes on
a constant yield basis, resulting in the inclusion of original issue discount
in income in advance of the receipt of cash attributable to that income.
Subject to the discussion below, a note will be treated as having original
issue discount to the extent that its "stated redemption price" exceeds its
"issue price," if such excess equals or exceeds 0.25 percent multiplied by the
weighted average life of the note (determined by taking into account the number
of complete years following issuance until payment is made for each partial
principal payment). Under Section 1272(a)(6) of the Internal Revenue Code,
special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the notes
is unclear, but the application of Section 1272(a)(6) could affect the rate of
accrual of original issue discount and could have other consequences to holders
of the notes. Additionally, the Internal Revenue Service could take the
position based on Treasury regulations that none of the interest payable on a
note is "unconditionally payable" and hence that all of such interest should be
included in the note's stated redemption price at maturity. If sustained, such
treatment should not significantly affect tax liabilities for most holders of
the notes, but prospective noteholders should consult their own tax advisors
concerning the impact to them in their particular circumstances. The issuer
intends to take the position that interest on the notes constitutes "qualified
stated interest" and that the above consequences do not apply.
Market Discount
A holder of a note who purchases an interest in a note at a discount that
exceeds any original issue discount not previously includible in income may be
subject to the "market discount" rules of Sections 1276 through 1278 of the
Internal Revenue Code. These rules provide, in part, that gain on the sale or
other disposition of a note and partial principal payments on a note are
treated as ordinary income to the extent of accrued market discount. The market
discount rules also provide for deferral of interest deductions with respect to
debt incurred to purchase or carry a note that has market discount.
Market Premium
A holder of a note who purchases an interest in a note at a premium may elect
to amortize the premium against interest income over the remaining term of the
note in accordance with the provisions of Section 171 of the Internal Revenue
Code.
Disposition of the Notes
Subject to exceptions such as in the case of "wash sales," upon the sale,
exchange or retirement of a note, the holder of the note will recognize taxable
gain or loss in an amount equal to the difference between the amount realized
on the disposition (other than amounts attributable to accrued interest) and
the holder's adjusted tax basis in the note. The holder's adjusted tax basis in
the note generally will equal the cost of the note to such holder, increased by
any market or original issue discount previously included in income by such
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holder with respect to the note, and decreased by the amount of any bond
premium previously amortized and any payments of principal or original issue
discount previously received by such holder with respect to such note. Except
to the extent of any accrued market discount not previously included in income,
any such gain treated as capital gain will be long-term capital gain if the
note has been held for more than one year, any such loss will be a capital
loss, subject to limitations on deductibility.
Foreign Holders
Under United States federal income tax law now in effect, subject to
exceptions applicable to certain types of interests, payments of interest by
the issuer to a holder of a note who, as to the United States, is a nonresident
alien individual or a foreign corporation (a "foreign person") will be
considered "portfolio interest" and will not be subject to United States
federal income tax and withholding tax provided the interest is not effectively
connected with the conduct of a trade or business within the United States by
the foreign person and the foreign person (i) is not for United States federal
income tax purposes (a) actually or constructively a "10 percent shareholder"
of the transferor, the issuer or master trust II, (b) a "controlled foreign
corporation" with respect to which the transferor, the issuer or master trust
II is a "related person" within the meaning of the Internal Revenue Code, or
(c) a bank extending credit pursuant to a loan agreement entered into in the
ordinary course of its trade or business, and (ii) provides the person who is
otherwise required to withhold United States tax with respect to the notes with
an appropriate statement (on IRS Form W-8BEN or a substitute form), signed
under penalties of perjury, certifying that the beneficial owner of the note is
a foreign person and providing the foreign person's name, address and certain
additional information. If a note is held through a securities clearing
organization or certain other financial institutions (as is expected to be the
case unless Definitive Notes are issued), the organization or institution may
provide the relevant signed statement to the withholding agent; in that case,
however, the signed statement must be accompanied by an IRS Form W-8BEN or
substitute form provided by the foreign person that owns the note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable tax treaty or such interest is effectively
connected with the conduct of a trade or business within the United States and,
in either case, the appropriate statement has been provided.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income tax and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person, and (ii) in the case of an individual foreign
person, such individual is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding and Information Reporting
Payments of principal and interest, as well as payments of proceeds from the
sale, retirement or disposition of a note, may be subject to "backup
withholding" tax under
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Section 3406 of the Internal Revenue Code at a rate of 31% if a recipient of
such payments fails to furnish to the payor certain identifying information.
Any amounts deducted and withheld would be allowed as a credit against such
recipient's United States federal income tax, provided appropriate proof is
provided under rules established by the Internal Revenue Service. Furthermore,
certain penalties may be imposed by the Internal Revenue Service on a recipient
of payments that is required to supply information but that does not do so in
the proper manner. Backup withholding will not apply with respect to payments
made to certain exempt recipients, such as corporations and financial
institutions. Information may also be required to be provided to the Internal
Revenue Service concerning payments, unless an exemption applies. Holders of
the notes should consult their tax advisors regarding their qualification for
exemption from backup withholding and information reporting and the procedure
for obtaining such an exemption.
The United States federal income tax discussion set forth above 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. Accordingly, it is suggested
that prospective investors 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 issuer or the tax
consequences of the purchase, ownership or disposition of an interest in the
notes under any state or local tax law. It is suggested that each investor
should consult its own tax adviser regarding state and local tax consequences.
Benefit Plan Investors
Benefit plans are required to comply with restrictions under the Employee
Retirement Income Security Act of 1974, known as ERISA, and/or section 4975 of
the Internal Revenue Code, if they are subject to either or both sets of
restrictions. The ERISA restrictions include rules concerning prudence and
diversification of the investment of assets of a benefit plan--referred to as
"plan assets." A benefit plan fiduciary should consider whether an investment
by the benefit plan in notes complies with these requirements.
In general, a benefit plan for these purposes includes:
. a plan or arrangement which provides deferred compensation or certain
health or other welfare benefits to employees;
. an employee benefit plan that is tax-qualified under the Internal
Revenue Code and provides deferred compensation to employees--such as a
pension, profit-sharing, section 401(k) or Keogh plan; and
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. a collective investment fund or other entity if (a) the fund or entity
has one or more benefit plan investors and (b) certain "look-through"
rules apply and treat the assets of the fund or entity as constituting
plan assets of the benefit plan investor.
However, a plan maintained by a governmental employer is not a benefit plan
for these purposes. Most plans maintained by religious organizations and plans
maintained by foreign employers for the benefit of employees employed outside
the United States are also not benefit plans for these purposes. A fund or
other entity--including an insurance company general account--considering an
investment in notes should consult its tax advisors concerning whether its
assets might be considered plan assets of benefit plan investors under these
rules.
Prohibited Transactions
ERISA and Section 4975 of the Internal Revenue Code also prohibit
transactions of a specified type between a benefit plan and a party in interest
who is related in a specified manner to the benefit plan. Individual retirement
accounts and tax-qualified plans that provide deferred compensation to
employees are also subject to these prohibited transaction rules unless they
are maintained by a governmental employer or (in most cases) a religious
organization. Violation of these prohibited transaction rules may result in
significant penalties. There are statutory exemptions from the prohibited
transaction rules, and the U.S. Department of Labor has granted administrative
exemptions for specified transactions.
Potential Prohibited Transactions from Investment in Notes
There are two categories of prohibited transactions that might arise from a
benefit plan's investment in notes. Fiduciaries of benefit plans contemplating
an investment in notes should carefully consider whether the investment would
violate these rules.
Prohibited Transactions between the Benefit Plan and a Party in Interest
The first category of prohibited transaction could arise on the grounds that
the benefit plan, by purchasing notes, was engaged in a prohibited transaction
with a party in interest. A prohibited transaction could arise, for example, if
the notes were viewed as debt of MBNA and MBNA is a party in interest as to the
benefit plan. A prohibited transaction could also arise if MBNA, the master
trust II trustee, the indenture trustee, the servicer or another party with an
economic relationship to the issuer or master trust II either:
. is involved in the investment decision for the benefit plan to purchase
notes or
. is otherwise a party in interest as to the benefit plan.
If a prohibited transaction might result from the benefit plan's purchase of
notes, an administrative exemption from the prohibited transaction rules might
be available to permit an investment in notes. The exemptions that are
potentially available include the following prohibited transaction class
exemptions:
. 96-23, available to "in-house asset managers";
. 95-60, available to insurance company general accounts;
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. 91-38, available to bank collective investment funds;
. 90-1, available to insurance company pooled separate accounts; and
. 84-14, available to "qualified professional asset managers."
However, even if the benefit plan is eligible for one of these exemptions,
the exemption may not cover every aspect of the investment by the benefit plan
that might be a prohibited transaction.
Prohibited Transactions between the Issuer or Master Trust II and a Party in
Interest
The second category of prohibited transactions could arise if
. a benefit plan acquires notes, and
. under the "look-through" rules of the U.S. Department of Labor plan
asset regulation, assets of the issuer are treated as if they were plan
assets of the benefit plan.
In this case, every transaction by the issuer would be treated as a
transaction by the benefit plan using its plan assets.
If assets of the issuer are treated as plan assets of a benefit plan
investor, a prohibited transaction could result if the issuer itself engages in
a transaction with a party in interest as to the benefit plan. For example, if
the issuer's assets are treated as assets of the benefit plan and master
trust II holds a credit card receivable that is an obligation of a participant
in that same benefit plan, then there would be a prohibited extension of credit
between the benefit plan and a party in interest, the plan participant.
As a result, if assets of the issuer are treated as plan assets, there would
be a significant risk of a prohibited transaction. Moreover, the prohibited
transaction class exemptions referred to above could not be relied on to exempt
all the transactions of the issuer or master trust II from the prohibited
transaction rules. In addition, because all the assets of the issuer or master
trust II would be treated as plan assets, managers of those assets might be
required to comply with the fiduciary responsibility rules of ERISA.
Under an exemption in the plan asset regulation, assets of the issuer would
not be considered plan assets, and so this risk of prohibited transactions
should not arise, if a benefit plan purchases a note that:
. is treated as indebtedness under local law, and
. has no "substantial equity features."
The issuer expects that all notes offered by this prospectus will be
indebtedness under local law. Likewise, although there is no authority directly
on point, the issuer believes that the notes should not be considered to have
substantial equity features. As a result, the plan asset regulation should not
apply to cause assets of the issuer to be treated as plan assets.
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Investment by Benefit Plan Investors
For the reasons described in the preceding sections, and subject to the
limitations referred to therein, benefit plans can purchase notes. However, the
benefit plan fiduciary must ultimately determine whether the requirements of
the plan asset regulation are satisfied. More generally, the fiduciary must
determine whether the benefit plan's investment in notes will result in one or
more nonexempt prohibited transactions or otherwise violate the provisions of
ERISA or the Internal Revenue Code.
Tax Consequences to Benefit Plans
In general, assuming the notes are debt for federal income tax purposes,
interest income on notes would not be taxable to benefit plans that are tax-
exempt under the Internal Revenue Code, unless the notes were "debt-financed
property" because of borrowings by the benefit plan itself. However, if,
contrary to the opinion of tax counsel, for federal income tax purposes, the
notes are equity interests in a partnership and the partnership or master trust
II is viewed as having other outstanding debt, then all or part of the interest
income on the notes would be taxable to the benefit plan as "debt- financed
income." Benefit plans should consult their tax advisors concerning the tax
consequences of purchasing notes.
Plan of Distribution
The issuer may offer and sell the notes in any of three ways:
. directly to one or more purchasers;
. through agents; or
. through underwriters.
Any underwriter or agent that offers the notes may be an affiliate of the
issuer, and offers and sales of notes may include secondary market transactions
by affiliates of the issuer. These affiliates may act as principal or agent in
secondary market transactions. Secondary market transactions will be made at
prices related to prevailing market prices at the time of sale.
The issuer will specify in a prospectus supplement the terms of each
offering, including
. the name or names of any underwriters or agents,
. the managing underwriters of any underwriting syndicate,
. the public offering or purchase price,
. the net proceeds to the issuer from the sale,
. any underwriting discounts and other items constituting underwriters'
compensation,
. any discounts and commissions allowed or paid to dealers,
. any commissions allowed or paid to agents, and
. the securities exchanges, if any, on which the notes will be listed.
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Dealer trading may take place in some of the notes, including notes not
listed on any securities exchange. Direct sales may be made on a national
securities exchange or otherwise. If the issuer, directly or through agents,
solicits offers to purchase notes, the issuer reserves the sole right to accept
and, together with its agents, to reject in whole or in part any proposed
purchase of notes.
The issuer may change any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers. If indicated in a
prospectus supplement, the issuer will authorize underwriters or agents to
solicit offers by certain institutions to purchase securities from the issuer
pursuant to delayed delivery contracts providing for payment and delivery at a
future date.
Any underwriter or agent participating in the distribution of securities,
including notes offered by this prospectus, may be deemed to be an underwriter
of those securities under the Securities Act of 1933 and any discounts or
commissions received by it and any profit realized by it on the sale or resale
of the securities may be deemed to be underwriting discounts and commissions.
MBNA and the issuer may agree to indemnify underwriters, agents and their
controlling persons against certain civil liabilities, including liabilities
under the Securities Act of 1933 in connection with their participation in the
distribution of issuer's notes.
Underwriters and agents participating in the distribution of the securities,
and their controlling persons, may engage in transactions with and perform
services for MBNA, the issuer or their respective affiliates in the ordinary
course of business.
Legal Matters
Certain legal matters relating to the issuance of the notes and the
collateral certificate will be passed upon for MBNA by John W. Scheflen,
Executive Vice President, General Counsel and Secretary of MBNA Corporation and
Vice Chairman, Cashier and Secretary of MBNA, and by Orrick, Herrington &
Sutcliffe LLP, Washington, D.C., special counsel to MBNA. Certain legal matters
relating to the issuance of the notes under the laws of the State of Delaware
will be passed upon for MBNA by Richards, Layton & Finger, P.A., Wilmington,
Delaware. Certain legal matters relating to the federal tax consequences of the
issuance of the notes will be passed upon for MBNA by Orrick, Herrington &
Sutcliffe LLP. Certain legal matters relating to the issuance of the notes will
be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York. Mr. Scheflen owns beneficially in excess of 950,000
shares of common stock of MBNA Corporation, including options exercisable
within sixty days under the Corporation's 1991 and 1997 Long Term Incentive
Plans.
Where You Can Find More Information
We filed a registration statement relating to the certificates with the
Securities and Exchange Commission. This prospectus is part of the registration
statement, but the registration statement includes additional information.
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The servicer will file with the SEC all required annual, monthly and special
SEC reports and other information about master trust II.
You may read and copy any reports, statements or other information we file 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. Our SEC filings are also available to the public
on the SEC Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus. Information that we file later with the SEC will
automatically update the information in this prospectus. In all cases, you
should rely on the later information over different information included in
this prospectus or the accompanying prospectus supplement. We incorporate by
reference any future annual, monthly and special SEC reports and proxy
materials filed by or on behalf of master trust II until we terminate our
offering of the certificates.
As a recipient of this prospectus, you may request a copy of any document we
incorporate by reference, except exhibits to the documents (unless the exhibits
are specifically incorporated by reference), at no cost, by writing or calling
us at: Investor Relations; MBNA America Bank, National Association; Wilmington,
Delaware 19884-0131; (800) 362-6255.
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Glossary of Defined Terms
"Addition Date" means the date of any assignment of receivables in additional
accounts to the Master Trust II Portfolio.
"Adjusted Outstanding Dollar Principal Amount" means, for any series, class
or tranche of notes, the outstanding dollar principal amount of such series,
class or tranche, less any funds on deposit in the principal funding account or
the related subaccount, as applicable, for such series, class of tranche.
"Aggregate Investor Default Amount" means, for any month, the sum of the
Investor Default Amounts for such month.
"Available Funds" means (a) with respect to all series of notes, the
collections of finance charge receivables (and certain amounts to be treated as
finance charge receivables) payable to the issuer, as holder of the collateral
certificate, plus the collateral certificate's allocable portion of investment
earnings (net of losses and expenses) on amounts on deposit in the master trust
II collection account and (b) with respect to any series, class or tranche of
notes, the amount of collections in clause (a) allocated to such series, class
or tranche, as applicable, plus any other amounts, or allocable portion
thereof, to be treated as Available Funds with respect to such series, class or
tranche as described in the applicable supplement to this prospectus.
"Available Funds Allocation Amount" means, on any date during any month for
any tranche, class or series of notes (exclusive of (a) any notes within such
tranche, class or series which will be paid in full during such month and (b)
any notes which will have a nominal liquidation amount of zero during such
month), an amount equal to the sum of (i) the nominal liquidation amount for
such tranche, class or series, as applicable, as of the last day of the
preceding month, plus (ii) the aggregate amount of any increases in the nominal
liquidation amount of such tranche, class or series, as applicable, as a result
of (x) the issuance of a new tranche of notes or the issuance of additional
notes in an outstanding tranche of notes, (y) the accretion of principal on
discount notes of such tranche, class or series, as applicable or (z) the
release of prefunded amounts (other than prefunded amounts deposited during
such month) for such tranche, class or series, as applicable, from a principal
funding subaccount, in each case during such month.
"Available Principal Amounts" means, (a) with respect to all series of notes,
the collections of principal receivables allocated and paid to the issuer, as
holder of the collateral certificate, and (b) with respect to any series, class
or tranche of notes, the amount of collections in clause (a) allocated to such
series, class or tranche, as applicable, plus any other amounts, or allocable
portion thereof, to be treated as Available Principal Amounts with respect to
such series, class or tranche as described in the applicable supplement to this
prospectus.
"Bank Portfolio" means the portfolio of MasterCard and VISA accounts owned by
MBNA.
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"Business Day" is, unless otherwise indicated, any day other than a Saturday,
a Sunday or a day on which banking institutions in New York, New York or
Newark, Delaware are authorized or obligated by law or executive order to be
closed.
"Cut-Off Date" means June 22, 1994.
"Daily Available Funds Amount" means, for any day during any month, an amount
equal to the product of (a) the amount of collections of finance charge
receivables (together with certain amounts to be treated as finance charge
receivables) processed for any series, class or tranche of notes, minus, if
MBNA or The Bank of New York is the servicer, the amount of interchange paid to
the servicer for each month, and (b) the percentage equivalent of a fraction,
the numerator of which is the Available Funds Allocation Amount for the related
series, class or tranche of notes for such day and the denominator of which is
the Available Funds Allocation Amount for all series of notes for such day.
"Daily Principal Amount" means, for any day during any month on which
collections of principal receivables are processed for any series, class or
tranche of notes, an amount equal to the product of (a) the aggregate amount of
collections of principal receivables allocated to the issuer on such day and
(b) the percentage equivalent of a fraction, the numerator of which is the
Principal Allocation Amount for the related series, class or tranche of notes
for such day and the denominator of which is the Principal Allocation Amount
for all series of notes for such day.
"Default Amount" means the aggregate amount of principal receivables (other
than ineligible receivables) in a defaulted account on the day such account
became a defaulted account.
"Defaulted Accounts" means certain accounts in the Master Trust II Portfolio,
the receivables of which have been written off as uncollectible by the
servicer.
"Definitive Notes" means notes in definitive, fully registered form.
"Determination Date" means the fourth Business Day preceding each Transfer
Date.
"Distribution Date" means July 16, 2001 and the 15th day of each month
thereafter (or, if such 15th day is not a Business Day, the next succeeding
Business Day).
"Eligible Account" means, as of the Cut-Off Date (or, with respect to
additional accounts, as of their date of designation for inclusion in master
trust II), each account owned by MBNA:
. which was in existence and maintained with MBNA;
. which is payable in United States dollars;
. the customer of which has provided, as his most recent billing address,
an address located in the United States or its territories or
possessions;
. which has not been classified by MBNA as cancelled, counterfeit,
deleted, fraudulent, stolen or lost; and
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. which has not been charged-off by MBNA in its customary and usual manner
for charging-off accounts as of the Cut-Off Date and, with respect to
additional accounts, as of their date of designation for inclusion in
master trust II.
provided, however, the definition of Eligible Account may be changed by
amendment to the master trust II agreement without the consent of the
certificateholders if:
. MBNA delivers to the trustee a certificate of an authorized officer to
the effect that, in the reasonable belief of MBNA, such amendment will
not as of the date of such amendment adversely affect in any material
respect the interest of such certificateholders; and
. such amendment will not result in a withdrawal or reduction of the
rating of any outstanding series under master trust II by any rating
agency.
"Eligible Receivable" means each receivable:
. which has arisen under an Eligible Account;
. which was created in compliance, in all material respects, with all
requirements of law applicable to MBNA, and pursuant to a credit card
agreement which complies in all material respects with all requirements
of law applicable to MBNA;
. with respect to which all consents, licenses or authorizations of, or
registrations with, any governmental authority required to be obtained
or given by MBNA in connection with the creation of such receivable or
the execution, delivery, creation and performance by MBNA of the related
credit card agreement have been duly obtained, effected or given and are
in full force and effect as of the date of the creation of such
receivable;
. as to which, at the time of and all times after its creation, MBNA or
master trust II had good and marketable title free and clear of all
liens and security interests arising under or through MBNA or any of its
affiliates (other than certain tax liens for taxes not then due or which
MBNA is contesting);
. which is the legal, valid and binding payment obligation of the obligor
thereon, legally enforceable against such obligor in accordance with its
terms (with certain bankruptcy-related exceptions); and
. which constitutes an "account" under Article 9 of the UCC.
"Excess Available Funds" means, with respect to any series of notes, the
amount by which Available Funds allocable to such series exceed the sum of (1)
the aggregate amount targeted to be deposited in the interest funding account
with respect to such series, (2) the portion of the master trust II servicing
fee allocable to such series, (3) the defaults on receivables in master trust
II allocable to such series and (4) the aggregate amount of any nominal
liquidation amount deficits with respect to such series.
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"Floating Investor Percentage" means, for any date of determination, a
percentage based on a fraction, the numerator of which is the aggregate
Available Funds Allocation Amounts for all series of notes for such date and
the denominator of which is the greater of (a) the aggregate amount of
principal receivables in master trust II at the end of the prior month (or with
respect to the first calendar month in the period from the initial issuance
date to June 30, 2001, the aggregate amount of principal receivables in master
trust II at the close of business on the day immediately preceding such
issuance date, and with respect to the second calendar month in such period,
the aggregate amount of principal receivables in master trust II on the last
day of the first calendar month in such period), and (b) the sum of the
Investor Interests for all outstanding master trust II series of investor
certificates on such date of determination. However, with respect to any month
in which there is a new issuance of notes, an accretion of principal on
discount notes, a release of prefunded amounts from a principal funding
subaccount, an addition of accounts, or a removal of accounts where the
receivables in such removed accounts approximately equal the initial Investor
Interest of a series of master trust II investor certificates that has been
paid in full, the denominator described in clause (a) of the previous sentence
will be, on and after such date, the aggregate amount of principal receivables
in master trust II as of the beginning of the day on the most recently
occurring event described above (after adjusting for the aggregate amount of
principal receivables, if any, added to or removed from master trust II on such
date).
"Investor Default Amount" means, for any receivable, the product of:
. the Floating Investor Percentage on the day the applicable account
became a Defaulted Account; and
. the Default Amount.
"Investor Default Rate" means, for any month, the percentage equivalent of a
fraction, the numerator of which is the Aggregate Investor Default Amount for
such month and the denominator of which is the Weighted Average Floating
Allocation Investor Interest for such month.
"Investor Interest" means, for any date of determination:
. with respect to the collateral certificate, the sum of the nominal
liquidation amounts for each series of notes outstanding as of such
date; and
. with respect to all other series of master trust II investor
certificates, the initial outstanding principal amount of the investor
certificates of that series, less the amount of principal paid to the
related investor certificateholders and the amount of unreimbursed
charge-offs for uncovered defaults and reallocations of principal
collections.
"Investor Servicing Fee" has the meaning described in "Master Trust II--
Servicing Compensation and Payment of Expenses" in this prospectus.
"Master Trust II Portfolio" means the credit card accounts selected from the
Bank Portfolio and included in master trust II as of the Cut-Off Date and, with
respect to additional accounts, as of the related date of their designation,
based on the eligibility criteria set forth in the master trust II agreement
and which accounts have not been removed from master trust II.
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"Master Trust II Termination Date" means, unless the servicer and the holder
of the Seller Interest instruct otherwise, the earliest of:
. the first Business Day after the Distribution Date on which the
outstanding amount of the interests in master trust II (excluding the
Seller Interest), if any, with respect to each series outstanding is
zero;
. December 31, 2024 or such later date as the servicer and the seller may
determine (which will not be later than August 31, 2034); or
. if the receivables are sold, disposed of or liquidated following the
occurrence of an event of insolvency or receivership of MBNA,
immediately following such sale, disposition or liquidation.
"Minimum Seller Interest" for any period means 4% of the average principal
receivables for such period. MBNA may reduce the Minimum Seller Interest to not
less than 2% of the average principal receivables for such period upon
notification that such reduction will not cause a reduction or withdrawal of
the rating of any outstanding investor certificates issued by master trust II
that are rated by the rating agencies rating those investor certificates and
certain other conditions to be set forth in the master trust II agreement.
"Net Servicing Fee" has the meaning described in "Master Trust II--Servicing
Compensation and Payment of Expenses" in this prospectus.
"Pay Out Events" with respect to a series of investor certificates (including
the collateral certificate) are the events described in "Master Trust II--Pay
Out Events" in this prospectus and any other events described in the related
prospectus supplement.
"Permitted Investments" means:
. obligations of, or fully guaranteed by, the United States of America;
. time deposits or certificates of deposit of depositary institutions or
trust companies, the certificates of deposit of which have the highest
rating from Moody's, Standard & Poor's and, if rated by Fitch, Fitch;
. commercial paper having, at the time of master trust II's or the
issuer's investment, a rating in the highest rating category from
Moody's, Standard & Poor's and, if rated by Fitch, Fitch;
. bankers' acceptances issued by any depository institution or trust
company described in the second clause above;
. money market funds which have the highest rating from, or have otherwise
been approved in writing by, each rating agency;
. certain open end diversified investment companies; and
. any other investment if each rating agency confirms in writing that such
investment will not adversely affect its then-current rating or ratings
of the certificates.
"Principal Allocation Amount" shall mean, on any date during any month for
any tranche, class or series of notes (exclusive of (x) any notes within such
tranche, class or
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series which will be paid in full during such month and (y) any notes which
will have a nominal liquidation amount of zero during such month), an amount
equal to the sum of (a) for any notes within such tranche, class or series of
notes in a note accumulation period, the sum of the nominal liquidation amounts
for such notes as of the close of business on the day prior to the commencement
of the most recent note accumulation period for such notes, and (b) for all
other notes outstanding within such tranche, class or series of notes, (i) the
sum of the nominal liquidation amounts for such notes, each as of the close of
business on the last day of the immediately preceding month (or, with respect
to the first month for any such tranche of notes, the initial dollar principal
amount of such notes), plus (ii) the aggregate amount of any increases in the
nominal liquidation amount of such notes as a result of (x) the issuance of
additional notes in an outstanding series, class or tranche of notes, (y) the
accretion of principal on discount notes of such series, class or tranche, as
applicable, or (z) the release of prefunded amounts (other than prefunded
amounts deposited during such month) for such tranche, class or series, as
applicable, from a principal funding subaccount, in each case during such month
on or prior to such date.
"Principal Investor Percentage" means, for any date of determination, a
percentage based on a fraction, the numerator of which is the aggregate
Principal Allocation Amounts for such date and the denominator of which is the
greater of (a) the total principal receivables in master trust II at the end of
the prior month (or with respect to the first calendar month in the period from
the initial issuance date to June 30, 2001, the aggregate amount of principal
receivables in master trust II at the close of business on the day immediately
preceding such issuance date, and with respect to the second calendar month in
such period, the aggregate amount of principal receivables in master trust II
on the last day of the first calendar month in such period), and (b) the sum of
the Investor Interests at the end of the prior month for all outstanding master
trust II series of investor certificates on such date of determination.
However, this Principal Investor Percentage will be adjusted for certain
Investor Interest increases, as well as additions and certain removals of
accounts, during the related month. In calculating the Principal Investor
Percentage, the Investor Interest is the sum of (i) for each tranche of notes
which is not accumulating or paying principal, the Investor Interest at the end
of the prior month and (ii) for each tranche of notes which is accumulating or
paying principal, the Investor Interest prior to any reductions for
accumulations or payments of principal.
"Qualified Institution" means either:
. a depository institution, which may include the indenture trustee or the
owner trustee (so long as it is a paying agent), organized under the
laws of the United States of America or any one of the states thereof or
the District of Columbia, the deposits of which are insured by the FDIC
and which at all times has a short-term unsecured debt rating in the
applicable investment category of each rating agency; or
. a depository institution acceptable to each rating agency.
"Rapid Amortization Period" means for Series 2001-D the period beginning on
and including the pay out commencement date and ending on the earlier of the
Series 2001-D termination date and the Master Trust II Termination Date.
106
"Removal Date" means the date of any removal of receivables in accounts
removed from the Master Trust II Portfolio.
"Seller Interest" means the interest in master trust II not represented by
the investor certificates issued and outstanding under master trust II or the
rights, if any, of any credit enhancement providers to receive payments from
master trust II.
"Seller Percentage" means a percentage equal to 100% minus the aggregate
investor percentages and, if applicable, the percentage interest of credit
enhancement providers, for all series issued by master trust II that are then
outstanding.
"Servicer Default" means any of the following events:
(a) failure by the servicer to make any payment, transfer or deposit, or
to give instructions to the trustee to make certain payments, transfers or
deposits, on the date the servicer is required to do so under the master
trust II agreement or any series supplement (or within the applicable grace
period, which will not exceed 10 Business Days);
(b) failure on the part of the servicer duly to observe or perform in any
respect any other covenants or agreements of the servicer which has a
material adverse effect on the certificateholders of any series issued and
outstanding under master trust II and which continues unremedied for a
period of 60 days after written notice and continues to have a material
adverse effect on such certificateholders; or the delegation by the
servicer of its duties under the master trust II agreement, except as
specifically permitted thereunder;
(c) any representation, warranty or certification made by the servicer in
the master trust II agreement, or in any certificate delivered pursuant to
the master trust II agreement, proves to have been incorrect when made
which has a material adverse effect on the certificateholders of any series
issued and outstanding under trust II, and which continues to be incorrect
in any material respect for a period of 60 days after written notice and
continues to have a material adverse effect on such certificateholders;
(d) the occurrence of certain events of bankruptcy, insolvency,
conservatorship or receivership of the servicer; or
(e) such other event specified in the accompanying prospectus supplement.
Notwithstanding the foregoing, a delay in or failure of performance referred to
in clause (a) above for a period of 10 Business Days, or referred to under
clause (b) or (c) for a period of 60 Business Days, will not constitute a
Servicer Default if such delay or failure could not be prevented by the
exercise of reasonable diligence by the servicer and such delay or failure was
caused by an act of God or other similar occurrence.
"Transfer Date" means the Business Day immediately prior to the Distribution
Date in each month.
"Unallocated Principal Collections" means any amounts collected in respect of
principal receivables that are allocable to, but not paid to, MBNA because the
Seller Interest is less than the Minimum Seller Interest.
107
"Weighted Average Available Funds Allocation Amount" shall mean, with respect
to any month for any tranche, class or series of Notes, the sum of the
Available Funds Allocation Amount for such tranche, class or series, as
applicable, as of the close of business on each day during such month divided
by the actual number of days in such month.
"Weighted Average Floating Allocation Investor Interest" means, for any
month, the sum of the aggregate Available Funds Allocation Amounts for all
series of notes as of the close of business on each day during such month
divided by the actual number of days in such month.
"Weighted Average Principal Allocation Amount" shall mean, with respect to
any period for any tranche, class or series of Notes, the sum of the Principal
Allocation Amount for such series, class or tranche, as applicable, as of the
close of business on each day during such period divided by the actual number
of days in such period.
108
MBNA Credit Card Master Note Trust
Issuer
[LOGO OF MBNA AMERICA]
MBNA America Bank, National Association
Originator of the Issuer
MBNAseries
$1,000,000,000
Class A(2001-1) Notes
----------------
PROSPECTUS SUPPLEMENT
----------------
Underwriters
Lehman Brothers
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Barclays Capital
Credit Suisse First Boston
Deutsche Banc Alex. Brown
JPMorgan
Merrill Lynch & Co.
Salomon Smith Barney
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, until
the date which is 90 days after the date of this prospectus
supplement, all dealers selling the notes will deliver a
prospectus supplement and prospectus.
This document is printed entirely on recycled paper.
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