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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
REGISTRATION FILE NO. 333-40708
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CHESAPEAKE FUNDING LLC
(Formerly known as Greyhound Funding LLC)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0391968
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
307 INTERNATIONAL CIRCLE
HUNT VALLEY, MARYLAND 21030
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICE)
(410) 771-1900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /
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CHESAPEAKE FUNDING LLC
INDEX
PAGE
----
PART I Financial Information
Item 1. Financial Statements
Condensed Statements of Income for the three and six months ended
June 30, 2002 and 2001 2
Condensed Balance Sheets as of June 30, 2002 and December 31, 2001 3
Condensed Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risks 12
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHESAPEAKE FUNDING LLC
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2002 2001 2002 2001
--------- -------- --------- ---------
INCOME:
Income from investment in related party special unit of
beneficial interest in leases $ 41,144 $ 57,618 $ 78,453 $ 123,267
--------- -------- --------- ---------
EXPENSES:
Interest expense 19,108 32,061 31,370 74,183
Service fees to related party 2,009 1,830 3,937 3,666
--------- -------- --------- ---------
Total expenses 21,117 33,891 35,307 77,849
--------- -------- --------- ---------
OPERATING INCOME 20,027 23,727 43,146 45,418
Interest income 847 2,091 1,861 3,608
--------- -------- --------- ---------
INCOME BEFORE INCOME TAXES 20,874 25,818 45,007 49,026
Provision for income taxes 499 888 1,076 1,471
--------- -------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 20,375 24,930 43,931 47,555
Cumulative effect of accounting change, net of tax - - - (7,660)
--------- -------- --------- ---------
NET INCOME $ 20,375 $ 24,930 $ 43,931 $ 39,895
========= ======== ========= =========
See Notes to Condensed Financial Statements.
2
CHESAPEAKE FUNDING LLC
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
ASSETS:
Cash and cash equivalents $ 101,559 $ 192,544
Restricted cash 85,758 78,988
Other assets 22,018 19,701
Special unit of beneficial interest in fleet receivables - related
party 80,000 80,000
Special unit of beneficial interest in leases - related party 3,457,089 3,413,920
----------- -----------
TOTAL ASSETS $ 3,746,424 $ 3,785,153
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES:
Accrued interest and income taxes payable $ 5,557 $ 6,353
Deferred income taxes 5,761 5,761
Medium-term notes 1,782,224 1,485,448
Variable funding notes 899,967 1,145,717
----------- -----------
TOTAL LIABILITIES 2,693,509 2,643,279
----------- -----------
MEMBERS' EQUITY:
Preferred membership interests 364,073 302,460
Common membership interests, no par value 495,446 685,550
Retained earnings 193,396 153,864
----------- -----------
TOTAL MEMBERS' EQUITY 1,052,915 1,141,874
----------- -----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 3,746,424 $ 3,785,153
=========== ===========
See Notes to Condensed Financial Statements.
3
CHESAPEAKE FUNDING LLC
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net Income $ 43,931 $ 39,895
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of accounting change - 7,843
Amortization 2,226 584
Deferred income taxes - 50
(Income) losses on interest-related derivative (32) 538
Net changes in other assets and liabilities:
Accrued interest and income taxes payable (796) (6,295)
Restricted cash (6,770) (1)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,559 42,614
--------- ---------
INVESTING ACTIVITIES
Special unit of beneficial interest in leases (43,169) (140,023)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (43,169) (140,023)
--------- ---------
FINANCING ACTIVITIES
Payment of deferred financing fees (4,511) (720)
Purchase of interest rate cap - (1,790)
Proceeds from issuance of preferred membership interests 61,613 -
Capital contributions from (distributions to) common member (190,104) 248,235
Preferred membership interest dividends paid (4,399) (7,416)
Proceeds from issuance of variable funding notes 260,750 32,000
Principal payments of variable funding notes (506,500) -
Proceeds from issuance of medium-term notes 650,000 (69,098)
Principal payments of medium-term notes (353,224) -
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (86,375) 201,211
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (90,985) 103,802
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 192,544 87,607
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 101,559 $ 191,409
========= =========
Supplemental disclosures of cash flow information:
Interest and preferred membership interest dividends paid $ 33,423 $ 79,993
========= =========
Income taxes paid $ 1,726 $ 691
========= =========
See Notes to Condensed Financial Statements.
4
CHESAPEAKE FUNDING LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Chesapeake Funding LLC ("Chesapeake" or "the Company") is a special purpose
limited liability company, which was organized on June 24, 1999 as
Greyhound Funding LLC under the laws of the State of Delaware. On April 25,
2002 the name was changed to Chesapeake Funding LLC. The sole common member
of Chesapeake is Raven Funding LLC ("Raven"), which itself is a special
purpose limited liability company established under the laws of the State
of Delaware. The sole member of Raven is PHH Vehicle Management Services
LLC ("PHH" or "Vehicle Management Services"), a limited liability company
and, from its date of organization to March 1, 2001, a wholly-owned
subsidiary of Avis Group Holdings, Inc. ("Avis").
On March 1, 2001, Avis was acquired by PHH Corporation. PHH became a
wholly-owned subsidiary of PHH Corporation, which is a wholly-owned
subsidiary of Cendant Corporation ("Cendant"). All assets and liabilities
were recorded by the Company at fair value as of March 1, 2001. No
significant adjustments were made by the Company.
Chesapeake was formed for the purpose of issuing indebtedness, issuing
preferred membership interests, acquiring a special unit of beneficial
interest in certain leases (the "Lease SUBI"), and acquiring a portion of a
special unit of beneficial interest in certain fleet service receivables
(the "Fleet Receivable SUBI") owned by D.L. Peterson Trust ("DLPT"). The
Lease SUBI is a beneficial ownership interest in the leases, vehicles and
paid-in-advance vehicles owned by DLPT ("SUBI Assets"). DLPT is a statutory
business trust established by PHH in order to administer the titling of the
vehicles in connection with the financing and transfer of vehicles subject
to leases. Chesapeake owns a certificate representing the Lease SUBI (the
"Lease SUBI Certificate") and a certificate representing an interest in the
Fleet Receivable SUBI which entitles Chesapeake to receive up to $80
million a month of the collections received in respect of the fleet
services receivables (the "Fleet Receivable SUBI Certificate"). PHH acts as
servicer of the assets held by DLPT, including the assets allocated to the
Lease SUBI and the Fleet Receivable SUBI. In its role as servicer, PHH will
maintain all property and equipment and employees required to perform the
servicing activities. The Fleet Receivable SUBI Certificate and the Lease
SUBI Certificate were issued by DLPT to Raven, which were then contributed
to Chesapeake by Raven.
In management's opinion, the accompanying unaudited Financial Statements
contain all normal recurring adjustments necessary for a fair presentation
of interim results reported. The results of operations reported for interim
periods are not necessarily indicative of the results of operations for the
entire year or any subsequent interim period. In addition, management is
required to make estimates and assumptions that affect the amounts reported
and related disclosures. Estimates, by their nature, are based on judgment
and available information. Accordingly, actual results could differ from
those estimates. The Financial Statements should be read in conjunction
with the Company's Annual Report on Form 10-K dated March 29, 2002.
2. RESTRICTED CASH
The Company is required by its debt agreements to set aside certain amounts
of cash to provide additional credit enhancement on its medium-term and
variable funding notes. Amounts required to be set aside by the Company are
not readily available for disbursements and are based on an applicable
percentage of the total commitment under the respective agreements.
3. DEBT
In April 2002, the Company made principal payments to the holders of its
Series 1999-2 ClassA-1 notes totaling approximately $186 million.
The Company issued $650 million of medium-term notes in June 2002 bearing
interest at a rate that is reset monthly at LIBOR plus approximately 25
basis points.
5
The proceeds from this issuance were used to repay $500 million of the
Company's then outstanding variable funding notes balance.
In connection with the issuance of such notes, the Company issued senior
preferred membership interests (PMI's"), which approximated $62.9 million
as of June 30, 2002. The holders of the PMI's are entitled to receive
dividends at a rate equal to monthly LIBOR plus 170 basis points. The
dividend periods correspond to the same interest periods as the variable
funding notes. Dividends on the PMI's must be declared and paid on each
dividend payment date to the extent that on such date, the Company has
funds legally available for the payment of such dividends based on the
covenants specified in the Company's LLC agreement.
*****
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONDENSED
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE
HEREIN. UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE IN THOUSANDS.
We are a special purpose limited liability company organized on June 24,
1999 as Greyhound Funding LLC under the laws of the State of Delaware. On
April 25, 2002, we changed our name to Chesapeake Funding LLC. Our sole
common member is Raven Funding, which is also a special purpose limited
liability company established under the laws of the State of Delaware. The
sole member of Raven Funding is Vehicle Management Services, a limited
liability company and an indirect wholly-owned subsidiary of Cendant
Corporation. Our activities are limited to acquiring and holding an
investment in the Lease SUBI (which is a special unit of beneficial
interest in certain leases and vehicles owned by D. L. Peterson Trust) and
a portion of the Fleet Receivable SUBI (which is a special unit of
beneficial interest in certain fleet service receivables owned by D. L.
Peterson Trust), issuing indebtedness and preferred membership interests to
finance such investment and engaging in other activities that are related
or incidental to the foregoing and necessary, convenient or advisable to
accomplish the foregoing. We do not conduct operating activities.
Income from investment in related party special unit of beneficial interest
in leases for the three and six months ended June 30, 2002 decreased by
$16.5 and $44.8 million, respectively. Such decreases are the result of
declines in the floating rate indices on which interest billings under the
leases allocated to the Lease SUBI are based. Interest expense for the
three and six months ended June 30, 2002 also decreased by $13.0 and $42.8
million, respectively, as a result of corresponding decreases in commercial
paper rates and LIBOR. Accordingly, operating income only decreased by $3.7
and $2.3 million, respectively, primarily as a result of the fact that the
floating rate indices on which Lease SUBI lease billings are based
decreased at a faster rate during 2002 than the commercial paper rates and
LIBOR at which our floating rate debt expense accrues.
The principal source of our revenue is payments received on the Lease SUBI
held by us. Set forth below is certain historical data with respect to
delinquency experience, loss and recovery experience, residual value loss
experience, conversions of floating rate leases to fixed rate leases, and
fleet management billing experience, in each case for leases and fleet
management receivables that are of the same type as those allocated to the
Lease SUBI and the Fleet Receivable SUBI.
DELINQUENCY EXPERIENCE
The following table sets forth delinquency data with respect to aggregate
billings of lease payments for all of Vehicle Management Services' leases
and fleet management receivables for the six months ended June 30, 2002 and
2001. These leases and fleet management receivables are of the same type as
the leases allocated to the Lease SUBI and the fleet management receivables
allocated to the Fleet Receivable SUBI and do not include any other types
of leases or fleet management receivables.
SIX MONTHS ENDED
JUNE 30,
--------------------------
2002 2001
-------- --------
Percentage of billings delinquent (1)(2):
30-59 days 1.33% 1.61%
60 days or more 2.91% 2.72%
-------- --------
Total 30 or more days delinquent 4.24% 4.34%
========= ========
- ---------
(1) The period of delinquency is based on the number of days payments are
contractually past due.
(2) An average of the ratios, expressed as a percentage, for each monthly
billing period within the applicable period of the aggregate billings
for all leases and all fleet management receivables which were
delinquent for the applicable number of days as of the last day of that
monthly billing period to the sum of the aggregate billings for all
leases and all fleet management receivables which were unpaid as of the
last day of the preceding monthly billing period and the aggregate
amount billed for all leases and fleet management receivables during
that monthly period.
Total delinquencies for the six months ended June 30, 2002 remained below
5% of total billings, which is consistent with the performance of the
portfolio over the last several years. Delinquencies of 60 days or more
increased to 2.91% of total
7
billings compared to 2.72% due, in part, to the continuing effects of
Chapter 11 bankruptcy filings of several customers and a lower level of
billings. Non-bankruptcy delinquent receivables of 60 days or more declined
from the comparable period in 2001. Delinquencies of 30-59 days decreased
to 1.33% from 1.61%.
LOSS AND RECOVERY EXPERIENCE
The following table sets forth loss and recovery data with respect to
Vehicle Management Services' leases and fleet management receivables for
the six months ended June 30, 2002 and 2001. These leases and fleet
management receivables are of the same type as the leases allocated to the
Lease SUBI and the fleet management receivables allocated to the Fleet
Receivable SUBI and do not include any other types of leases or fleet
management receivables.
SIX MONTHS ENDED
JUNE 30,
----------------------------
2002 2001
------------- ------------
Ending dollar amount of leases (1) $ 3,457,089 $ 3,412,680
Total billings for period 1,080,649 1,248,215
Gross losses (2) 152 198
Recoveries (3) 17 (17)
------------- ------------
Net losses $ 169 $ 181
============= ============
Net losses as percentage of ending dollar
amount of leases 0.00% 0.01%
Net losses as percentage of total billings
for period 0.02% 0.01%
- ----------
(1) Based on the sum of all principal amounts outstanding under the leases,
including, in the case of closed-end leases, the stated residual values
of the related leased vehicles.
(2) Gross losses includes losses on fleet management receivables.
(3) Recoveries are net of legal fees.
Net losses as a percentage of ending dollar amount of leases decreased from
.01% to .00% for the six months ended June 30, 2002. Net losses as a
percentage of total billings increased from .01% to .02% for the six months
ended June 30, 2002. Gross losses in respect of bankrupt obligors generally
are not recognized by Vehicle Management Services until it receives payment
upon the confirmation of the plan of reorganization of the bankrupt obligor
and receives any terminal rental adjustment payments that may be applied to
satisfy outstanding obligations in respect of fleet management receivables.
Losses are charged against previously established reserves. Reserve
adequacy for the purposes of Vehicle Management Services' financial
statements is determined at the time of a client's bankruptcy filing and
any necessary charge is recorded to the statement of income at that time.
8
RESIDUAL VALUE LOSS EXPERIENCE
The following table sets forth residual value performance data for Vehicle
Management Services' closed-end leases for the six months ended June 30,
2002 and 2001. These closed-end leases are of the same type as the
closed-end leases allocated to the Lease SUBI and do not include any other
types of closed-end leases.
SIX MONTHS ENDED
JUNE 30,
----------------------
2002 2001
--------- --------
Total number of closed-end leases
scheduled to terminate 2,930 4,844
Number of returned vehicles 1,968 2,685
Full termination ratio(1) 67.17% 55.43%
Total loss on returned vehicles(2) $ (190) $ (3,107)
Average loss per returned vehicles(3) $ (97) (1,157)
Loss as a percentage of stated residual values of
Returned vehicles(4) (1.05%) (11.32%)
- ----------
(1) The ratio of the number of vehicles sold during the period to the
number of vehicles scheduled to terminate, on their date of
origination, during the period, expressed as a percentage.
(2) Includes fees received and expenses incurred to dispose of vehicles
and certain amounts received after the sale and disposition of the
vehicles.
(3) Per vehicle dollar amounts are not in thousands.
(4) The ratio of total gains/losses on vehicles sold during the period to
the stated residual values of those vehicles, expressed as a
percentage.
Total residual value losses decreased $2.9 million to $190 thousand and the
total number of returned vehicles decreased 26.7%. The decrease in units
sold is the result of an increase in clients retaining vehicles beyond
their original lease term. The average loss per vehicle returned and sold
decreased 91.6% to $97 per unit. The decrease in residual value losses
during 2002 is the result of establishing lower residual values at lease
inception which was initiated in the beginning of 2000.
CONVERSIONS OF FLOATING RATE LEASES TO FIXED RATE LEASES
The following table sets forth data with respect to conversions of Vehicle
Management Services' floating rate leases to fixed rate leases during the
six months ended June 30, 2002 and 2001.
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2002 2001
--------------- --------------
Dollar amount of conversions for period(1) $ 4,862 $ 11,178
Ending dollar amount of leases $ 3,457,089 $ 3,412,680
Conversions as a percentage of ending dollar amount of leases 0.14% 0.33%
- ----------
(1) Based on the sum of all principal amounts outstanding under the leases,
including, in the case of closed-end leases, the stated residual values
of the related leased vehicles.
Total conversions of floating rate leases to fixed rate leases were
approximately $4.9 million during the six months ended June 30, 2002
compared with $11.2 million in the period ended June 30, 2001.
9
FLEET MANAGEMENT RECEIVABLE BILLING EXPERIENCE
The following table sets forth data for Vehicle Management Services'
aggregate billings of fleet management receivables for the six months ended
June 30, 2002 and 2001. These fleet management receivables are of the same
type as the fleet management receivables allocated to the Fleet Receivable
SUBI and do not include any other types of fleet management receivables.
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2002 2001
----------- -----------
Aggregate billings $ 436,639 $ 577,870
Average monthly billings 72,773 96,312
Maximum monthly billings 83,744 118,358
Minimum monthly billings 57,175 80,022
Aggregate fleet management receivable billings decreased to approximately
$436.6 million during the six months ended June 30, 2002 compared to
approximately $577.9 million during the six months ended June 30, 2001. The
primary factor for the decrease was a decrease in billings relating to
vehicles purchased directly for customers.
10
CHARACTERISTICS OF LEASES ALLOCATED TO LEASE SUBI
The following table contains certain statistical information relating to
the leases allocated to the Lease SUBI as of June 20, 2002 (the last
monthly reporting period cutoff date during the second quarter of 2002).
All of the leases and vehicles owned by DLPT as of June 20, 2002 were
allocated to the Lease SUBI. The following information does not include
vehicles ordered at the request of lessees party to a master lease
agreement allocated to the Lease SUBI, which have an aggregate cost of
$139,389,227 as of that date, because they are not yet subject to a lease.
For the purposes of preparing the following tables, we assumed the original
term of each lease to be the period over which the related vehicle is
scheduled to be depreciated.
COMPOSITION OF LEASES
Aggregate Unit Balance of Leases $ 3,252,792,400.57
Number of Leases 213,850
Average Unit Balance $ 15,210.63
Range of Unit Balances $ 0.01 to $711,582.30
Aggregate Unit Balance of Open-End Leases $ 3,135,420,329.64
Aggregate Unit Balance of Floating Rate Leases $ 2,434,273,559.77
Aggregate Lease Balance of CP Rate Index Floating Rate leases $ 2,385,186,903.37
Weighted Average Spread Over CP Rate 0.343%
Range of Spreads Over CP Rate 0.00% to 3.00%
Aggregate Unit Balance of Floating Rate Leases Indexed to Floating Rates Other Than
CP Rate $ 49,086,656.40
Aggregate Unit Balance of Fixed Rate Leases $ 818,548,840.80
Weighted Average Fixed Rate 5.796%
Range of Fixed Rates 0.000% to 19.15%
Weighted Average Original Lease Term 62.40
Range of Original Lease Terms 6 to 132 months
Weighted Average Remaining Term 43.90
Range of Remaining Terms 0 to 120 months
Aggregate Unit Balance of Closed-End Leases $ 117,372,070.93
Average Unit Balance of Closed-End Leases $ 14,122.50
Range of Unit Balance of Closed-End Leases $ 0.10 to $216,768.73
Average Stated Residual Value of Closed-End Leases $ 9,074.62
Note: Dollar amounts are in whole amounts.
As of June 20, 2002, the aggregate lease balance of the leases allocated to
the Lease SUBI with the lessee having the largest aggregate lease balances
was $107,167,822. The aggregate lease balance of the leases allocated to
the Lease SUBI with the lessees having the five largest aggregate lease
balances was $468,076,437 and the aggregate lease balance of the leases
allocated to the Lease SUBI with the lessees having the ten largest
aggregate lease balances was $794,043,755.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in our public filings or other public statements
are subject to known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous important assumptions and other important factors that
could cause actual results to differ materially from those in the
forward-looking statements.
11
Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "project", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future
or conditional verbs such as "will", "should", "would", "may" and "could"
are generally forward-looking in nature and not historical facts. You
should understand that the following important factors and assumptions
could affect our future results and could cause actual results to differ
materially from those expressed in such forward-looking statements:
- changes in general economic and business conditions and the impact
thereof on the vehicle leasing business or the lessees of our
vehicles;
- the effects of changes in interest rates; and
- changes in laws and regulations, including changes in accounting
standards.
Other factors and assumptions not identified above were also involved in
the derivation of these forward-looking statements, and the failure of such
other assumptions to be realized as well as other factors may also cause
actual results to differ materially from those projected. Most of these
factors are difficult to predict accurately and are generally beyond our
control.
You should consider the areas of risk described above in connection with
any forward-looking statements that may be made by us. Except for our
ongoing obligations to disclose material information under the federal
securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report
the occurrence of unanticipated events unless required by law. For any
forward-looking statements contained in any document, we claim the
protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We use interest rate caps to manage and reduce the interest rate risk
related specifically to our asset-backed debt. Interest rate risk is our
only market exposure. We do not engage in trading, market-making, or other
speculative activities in the derivatives markets. We assess our interest
rate risk based on changes in the interest rates utilizing a sensitivity
analysis, which measures the potential loss in earnings, fair values and
cash flows based on a hypothetical 10% change (increase and decrease) in
our asset-backed debt and interest rate caps. We used June 30, 2002
interest rates to perform a sensitivity analysis. We have determined,
through such analyses, that the impact of a 10% change in interest rates on
our earnings, fair values and cash flows would not be material.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 10, 2002, we sold our Series 2002-1 Senior Preferred Membership
Interests (the "Series 2002-1 PMIs") having an aggregate liquidation
preference of $62,908,543 to a subsidiary of Raven which financed its
purchase of the Series 2002-1 PMIs by issuing its own asset-backed notes
and senior preferred membership interest to a group of multi-seller
commercial paper conduits. The net proceeds of the Series 2002-1 PMIs were
$62,908,543. The sale of Series 2002-1 PMIs to the subsidiary of Raven was
exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2) thereof as a transaction by an issuer not involving a public
offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See Exhibit Index
(B) REPORTS ON FORM 8-K
On April 12, 2002, we filed a current report on Form 8-K to report
under Item 5 that we were making a principal payment distribution on
our Series 1999-2 Asset-Backed Notes.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Chesapeake Funding LLC
By: /s/ Neil J Cashen
--------------------------
Neil J. Cashen
Chief Financial Officer
Date: August 14, 2002
13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Formation of Chesapeake Funding LLC (formerly known as
Greyhound Funding LLC), incorporated by reference to the Registration
Statement on Form S-1 (File no. 333-40708) filed with the Securities
and Exchange Commission on June 30, 2000.
3.2 Certificate of Amendment to Certificate of Formation of Chesapeake
Funding LLC (formerly known as Greyhound Funding LLC) dated April 25,
2002, incorporated by reference to the Registration Statement on Form
S-3 (File no. 333-87568) filed with the Securities and Exchange
Commission on May 3, 2002.
3.3 Amended and Restated Limited Liability Company Agreement of Chesapeake
Funding LLC (formerly known as Greyhound Funding LLC) dated as of
October 28, 1999, incorporated by reference to the Registration
Statement on Form S-1 (File no. 333-40708) filed with the Securities
and Exchange Commission on June 30, 2000.
3.4 Amendment No. 1, dated as of April 25, 2002, to the Amended and
Restated Limited Liability Company Agreement of Chesapeake Funding LLC
(formerly known as Greyhound Funding LLC), dated as of October 28,
1999, incorporated by reference to the Registration Statement on Form
S-3 (File no. 333-87568) filed with the Securities and Exchange
Commission on May 3, 2002.
4.1 Base Indenture dated as of June 30, 1999 between the Company and The
Chase Manhattan Bank, as Indenture Trustee. Incorporated by reference
to Exhibit 4.1 to the Company's Amendment to its Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on March
19, 2001 (File No. 333-40708).
4.2 Supplemental Indenture No. 1 dated as of October 28, 1999 between the
Company and The Chase Manhattan Bank to the Base Indenture dated as of
June 30, 1999. Incorporated by reference to Exhibit 4.2 to the
Company's Amendment to its Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on March 19, 2001 (File No.
333-40708).
4.3 Series 2002-1 Indenture Supplement between the Company and The Chase
Manhattan Bank, as Indenture Trustee, dated as of June 10, 2002.
4.4 Form of Series 2002-1 Notes (included in Exhibit 4.3).