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Assignment of Accounts Receivable: Meaning, Considerations

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

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What Is Assignment of Accounts Receivable?

Assignment of accounts receivable is a lending agreement whereby the borrower assigns accounts receivable to the lending institution. In exchange for this assignment of accounts receivable, the borrower receives a loan for a percentage, which could be as high as 100%, of the accounts receivable.

The borrower pays interest, a service charge on the loan, and the assigned receivables serve as collateral. If the borrower fails to repay the loan, the agreement allows the lender to collect the assigned receivables.

Key Takeaways

Assignment of accounts receivable is a method of debt financing whereby the lender takes over the borrowing company's receivables.
This form of alternative financing is often seen as less desirable, as it can be quite costly to the borrower, with APRs as high as 100% annualized.
Usually, new and rapidly growing firms or those that cannot find traditional financing elsewhere will seek this method.
Accounts receivable are considered to be liquid assets.
If a borrower doesn't repay their loan, the assignment of accounts agreement protects the lender.

Understanding Assignment of Accounts Receivable

With an assignment of accounts receivable, the borrower retains ownership of the assigned receivables and therefore retains the risk that some accounts receivable will not be repaid. In this case, the lending institution may demand payment directly from the borrower. This arrangement is called an "assignment of accounts receivable with recourse." Assignment of accounts receivable should not be confused with pledging or with accounts receivable financing .

An assignment of accounts receivable has been typically more expensive than other forms of borrowing. Often, companies that use it are unable to obtain less costly options. Sometimes it is used by companies that are growing rapidly or otherwise have too little cash on hand to fund their operations.

New startups in Fintech, like C2FO, are addressing this segment of the supply chain finance by creating marketplaces for account receivables. Liduidx is another Fintech company providing solutions through digitization of this process and connecting funding providers.

Financiers may be willing to structure accounts receivable financing agreements in different ways with various potential provisions.

Special Considerations

Accounts receivable (AR, or simply "receivables") refer to a firm's outstanding balances of invoices billed to customers that haven't been paid yet. Accounts receivables are reported on a company’s balance sheet as an asset, usually a current asset with invoice payments due within one year.

Accounts receivable are considered to be a relatively liquid asset . As such, these funds due are of potential value for lenders and financiers. Some companies may see their accounts receivable as a burden since they are expected to be paid but require collections and cannot be converted to cash immediately. As such, accounts receivable assignment may be attractive to certain firms.

The process of assignment of accounts receivable, along with other forms of financing, is often known as factoring, and the companies that focus on it may be called factoring companies. Factoring companies will usually focus substantially on the business of accounts receivable financing, but factoring, in general, a product of any financier.

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Assignment of Accounts Receivable Journal Entries

The assignment of accounts receivable journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accounts receivable assignment.

The assignment of accounts receivable journal entries are based on the following information:

Accounts receivable 50,000 on 45 days terms
Assignment fee of 1% (500)
Initial advance of 80% (40,000)
Cash received from customers 6,000
Interest on advances at 9%, outstanding on average for 40 days (40,000 x 9% x 40 / 365 = 395)

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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The Difference Between Assignment of Receivables & Factoring of Receivables

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You can raise cash fast by assigning your business accounts receivables or factoring your receivables. Assigning and factoring accounts receivables are popular because they provide off-balance sheet financing. The transaction normally does not appear in your financial statements and your customers may never know their accounts were assigned or factored. However, the differences between assigning and factoring receivables can impact your future cash flows and profits.

How Receivables Assignment Works

Assigning your accounts receivables means that you use them as collateral for a secured loan. The financial institution, such as a bank or loan company, analyzes the accounts receivable aging report. For each invoice that qualifies, you will likely receive 70 to 90 percent of the outstanding balance in cash, according to All Business . Depending on the lender, you may have to assign all your receivables or specific receivables to secure the loan. Once you have repaid the loan, you can use the accounts as collateral for a new loan.

Assignment Strengths and Weaknesses

Using your receivables as collateral lets you retain ownership of the accounts as long as you make your payments on time, says Accounting Coach. Since the lender deals directly with you, your customers never know that you have borrowed against their outstanding accounts. However, lenders charge high fees and interest on an assignment of accounts receivable loan. A loan made with recourse means that you still are responsible for repaying the loan if your customer defaults on their payments. You will lose ownership of your accounts if you do not repay the loan per the agreement terms.

How Factoring Receivables Works

When you factor your accounts receivable, you sell them to a financial institution or a company that specializes in purchasing accounts receivables. The factor analyzes your accounts receivable aging report to see which accounts meet their purchase criteria. Some factors will not purchase receivables that are delinquent 45 days or longer. Factors pay anywhere from 65 percent to 90 percent of an invoice’s value. Once you factor an account, the factor takes ownership of the invoices.

Factoring Strengths and Weaknesses

Factoring your accounts receivables gives you instant cash and puts the burden of collecting payment from slow or non-paying customers on the factor. If you sell the accounts without recourse, the factor cannot look to you for payment should your former customers default on the payments. On the other hand, factoring your receivables could result in your losing customers if they assume you sold their accounts because of financial problems. In addition, factoring receivables is expensive. Factors charge high fees and may retain recourse rights while paying you a fraction of your receivables' full value.

All Business: The Difference Between Factoring and Accounts Receivable Financing

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Receivables Finance And The Assignment Of Receivables

Tfg legal trade finance hub, receivables finance and the assignment of receivables.

A receivable represents money that is owed to a company and is expected to be paid in the future. Receivables finance, also known as accounts receivable financing, is a form of asset-based financing where a company leverages its outstanding receivables as collateral to secure short-term loans and obtain financing.

In case of default, the lender has a right to collect associated receivables from the company’s debtors. In brief, it is the process by which a company raises cash against its own book’s debts.

The company actually receives an amount equal to a reduced value of the pledged receivables, the age of the receivables impacting the amount of financing received. The company can get up to 90% of the amount of its receivables advanced.

This form of financing assists companies in unlocking funds that would otherwise remain tied up in accounts receivable, providing them with access to capital that is not immediately realised from outstanding debts.

FIG. 1: Accounts receivable financing operates by leveraging a company’s receivables to obtain financing. Source: https://fhcadvisory.com/images/account-receivable-financing.jpg

Restrictions on the assignment of receivables – New legislation

Invoice discounting products under which a company assigns its receivables have been used by small and medium enterprises (SMEs) to raise capital. However, such products depend on the related receivables to be assignable at first.

Businesses have faced provisions that ban or restrict the assignment of receivables in commercial contracts by imposing a condition or other restrictions, which prevents them from being able to use their receivables to raise funds.

In 2015, the UK Government enacted the Small Business, Enterprise and Employment Act (SBEEA) by which raising finance on receivables is facilitated. Pursuant to this Act, regulations can be made to invalidate restrictions on the assignment of receivables in certain types of contract.

In other words, in certain circumstances, clauses which prevent assignment of a receivable in a contract between businesses is unenforceable. Especially, in its section 1(1), the Act provides that the authorised authority can, by regulations “make provision for the purpose of securing that any non-assignment of receivables term of a relevant contract:

has no effect;
has no effect in relation to persons of a prescribed description;
has effect in relation to persons of a prescribed description only for such purposes as may be prescribed.”

The underlying aim is to enable SMEs to use their receivables as financing to raise capital, through the possibility of assigning such receivables to another entity.

The aforementioned regulations, which allow invalidations of such restrictions on the assignment of receivables, are contained in the Business Contract Terms (Assignment of Receivables) Regulations 2018, which will apply to any term in a contract entered into force on or after 31 December 2018.

By virtue of its section 2(1) “Subject to regulations 3 and 4, a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties.”

Such regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. However, there are several exclusions to this rule.

In section 3, an exception exists where the supplier is a large enterprise or a special purpose vehicle (SPV). In section 4, there are listed exclusions for various contracts such as “for, or entered into in connection with, prescribed financial services”, contracts “where one or more of the parties to the contract is acting for purposes which are outside a trade, business or profession” or contracts “where none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom”. Also, specific exclusions relate to contracts in energy, land, share purchase and business purchase.

Effects of the 2018 Regulations

As mentioned above, any contract terms that prevent, set conditions for, or place restrictions on transferring a receivable are considered invalid and cannot be legally enforced.

In light of this, the assignment of the right to be paid under a contract for the supply of goods (receivables) cannot be restricted or prohibited. However, parties are not prevented from restricting other contracts rights.

Non-assignment clauses can have varying forms. Such clauses are covered by the regulations when terms prevent the assignee from determining the validity or value of the receivable or their ability to enforce it.

Overall, these legislations have had an important impact for businesses involved in the financing of receivables, by facilitating such processes for SMEs.

Digital platforms and fintech solutions: The assignment of receivables has been significantly impacted by the digitisation of financial services. Fintech platforms and online marketplaces have been developed to make the financing and assignment of receivables easier.

These platforms employ tech to assess debtor creditworthiness and provide efficient investor and seller matching, including data analytics and artificial intelligence. They provide businesses more autonomy, transparency, and access to a wider range of possible investors.

Securitisation is an essential part of receivables financing. Asset-backed securities (ABS), a type of financial instrument made up of receivables, are then sold to investors.

Businesses are able to turn their receivables into fast cash by transferring the credit risk and cash flow rights to investors. Investors gain from diversification and potentially greater yields through securitisation, while businesses profit from increased liquidity and risk-reduction capabilities.

References:

https://www.tradefinanceglobal.com/finance-products/accounts-receivables-finance/ – 28/10/2018

https://www.legislation.gov.uk/ukpga/2015/26/section/1/enacted – 28/10/2018

https://www.legislation.gov.uk/ukdsi/2018/9780111171080 – 28/10/2018

https://www.bis.org/publ/bppdf/bispap117.pdf – Accessed 14/06/2023

https://www.investopedia.com/terms/a/asset-backedsecurity.asp – Accessed 14/06/2023

https://www.imf.org/external/pubs/ft/fandd/2008/09/pdf/basics.pdf – Accessed 14/06/2023

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Assignment of Accounts Receivable

The financial accounting term assignment of accounts receivable refers to the process whereby a company borrows cash from a lender, and uses the receivable as collateral on the loan. When accounts receivable is assigned, the terms of the agreement should be noted in the company's financial statements.

Explanation

In the normal course of business, customers are constantly making purchases on credit and remitting payments. Transferring receivables to another party allows companies to reduce the sales to cash revenue cycle time. Also known as pledging, assignment of accounts receivable is one of two ways companies dispose of receivables, the other being factoring.

The assignment process involves an agreement with a lending institution, and the creation of a promissory note that pledges a portion of the company's accounts receivable as collateral on the loan. If the company does not fulfill its obligation under the agreement, the lender has a right to collect the receivables. There are two ways this can be accomplished:

General Assignment : a portion of, or all, receivables owned by the company are pledged as collateral. The only transaction recorded by the company is a credit to cash and a debit to notes payable. If material, the terms of the agreement should also appear in the notes to the company's financial statements.

Specific Assignment : the lender and borrower enter into an agreement that identifies specific accounts to be used as collateral. The two parties will also outline who will attempt to collect the receivable, and whether or not the debtor will be notified.

In the case of specific assignment, if the company and lender agree the lending institution will collect the receivables, the debtor will be instructed to remit payment directly to the lender.

The journal entries for general assignments are fairly straightforward. In the example below, Company A records the receipt of a $100,000 loan collateralized using accounts receivable, and the creation of notes payable for $100,000.

In specific assignments, the entries are more complex since the receivable includes accounts that are explicitly identified. In this case, Company A has pledged $200,000 of accounts in exchange for a loan of $100,000.

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United Nations Convention on the Assignment of Receivables in International Trade (New York, 2001)

Date of adoption: 12 December 2001

The purpose of the Convention is to promote the movement of goods and services across national borders by facilitating increased access to lower-cost credit.

Why is it relevant?

The transactions covered by the Convention (e.g. asset-based lending, factoring, forfaiting, securitization, project financing) are fundamental for the financing of international trade. Yet uncertainty as to the content and choice of legal regime applicable to the assignment of receivables constitutes an obstacle to international trade. As a result, an assignment of future receivables or a bulk assignment of receivables that are not identified individually may be ineffective. In addition, an assignment that is effective according to the law under which it was concluded, may not be enforceable as against the debtor in another country or be subordinated to the rights of competing claimants in another country. Moreover, the law applicable to conflicts of priority among competing claimants may be difficult to determine. This means that either credit is not available on the basis of receivables (e.g. the claim for the payment of the purchase price in a contract for the sale of goods) or credit is available but only to those that may be able to afford its cost; and lack of sufficient access to credit or high cost of credit is a disadvantage in particular for small- and medium-size enterprises.

Key provisions

The Convention removes legal obstacles to receivables financing transactions, inter alia, by: (a) validating assignments of future receivables and bulk assignments, and by partially invalidating contractual limitations to the assignment of receivables); (b) enhancing certainty with respect to a number of issues, such as the effectiveness of an assignment as between the assignor and the assignee and as against the debtor; (c) clarifying the law applicable to key issues, such as the priority between competing claims; and (d) providing a substantive law regime governing priority between competing claims that States may adopt on an optional basis.

Relation to private international law and existing domestic law

The Convention applies only to international assignments of receivables and to the assignment of international receivables (with the exception of "financial" receivables). However, the Convention may affect a domestic assignment of a domestic receivable if: (a) it is in conflict with an international assignment of the same receivable; or (b) if it is one in a series of subsequent assignments, one of which, falls within the scope of the Convention. For the debtor, related provisions of the Convention to apply, at the time of the conclusion of the contract from which the assigned receivables arise, the debtor has to be located in a Contracting State or the law governing the assigned receivables has to be the law of a Contracting State.

Additional information

The Convention contains an optional part with applicable law rules and another optional part with substantive rules dealing with the third-party effectiveness and priority of an assignment of receivables.

The Convention is accompanied by an explanatory note. There is also an-article-by-article commentary on the draft Convention that was before the Commission at its 34 th session in 2001.

Additional Resources

Text - Explanatory note
UNCITRAL Legislative Guide on Secured Transactions: Supplement on Security Rights in Intellectual Property (2010)
UNCITRAL Legislative Guide on Secured Transactions (2007)
United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980)
General Assembly resolution 56/81

Travaux préparatoires

Endorsement by American Bar Association (ABA)
Endorsement by International Chamber of Commerce (ICC)
A/48/17(SUPP)
A/CN.9/378/Add.3
A/49/17(SUPP)
A/50/17(SUPP)
A/51/17(SUPP)
A/52/17(SUPP)
A/53/17(SUPP)
A/54/17(SUPP)
A/55/17(SUPP)
A/CN.9/472/Add.1
A/CN.9/472/Add.2
A/CN.9/472/Add.3
A/CN.9/472/Add.4
A/CN.9/472/Add.5
A/CN.9/489/Add.1
A/CN.9/490/Add.1
A/CN.9/490/Add.2
A/CN.9/490/Add.3
A/CN.9/490/Add.4
A.CN.9/490/Add.5
A/CN.9/491/Add.1
A/CN.9/WG.II/WP.87
A/CN.9/WG.II/WP.89
A/CN.9/WG.II/WP.93
A/CN.9/WG.II/WP.96
A/CN.9/WG.II/WP.98
A/CN.9/WG.II/WP.102
A/CN.9/WG.II/WP.104
A/CN.9/WG.II/WP.105
A/CN.9/WG.II/WP.106

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Five Key Points Regarding the Assignment of Receivables in Healthcare Transactions

In the healthcare investment arena, the securing of credit facilities is complicated by the so-called “anti-assignment” provisions of the Social Security Act and its implementing regulations. These provisions do not prohibit a provider from assigning or granting an effective security interest in Medicare and Medicaid receivables, but do prohibit any assignee or secured party from directly receiving the proceeds of such receivables. As a result, traditional securing structures must be modified and institutions that finance healthcare entities must consider the following:

Required Offset Waivers . As part of the Medicare enrollment process, enrollees are required to obtain offset waivers from their financing institutions for deposit accounts maintained with such financing institutions that will directly receive proceeds from Medicare or Medicaid receivables. As a result, until these proceeds are moved to a different deposit account at the direction of the provider, financing institutions are unable to offset against funds on deposit in the initial deposit account that holds Medicare or Medicaid receivables against outstanding loans. For this reason, a provider should be required to segregate its receivables into two different lockboxes: one dedicated to the receipt of Medicare and Medicaid receivables (and subject to the offset waiver) and one dedicated to the receipt of all other receivables (and not subject to the offset waiver).
Provider-Controlled Receivables . Regulations promulgated by CMS require that all proceeds of Medicare and Medicaid receivables must be initially paid to a deposit account with respect to which only the provider can give instructions. As a result, such a deposit account cannot be subject to a customary UCC “control agreement” whereby the bank agrees to give the lender the right to direct the disposition of funds in the deposit account. The lender, therefore, cannot obtain a direct security interest in such a deposit account through the use of a control agreement. However, the lender will continue to have an indirect security interest in all amounts on deposit in the deposit account as proceeds of its perfected security interest in the Medicare and Medicaid receivables themselves (which would arise by making the appropriate UCC-1 filings and executing a security agreement covering the receivables with the relevant debtor/borrower). Nevertheless, a lender’s recourse against such proceeds of Medicare and Medicaid receivables is limited until they are moved out of the initial deposit account.
Double Lockbox Structure . To address the inability of a lender to offset against the initial deposit account or obtain a direct security interest in such deposit account through use of a control agreement, lenders commonly require a “double lockbox” structure. As indicated above, the provider should already have segregated its receivables payments into two dedicated lockboxes. The lender will require that all proceeds deposited in the dedicated Medicare/Medicaid lockbox account be swept out on a daily basis to either the nongovernment lockbox account or another deposit account subject to the control of the lender. Lenders and providers will commonly enter into agreements with the depositary bank whereby the provider instructs the depositary bank to sweep the contents of this account into a lender-controlled lockbox account at the end of each day. If the borrower ever desires to change these standing instructions, the agreement governing such account will normally require that the borrower provide 3–10 days’ prior written notice of such change to both the lender and the bank and/or provide that the bank will notify the lender of the change a certain number of days prior to the instructions becoming effective. Moreover, the loan agreement with the borrower will commonly provide that an unauthorized change in the standing instruction to move funds to the lender-controlled lockbox account will result in an immediate default that would suspend the obligation of the lender to continue making loans to the borrower.
Self-Help Unavailable . In the event of a default, traditional UCC “self-help” provisions generally cannot be used to cause the account debtor on Medicare and Medicaid accounts receivable (the U.S. government) to pay the lender directly, because CMS regulations prohibit assignees from directly receiving Medicare and Medicaid receivables. These regulations do contain exceptions to this prohibition against paying an assignee directly; however, a court order would be required and the assignee may be liable for overpayments as if it were the provider.
Other Governmental Healthcare Programs . Lenders financing healthcare entities that have other types of healthcare-related governmental receivables, such as Energy Employees Occupational Illness Compensation Program Act receivables or Black Lung Benefits Act receivables, face similar restrictions on the assignment of receivables under the Federal Assignment of Claims Act. Although the Federal Assignment of Claims Act contains a financing exception for claims aggregating at least $1,000, in order for an assignment of receivables to comply with the exception, the lender must comply with burdensome notice filing requirements and the assignment must generally occur as part of the financing and prior to the performance of the government contract. This latter requirement creates challenges in the healthcare industry, where claims are generated after services are provided to patients. As a result, financing institutions often utilize the double lockbox structure for all types of healthcare-related governmental receivables.

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True sale of receivables

In this note we examine the legal characteristics of a true sale, the risk of recharacterisation and explain why true sale is an important concept.

Factoring and invoice discounting are both examples of financing techniques that involve the sale of receivables (often at a discount) by a seller to a financier, rather than the provision of a loan secured against the receivables.

Where the financing is structured as a sale, the parties will want the monies advanced by the financier to be characterised as a purchase price and the assignment of the receivables by the seller to be characterised as a sale.

Where a purported sale of receivables fails the “true sale” test, there is a risk that the payment of the purchase price will be recharacterised by the courts on the insolvency of the seller as a loan and the purported sale will be recharacterised as a security assignment. If the seller is incorporated in a jurisdiction where security assignments must be registered, that recharacterisation may lead to the security being void against the seller’s liquidator as a security for want of registration. The financier would then be left as an unsecured creditor of the seller.

Legal characteristics

Unfortunately, there is no one legal test by which it is possible to determine conclusively whether a transaction amounts to a true sale of receivables, rather than a secured loan.

In the case of Re George Inglefield Ltd [1933] Ch. 1, the Court of Appeal identified the following essential differences between a sale and a secured loan:

In a sale transaction, the seller is not entitled to get back the asset it has sold by returning the purchase price to the purchaser. A loan secured by a mortgage or charge of the asset would include this right.
If a mortgagee sells the secured property for an amount in excess of the outstanding balance of the loan (together with interest and costs), he has to account to the mortgagor for any surplus. In a sale transaction, however, if the purchaser subsequently sells the asset for a profit, he does not have to account to the seller for the profit.
If a mortgagee sells the secured property for an amount that is insufficient to discharge the outstanding loan amount, the mortgagee is entitled to recover the balance from the mortgagor. In a sale transaction, however, the purchaser has no right to recover any such loss from the seller.

Broadly speaking, the courts will look for evidence that the risks and rewards of ownership of the receivables have transferred from the seller to the financier.

Economic substance

For a receivables purchase transaction, the main risk of ownership is non-payment of the receivables by the debtor. In determining to what extent the risks and rewards of ownership have transferred from the seller to the financier, the economic substance of a transaction will usually be an important factor considered by the courts.

Where the financier has a right to recourse (ie sell back) the receivable to the seller in the event of non-payment by the debtor, the courts may take the view that the seller has retained the risks of ownership, such that the economic substance of the transaction is that of a secured loan, rather than a true sale.

The natural tendency of banks is to include as many repurchase events as possible in the receivables purchase agreement (RPA), as this increases recourse to the seller and is perceived to be less risky for the financier. However, from a true sale perspective, this approach should be resisted, because the more extensive the list of recourse events the greater the risk is of recharacterisation.

This does not mean that the financier cannot set any limits on its exposure to a debtor and it is common to see financiers requiring a right of recourse where, for example, non-payment of a receivable is due to a dispute arising between the buyer and the seller, or due to an alleged breach by the seller of its obligations under the underlying sales contract. The financier is providing working capital finance to the seller, but this does not oblige the financier to take on wider risks associated with the business relationship between the buyer and the seller.

As a general rule, a transaction is more likely to be characterised as a true sale if the financier has no, or limited, rights of recourse to the seller. This is especially true if recourse is limited to matters other than a payment default and those which are within the seller’s control.

Objective intent

On the basis of the principles set out in Re George Inglefield, Ltd , as considered and applied by the Court of Appeal in Welsh Development Agency v. Export Finance Co., Ltd [1992] BCLC 148, the threshold for recharacterisation is a high one and a transaction structured as a sale of receivables will generally be upheld as such unless the transaction is in substance a mortgage or charge of receivables and not a sale, or a sham.

If one or more provisions of the RPA are inconsistent with a sale, then the court will look to the provisions of the RPA as a whole to determine the substance of the transaction and the nature of the legal relationship created between the parties.

The courts will only find a transaction to be a sham where the terms of the RPA do not represent the true intentions of the seller and the financier.

Off-balance sheet financing

True sale is not only a legal issue, but will have important implications for determining whether or not a transaction can be classified as “off-balance sheet” financing under applicable accounting rules.

“Off-balance sheet” in this context means that the seller is able to remove the receivables it has sold from its balance sheet and can show the payment it receives from the financier as cash. The attraction for the seller of this is an improvement in its liquidity while avoiding the need to report additional liabilities on its balance sheet.

The correct presentation in the seller’s accounts of such a transaction is made by the seller’s accountant, rather than the financier or its lawyers. However, accountants will often require a legal opinion confirming that a true sale of the receivables has been achieved from a legal perspective before a transaction can be classified as off-balance sheet.

Health warning

This note is intended for general information only and provides a simplified overview of English law. It should not be used as a substitute for taking legal advice. The law is summarised as of 19 April 2016.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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Notifications

GST on assignment of receivables: Wrong path to the right destination

Team Vinod Kothari Consultants P. Ltd

There has been a lot of uncertainty on the issue of exigibility of direct assignments and securitisation transactions to goods and services tax (GST). While on one hand, there have been opinions that assignments of secured debts may be taxable being covered by the circuitous definition of “actionable claims”, there are other views holding such assignments of debts (secured or unsecured) to be non-taxable since an obligation to pay money is nothing but money, and hence, not “goods” under the GST law [1] . The uncertainty was costing the market heavily [2] .

In order to put diverging views to rest, the GST Council came out with a set of Frequently Asked Questions on Financial Services Sector [3] , trying to clarify the position of some arguable issues pertaining to transactions undertaken in the financial sector. These FAQs include three separate (and interestingly, mutually unclear) questions on – (a) assignment or sale of secured or secured debts [Q.40], (b) whether assignment of secured debts constitutes a transaction in money [Q.41], and (c) securitisation transactions undertaken by banks [Q.65].

The end-result arising out of these questions is that there will be no GST on securitisation transactions. However, the GST Council has relied on some very intriguing arguments to come to this conclusion – seemingly lost between the meaning of “derivatives”, “securities”, and “actionable claims”. If one does not care about why we reached here, the conclusion is most welcome. However, the FAQs also reflect the serious lack of understanding of financial instruments with the Council, which may potentially create issues in the long run.

In this note [4] we intend to discuss the outcome of the FAQs, but before that let us first understand what the situation of the issue was before this clarification.

Situation before the clarification

GST is chargeable on supply of goods or services or both. Goods have been defined in section 2(52) of the CGST Act in the following manner:

“(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”

Services have been defined in section 2(102) of the CGST Act oin in the following manner:

““services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;”

Money, is therefore, excludible from the scope of “goods” as well as “services”.

Section 7 details the scope of the expression “supply”. According to the section, “supply” includes “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.” However, activities as specified in Schedule III of the said Act shall not be considered as “supply”.

It may be noted here that “Actionable claims, other than lottery, betting and gambling” are enlisted in entry 6 of Schedule III of the said Act; therefore are not exigible to GST.

There is no doubt that a “receivable” is a movable property. “Receivable” denotes something which one is entitled to receive . Receivable is therefore, a mirror image for “debt”. If a sum of money is receivable for A, the same sum of money must be a debt for B. A debt is an obligation to pay, a receivable is the corresponding right to receive.

Coming to the definition of “money”, it has been defined under section 2(75) as follows –

““money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.”

The definition above enlists all such instruments which have a “value-in-exchange”, so as to represent money. A debt also represents a sum of money and the form in which it can be paid can be any of these forms as enlisted above.

So, in effect, a receivable is also a sum of “money”. As such, receivables shall not be considered as “goods” or “services” for the purpose of GST law.

As mentioned earlier, “actionable claims” have been included in the definition of “goods” under the CGST Act, however, any transfer (i.e. supply) of actionable claim is explicitly excluded from being treated as a supply of either goods or services for the purpose of levy of GST.

Section 2(1) of the CGST Act defines “actionable claim” so as to assign it the same meaning as in section 3 of the Transfer of Property Act, 1882, which in turn, defines “actionable claim” as –

“actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;”

It may be noted that the inclusion of “actionable claim” is still subject to the exclusion of “money” from the definition of “goods”. The definition of actionable claim travels beyond “claim to a debt” and covers “claim to any beneficial interest in movable property”. Therefore, an actionable claim is definitely more than a “receivable”. Hence, if the actionable claim represents property that is money, it can be held that such form of the actionable claim shall be excluded from the ambit of “goods”.

There were views in the industry which, on the basis of the definition above, distinguish between — (a) a debt secured by mortgage of immovable property, and a debt secured by hypothecation/pledge of movable property on one hand (which are excluded from the definition of actionable claim); and (b) an unsecured debt on the other hand. However, others opined that a debt, whether secured or unsecured, is after all a “debt”, i.e. a property in money; and thus can never be classified as “goods”. Therefore, the entire exercise of making a distinction between secured and unsecured debt may not be relevant at all.

In case it is argued that a receivable which is secured (i.e. a secured debt) shall come within the definition of “goods”, it must be noted that a security granted against a debt is merely a back-up, a collateral against default in repayment of debt.

In one of the background materials on GST published by the Institute of Chartered Accountants of India [5] , it has been emphasised that a transaction where a person merely slips into the shoes of another person, the same cannot be termed as supply. As such, unrestricted expansion of the expression “supply” should not be encouraged:

“. . . supply is not a boundless word of uncertain meaning. The inclusive part of the opening words in this clause may be understood to include everything that supply is generally understood to be PLUS the ones that are enlisted. It must be admitted that the general understanding of the world supply is but an amalgam of these 8 forms of supply. Any attempt at expanding this list of 8 forms of supply must be attempted with great caution. Attempting to find other forms of supply has not yielded results however, transactions that do not want to supply have been discovered. Transactions of assignment where one person steps into the shoes of another appears to slip away from the scope of supply as well as transactions where goods are destroyed without a transfer of any kind taking place.”

Also, as already stated, where the object is neither goods nor services, there is no question of being a supply thereof.

Therefore, there was one school of thought which treated as assignment of secured receivables as a supply under the GST regime and another school of thought promoted a view which was contrary to the other one. To clarify the position, representations were made by some of the leading bankers and the Indian Securitisation Foundation.

Situation after the clarification

The GST Council has discussed the issue of assignment and securitisation of receivables through different question, extracts have been reproduced below:
Whether assignment or sale of secured or unsecured debts is liable to GST?

Section 2(52) of the CGST Act, 2017 defines ‘goods’ to mean every kind of movable property other than money and securities but includes actionable claim. Schedule III of the CGST Act, 2017 lists activities or transactions which shall be treated neither as a supply of goods nor a supply of services and actionable claims other than lottery, betting and gambling are included in the said Schedule. Thus, only actionable claims in respect of lottery, betting and gambling would be taxable under GST. Further, where sale, transfer or assignment of debts falls within the purview of actionable claims, the same would not be subject to GST.

Further, any charges collected in the course of transfer or assignment of a debt would be chargeable to GST, being in the nature of consideration for supply of services.

Would sale, purchase, acquisition or assignment of a secured debt constitute a transaction in money?

Sale, purchase, acquisition or assignment of a secured debt does not constitute a transaction in money; it is in the nature of a derivative and hence a security.

What is the leviability of GST on securitization transactions undertaken by banks?

Securitized assets are in the nature of securities and hence not liable to GST. However, if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be a consideration for provision of services related to securitization and chargeable to GST.

The fallacy starts with two sequential and separate questions: one dealing with securitisation and the other on assignment transactions. There was absolutely no need for incorporating separate questions for the two, since all securitisation transactions involve an assignment of debt.
Next, the department in Question 40 has clarified that the assignment of actionable claims, other than lottery, betting and gambling forms a part of the list of exclusion under Schedule III of the CGST Act, therefore, are not subject to GST. This was apparent from the reading of law, therefore, there is nothing new in this.

However, the second part of the answer needs further discussion. The second part of the answer states that – any charges collected in the course of transfer or assignment of a debt would be chargeable to GST, being in the nature of consideration for supply of services.

There are multiple charges or fees associated in an assignment or securitisation transaction – such as servicing fees or excess spread. While it is very clear that the GST will be chargeable on servicing fees charged by the servicer, there is still a confusion on whether GST will be charged on the excess spread or not. Typically, transactions are devised to give residuary sweep to the originator after servicing the PTCs. Therefore, there could be a challenge that sweep right is also a component of servicing fees or consideration for acting as a servicing agent. The meaning of consideration [6] under the CGST Act is consideration in any form and the nomenclature supports the intent of the transaction.

Since, the originator gets the excess spread, question may arise, if excess spread is in the nature of interest. This indicates the need for proper structuring of transactions, to ensure that either the sweep right is structured as a security, or the same is structured as a right to interest. One commonly followed international structure is credit-enhancing IO strip. The IO strip has not been tried in Indian transactions, and recommendably this structure may alleviate concerns about GST being applied on the excess spread.

Till now, whatever has been discussed was more or less settled before the clarification, question 41 settles the dispute on the contentious question of whether GST will be charged on assigned of secured debt. The answer to question 41 has compared sale, purchase, acquisition or assignment of secured debt with a derivative. The answer has rejected the view, held by the authors, that any right to a payment in money is money itself. The GST Council holds the view that the receivables are in the nature of derivatives, the transaction qualifies to be a security and therefore, exempt from the purview of supply of goods or supply of services.

While the intent of the GST Council is coming out very clear, but this view is lacking supporting logic. Neither the question discusses why assignments of secured receivables are not transactions in money, nor does it state why it is being treated as derivative.

Our humble submission in this regard is that assignment of secured receivables may not be treated as derivatives. The meaning of the term “derivatives” have been drawn from section 2(ac) of the Securities Contracts (Regulation) Act, 1956, which includes the following –

(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;

(B) a contract which derives its value from the prices, or index of prices, of underlying securities.

In the present case, assignment of receivables do not represent any security nor does it derive its value from anything else. The receivables themselves have an inherent value, which get assigned, the fact that it is backed a collateral security does not make any difference as the value of the receivables also factor the value of the underlying.

Even though the logic is not coming out clear, the intent of the Council is coming out clearly and the efforts made by the Council to clear out the ambiguities is really commendable.

[1] Refer: GST on Securitisation Transactions , by Nidhi Bothra, and Sikha Bansal, at http://vinodkothari.com/blog/gst-on-securitisation-transactions-2/ ; pg. last visited on 06.06.2018

[2] At the recently concluded Seventh Securitisation Summit on 25 th May, 2018, one leading originator confirmed that his company had kept transactions on hold in view of the GST uncertainty. It was widely believed that the dip in volumes in FY 2017-18 was primarily due to GST uncertainty.

[3] http://www.cbic.gov.in/resources//htdocs-cbec/gst/FAQs_on_Financial_Services_Sector.pdf

[4] Portions of this note have been adopted from the article – GST on Securitisation Transactions, by Nidhi Bothra and Sikha Bansal.

[5] http://idtc-icai.s3.amazonaws.com/download/pdf18/Volume-I(BGM-idtc).pdf ; pg. last visited on 19.05.2018

[6] (31) “consideration” in relation to the supply of goods or services or both includes––

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

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Implementing Financials for Asia/Pacific

Why didn't the transactions transfer to the Golden Tax Adaptor?

Your Golden Tax Adaptor configuration may cause some transfers to fail. Review your Golden Tax Adaptor setup to learn more about the settings you require to transfer receivables transactions.

Here are some more reasons behind failed transfers:

Multiple tax lines: A receivables transaction line contains multiple VAT tax lines. However, in VAT invoices for China, each invoice line can have only one VAT tax line.

Tax registration number: A receivables transaction has a tax registration number that isn't defined for Golden Tax. Additionally, a receivables transaction doesn't contain a tax registration number on tax lines or on the bill-to customer site.

Bill-to customer tax profile: A bill-to customer isn't assigned a tax registration type for VAT invoices for China on the third-party tax profile.

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Administration Agreement, to be dated the Closing Date, among the Issuer, AHFC, AHR LLC and the Indenture Trustee

Exhibit 10.3

HONDA AUTO RECEIVABLES 2024-2 OWNER TRUST, as Issuer,

AMERICAN HONDA FINANCE CORPORATION, as Sponsor and Administrator,

AMERICAN HONDA RECEIVABLES LLC, as Depositor,

U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Indenture Trustee

ADMINISTRATION AGREEMENT

Dated May 21, 2024

Table of Contents

This Administration Agreement, dated May 21, 2024 (this “ Agreement ”), is among Honda Auto Receivables 2024-2 Owner Trust, as issuer (the “ Issuer ”), American Honda Finance Corporation (“ AHFC ”), as sponsor (in such capacity, the “ Sponsor ”) and administrator (in such capacity, the “ Administrator ”), American Honda Receivables LLC (“ AHR ”), as depositor (in such capacity, the “ Depositor ”), and U.S. Bank Trust Company, National Association, as indenture trustee (the “ Indenture Trustee ”).

WHEREAS, the Issuer was created pursuant to the Trust Agreement and is governed pursuant to the Amended and Restated Trust Agreement, dated as of the date hereof, among the Depositor, the Owner Trustee and the Delaware Trustee;

WHEREAS, the Issuer is issuing 5.505% Asset Backed Notes, Class A-1, 5.48% Asset Backed Notes, Class A-2, 5.27% Asset Backed Notes, Class A-3 and 5.21% Asset Backed Notes, Class A-4 (collectively, the “ Notes ”) pursuant to an Indenture, dated as of the date hereof (the “ Indenture ”), among the Issuer, U.S. Bank National Association, as securities intermediary, and the Indenture Trustee;

WHEREAS, the Issuer has entered into certain agreements in connection with the issuance of the Notes and of certain beneficial ownership interests of the Issuer, including (i) the Indenture, (ii) a Sale and Servicing Agreement, dated as of the date hereof (the “ Sale and Servicing Agreement ”), among the Issuer, AHR, as transferor (in such capacity, the “ Seller ”), and AHFC, as servicer (in such capacity, the “ Servicer ”), (iii) an Asset Representations Review Agreement, dated as of the date hereof (the “ Asset Representations Review Agreement ”), among the Issuer, AHFC, as sponsor and Servicer, and Clayton Fixed Income Services LLC, as asset representations reviewer, and (iv) a Letter of Representations, dated as of the date hereof (the “ Note Depository Agreement ”) between the Issuer and the Indenture Trustee in favor of The Depository Trust Company (collectively with this Agreement, the Indenture, the Sale and Servicing Agreement, the Asset Representations Review Agreement and the Amended and Restated Trust Agreement, the “ Related Documents ”);

WHEREAS, pursuant to the Related Documents, the Issuer and the Owner Trustee are required to perform certain duties in connection with (i) the Notes and the collateral therefor pledged pursuant to the Indenture (the “ Collateral ”) and (ii) the beneficial ownership interests in the Issuer (the registered holders of such interests being referred to herein as the “ Owners ”);

WHEREAS, the Issuer and the Owner Trustee desire to have the Administrator perform certain duties of the Issuer and the Owner Trustee referred to in the preceding clause and to provide such additional services consistent with the terms of this Agreement and the other Related Documents as the Issuer and the Owner Trustee may from time to time request; and

WHEREAS, the Administrator has the capacity to provide the services required hereby and is willing to perform such services for the Issuer and the Owner Trustee on the terms set forth herein;

NOW, THEREFORE, in consideration of the mutual agreements herein contained, and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.01 Capitalized Terms; Interpretive Provisions .

(a) Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto or incorporated by reference in the Sale and Servicing Agreement

(b) For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) terms used in this Agreement include, as appropriate, all genders and the plural as well as the singular, (ii) references to this Agreement include all Exhibits hereto, (iii) references to words such as “herein”, “hereof” and the like shall refer to this Agreement as a whole and not to any particular part, Article or Section within this Agreement, (iv) the term “include” and all variations thereof shall mean “include without limitation”, (v) the term “or” shall include “and/or” and (vi) the term “proceeds” shall have the meaning ascribed to such term in the UCC.

Section 1.02 Duties of the Administrator .

(a) The Administrator agrees to perform all its duties as Administrator and, except as specifically excluded herein, agrees to perform all the duties of the Issuer and the Owner Trustee under the Related Documents. In addition, the Administrator shall consult with the Owner Trustee regarding the duties of the Issuer or the Owner Trustee under the Related Documents. The Administrator shall monitor the performance of the Issuer and shall advise the Owner Trustee when action is necessary to comply with the respective duties of the Issuer and the Owner Trustee under the Related Documents. The Administrator shall prepare for execution by the Issuer or the Owner Trustee, or shall cause the preparation by other appropriate persons of, all such documents, reports, notices, filings, instruments, certificates and opinions that it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Related Documents. In furtherance of the foregoing, the Administrator shall take (or, in the case of the immediately preceding sentence, cause to be taken) all appropriate action that the Issuer or the Owner Trustee is required to take pursuant to the Indenture including, without limitation, such of the foregoing as are required with respect to the following matters under the Indenture (references are to Sections of the Indenture):

(i) the preparation of or obtaining of the documents and instruments required for execution and authentication of the Notes and delivery of the same to the Indenture Trustee (Section 2.02);

(ii) the duty to cause the Note Register to be kept and to give the Indenture Trustee notice of any appointment of a new Note Registrar and the location, or change in location, of the Note Register (Section 2.04);

(iii) the notification to the Noteholders and the Rating Agencies of the final principal payment on the Notes and termination of the Trust (Section 2.07(b));

(iv) the fixing or causing to be fixed of any special record date and the notification of the Indenture Trustee and Noteholders with respect to special payment dates, if any (Section 2.07(c));

(v) the preparation of Definitive Notes in accordance with the instructions of the Clearing Agency (Section 2.11);

(vi) the preparation, obtaining or filing of the instruments, opinions and certificates and other documents required for the release of collateral (Section 2.12);

(vii) the duty to cause newly appointed Paying Agents, if any, to deliver to the Indenture Trustee the instrument specified in the Indenture regarding funds held in trust (Section 3.03);

(viii) the direction to the Indenture Trustee to deposit monies with Paying Agents, if any, other than the Indenture Trustee (Section 3.03);

(ix) the obtaining and preserving of the Issuer’s qualification to do business in each jurisdiction in which any such qualification is or will be necessary to protect the validity and enforceability of the Receivables, the Indenture, the Notes and the Noteholders’ interest in the Collateral (Section 3.04);

(x) the preparation of all supplements and amendments to the Indenture and all financing statements, continuation statements, instruments of further assurance and other instruments and the taking of such other action as are necessary or advisable to protect the Owner Trust Estate (Section 3.05);

(xi) the delivery to the Indenture Trustee of the Opinion of Counsel on the Closing Date and the annual delivery to the Indenture Trustee of Opinions of Counsel as to the Owner Trust Estate, and the annual delivery of the Officer’s Certificate and certain other statements as to compliance with the Indenture (Sections 3.06 and 3.09);

(xii) the identification to the Indenture Trustee in an Officer’s Certificate of a Person with whom the Issuer has contracted to perform its duties under the Indenture (Section 3.07(b));

(xiii) the notification to the Indenture Trustee, and with respect to each Rating Agency the responsibility of making such notice available, of each Servicer Default and, if such Servicer Default arises from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Receivables, the taking of all reasonable steps available to remedy such failure (Section 3.07(d));

(xiv) the preparation and obtaining of documents and instruments required for the release of the Issuer from its obligations upon the merger or consolidation of the Issuer under the Indenture and the obtaining of the Opinion of Counsel and the Officer’s Certificate relating thereto (Section 3.10);

(xv) the duty to cause the Servicer to comply with Sections 3.10, 3.11, 3.12, 4.10 and Article Eight of the Sale and Servicing Agreement (Section 3.14);

(xvi) if the Delinquency Percentage for any Payment Date exceeds the Delinquency Trigger for that Payment Date, the duty to direct the Servicer to include notice of such occurrence in the monthly distribution report filed by the Depositor on Form 10-D, which notice shall (a) state that the Delinquency Percentage has exceeded the Delinquency Trigger in respect of that Collection Period (including reasonably detailed calculations thereof) and (b) describe the rights of the Investors regarding an Asset Representations Review of all of the Subject Receivables pursuant to the Asset Representations Review Agreement;

(xvii) the delivery of written notice to the Indenture Trustee and each Rating Agency of each Event of Default and each default by the Servicer or the Seller of its obligations under the Sale and Servicing Agreement (Section 3.19);

(xviii) the monitoring of the Issuer’s obligations as to the satisfaction and discharge of the Indenture and the preparation of an Officer’s Certificate and the obtaining of the Opinion of Counsel and the Independent Certificate relating thereto (Section 4.01);

(xix) the preparation and delivery of written notice in the form of an Officer’s Certificate to a Responsible Officer of the Indenture Trustee of any Event of Default, the status of such Event of Default and what action the Issuer is taking or proposes to take with respect thereto (Section 5.01);

(xx) the compliance with Section 5.04 of the Indenture with respect to the sale of the Owner Trust Estate in a commercially reasonable manner if an Event of Default shall have occurred and be continuing (Section 5.04);

(xxi) the preparation and delivery of notice to Noteholders of the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee (Section 6.08);

(xxii) the preparation and delivery to each Noteholder such information as may be required to enable such holder to prepare its U.S. federal and state income tax returns (Section 6.06);

(xxiii) the preparation of any written instruments required to confirm more fully the authority of any co-trustee or separate trustee and any written instruments necessary in connection with the resignation or removal of the Indenture Trustee or any co-trustee or separate trustee (Sections 6.08 and 6.10);

(xxiv) the delivery to the Indenture Trustee with the names and addresses of Noteholders during any period when the Indenture Trustee is not the Note Registrar (Section 7.01);

(xxv) the preparation and, after execution by the Issuer, the filing with the Commission, any applicable state agencies and the Indenture Trustee of documents required to be filed on a periodic basis with, and summaries thereof as may be required by rules and regulations prescribed by, the Commission and any applicable state agencies and the transmission of such summaries, as necessary, to the Noteholders (Section 7.03);

(xxvi) the opening of one or more accounts in the Issuer’s name and the taking of all other actions necessary with respect to investment and reinvestment of funds in the Accounts (Sections 8.02 and 8.03);

(xxvii) the preparation of an Issuer Request and Officer’s Certificate and the obtaining of an Opinion of Counsel and Independent Certificates, if necessary, for the release of the Owner Trust Estate (Sections 8.04 and 8.05);

(xxviii) the preparation of Issuer Requests, the obtaining of Opinions of Counsel and the certification to the Indenture Trustee with respect to the execution of supplemental indentures and the mailing to the Noteholders, and with respect to the Rating Agencies the duty to make available to each Rating Agency, of notices with respect to such supplemental indentures (Sections 9.01 and 9.02);

(xxix) the execution and delivery of new Notes conforming to any supplemental indenture (Section 9.06);

(xxx) the duty to notify the Indenture Trustee, and with respect to each Rating Agency the duty to make such notice available to each Rating Agency, of redemption of the Notes and to cause the Indenture Trustee to provide such notification to the Noteholders (Sections 10.01 and 10.02);

(xxxi) the preparation and delivery of all Officer’s Certificates, Opinions of Counsel and Independent Certificates with respect to any requests by the Issuer to the Indenture Trustee to take any action under the Indenture (Section 11.01(a));

(xxxii) the preparation and delivery of Officer’s Certificates and the obtaining of Independent Certificates, if necessary, for the release of property from the Lien of the Indenture (Section 11.01(b));

(xxxiii) the notification to each Rating Agency of any request, demand, authorization, direction, notice, consent, waiver or Act of Noteholders or other documents provided or permitted by the Indenture, upon the failure of the Issuer, the Owner Trustee or the Indenture Trustee to give such notification (Section 11.04); and

(xxxiv) the recording of the Indenture, if applicable (Section 11.15).

(b) The Administrator shall:

(i) pay, on behalf of the Issuer, from time to time reasonable compensation to (A) the Indenture Trustee for all services rendered by the Indenture Trustee under the Basic Documents and (B) the Owner Trustee and the Delaware Trustee for all services rendered under the Trust Agreement (in each case which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(ii) except as otherwise expressly provided in the Indenture, reimburse, on behalf of the Issuer, the Indenture Trustee upon its request for all reasonable expenses (including in connection with the removal and/or resignation of the Indenture Trustee in accordance with the Indenture), disbursements and advances incurred or made by the Indenture Trustee in accordance with any provision of the Basic Documents (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its willful misconduct, negligence or bad faith;

(iii) except as otherwise expressly provided in the third sentence of Section 7.01 of the Trust Agreement, reimburse, on behalf of the Issuer, the Owner Trustee and the Delaware Trustee upon either party’s request for all reasonable expenses (including in connection with the removal and/or resignation of the Owner Trustee or the Delaware Trustee, as applicable, in accordance with the Trust Agreement), disbursements and advances incurred or made by the Owner Trustee or the Delaware Trustee in accordance with any provision of the Trust Agreement (including reasonable compensation, expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its willful misconduct, gross negligence or bad faith; and

(iv) indemnify, on behalf of the Issuer, the Indenture Trustee, the Owner Trustee and the Delaware Trustee and their respective agents for, and hold them harmless against, any loss, liability or expense incurred without negligence (or, in the case of the Owner Trustee or the Delaware Trustee only, gross negligence), willful misconduct or bad faith on their part, arising out of or in connection with the acceptance or administration of the transactions contemplated by the Basic Documents, as the case may be, including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties thereunder.

The obligations of the Administrator under this Section 1.02(b) shall survive the termination of this agreement.

(c) The Administrator shall make available to each Rating Agency (i) notice of the occurrence and continuation of any Servicer Default and shall specify in such notice the action, if any, being taken in respect of such default pursuant to Section 3.07(d) of the Indenture; (ii) notice of each Event of Default and each default by the Servicer or the Seller of its obligations under the Sale and Servicing Agreement pursuant to 3.19 of the Indenture; (iii) notice of any merger, consolidation or conversion of the Indenture Trustee pursuant to Section 6.09 of the Indenture; (iv) notice of any supplemental indenture pursuant to Section 9.01 and 9.02 of the Indenture; (v) notice of any redemption of the Notes pursuant to Section 10.01 of the Indenture; (vi) any Servicer’s Certificate pursuant to Section 3.10 and in accordance with Section 3.15(b) of the Sale and Servicing Agreement; (vii) any annual statement of compliance of the Servicer pursuant to Section 3.11(a) and in accordance with Section 3.15(b) of the Sale and Servicing Agreement; (viii) any Officer’s Certificate specifying the nature and status of any event which would become a Servicer Default pursuant to Section 3.11(b) and in accordance with Section 3.15(b) of the Sale and Servicing Agreement; (ix) any assessment of compliance and annual accountants’ report pursuant to Section 3.12 and in accordance with Section 3.15(b) of the Sale and Servicing Agreement; (x) any statement to Securityholders pursuant to Section 4.10 and in accordance with Section 3.15(b) of the Sale and Servicing Agreement; (xi) any other report it may receive in connection the Sale and Servicing Agreement, the Trust Agreement or the Indenture in accordance with Section 3.15(b) of the Sale and Servicing Agreement; (xii) notice of any merger, consolidation or assumptions of obligations of the Servicer pursuant to Section 6.03 of the Sale and Servicing Agreement; (xiii) notice of any Servicer Default and termination of the rights and obligations of the Servicer pursuant to Sections 7.01 and 7.03 of the Sale and Servicing Agreement; (xiv) notice of any amendment or consent pursuant to Section 9.01 of the Sale and Servicing Agreement; (xv) notice of the final payment of the Trust Certificates pursuant to Section 9.01(c) of the Trust Agreement; (xvi) any acceptance of appointment of a successor Owner Trustee pursuant to Section 10.02 and 10.03 of the Trust Agreement; (xvii) any merger, conversion or consolidation of the Owner Trustee pursuant to Section 10.04 of the Trust Agreement; (xviii) notice of any amendment or consent and the substance of such amendment or consent pursuant to Section 11.01 of the Trust Agreement; in the case of each of (i) through (xviii), promptly upon the Administrator being notified thereof by the Indenture Trustee, Owner Trustee or the Servicer, as applicable.

(d) Notwithstanding anything in this Agreement or the Basic Documents to the contrary, in each instance in which notice must be made available to the Rating Agencies for purpose of satisfying the Rating Agency Condition, such notice shall be made available by the Administrator and, to the extent such notice is only provided through a website post, the Administrator shall inform or cause each Rating Agency to be informed in writing (including by electronic email) that a notice has been posted.

(e) In addition to the duties set forth in Sections 1.02(a), (b), (c) and (d), the Administrator shall perform such calculations and shall prepare or shall cause the preparation by other appropriate Persons of, and shall execute on behalf of the Issuer, all such documents, notices, reports, filings, instruments, certificates and opinions that the Issuer or the Owner Trustee are required to prepare, file or deliver pursuant to the Related Documents, and at the request of the Owner Trustee shall take all appropriate action that the Issuer or the Owner Trustee are required to take pursuant to the Related Documents. In furtherance thereof, the Issuer shall execute and deliver to the Administrator and to each successor Administrator appointed pursuant to the terms hereof, one or more powers of attorney substantially in the form of Exhibit A hereto, appointing the Administrator the attorney-in-fact of the Issuer for the purpose of executing on behalf of the Issuer all such documents, reports, filings, instruments, certificates and opinions. Subject to Section 1.06, and in accordance with the directions of the Owner Trustee, the Administrator shall administer, perform or supervise the performance of such other activities in connection with the Collateral (including the Related Documents) as are not covered by any of the foregoing provisions and as are expressly requested by the Owner Trustee and are reasonably within the capability of the Administrator.

(f) Notwithstanding anything in this Agreement or the Related Documents to the contrary, the Administrator shall be responsible for promptly notifying the Owner Trustee in the event that any withholding tax is imposed on the Issuer’s payments (or allocations of income) to a Trust Certificateholder as contemplated in Section 5.02(c) of the Trust Agreement. Any such notice shall specify the amount of any withholding tax required to be withheld by the Owner Trustee pursuant to such provision.

(g) Notwithstanding anything in this Agreement or the Related Documents to the contrary, the Administrator shall be responsible for performance of the duties of the Owner Trustee set forth in Section 5.05 of the Trust Agreement with respect to, among other things, accounting and reports to Owners; provided, however, that the Owner Trustee shall retain responsibility for the distribution of the Internal Revenue Service Schedules K-1, necessary to enable each Owner to prepare its U.S. federal and state income tax returns; provided further, that such Internal Revenue Service Schedules K-1 have been prepared by the Administrator and delivered to the Owner Trustee.

(h) The Administrator shall perform any duties expressly required to be performed by the Administrator under the Trust Agreement or the Indenture.

(i) In carrying out the foregoing duties or any of its other obligations under this Agreement, the Administrator may enter into transactions or otherwise deal with any of its Affiliates; provided, however, that the terms of any such transactions or dealings shall be in accordance with any directions received from the Issuer and shall be, in the Administrator’s opinion, no less favorable to the Issuer than would be available from unaffiliated parties.

(j) With respect to matters that in the reasonable judgment of the Administrator are non-ministerial, the Administrator shall not take any action unless within a reasonable time before the taking of such action, the Administrator shall have notified the Owner Trustee of the proposed action and the Owner Trustee shall not have withheld consent or provided an alternative direction. For the purpose of the preceding sentence, “non-ministerial matters” shall include:

(i) the initiation of any claim or lawsuit by the Issuer and the compromise of any action, claim or lawsuit brought by or against the Issuer (other than in connection with the collection of the Receivables);

(ii) the appointment of successor Note Registrars, successor Paying Agents and successor Indenture Trustees pursuant to the Indenture or the appointment of successor Administrators or successor Servicers, or the consent to the assignment by the Note Registrar, any Paying Agent or Indenture Trustee of its obligations under the Indenture; and

(iii) the removal of the Indenture Trustee.

(k) Notwithstanding anything to the contrary in this Agreement, the Administrator shall not be obligated to, and shall not, (i) make any payments to the Noteholders under the Related Documents, (ii) sell the Owner Trust Estate pursuant to Section 5.04 of the Indenture, (iii) take any other action that the Issuer directs the Administrator not to take on its behalf or (iv) take any other action which may be construed as having the effect of varying the investment of the Trust Certificateholders.

Section 1.03 Records . The Administrator shall maintain appropriate books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Issuer and the Depositor at any time during normal business hours.

Section 1.04 Compensation . As compensation for the performance of the Administrator’s obligations under this Agreement and as reimbursement for its expenses related thereto, the Administrator shall be entitled to an annual payment of compensation which shall be solely an obligation of the Depositor.

Section 1.05 Additional Information to be Furnished to the Issuer . The Administrator shall furnish to the Issuer from time to time such additional information regarding the Collateral as the Issuer shall reasonably request.

Section 1.06 Independence of the Administrator . For all purposes of this Agreement, the Administrator shall be an independent contractor and shall not be subject to the supervision of the Issuer or the Owner Trustee with respect to the manner in which it accomplishes the performance of its obligations hereunder. Unless expressly authorized by the Issuer, the Administrator shall have no authority to act for or represent the Issuer or the Owner Trustee in any way and shall not otherwise be deemed an agent of the Issuer or the Owner Trustee.

Section 1.07 No Joint Venture . Nothing contained in this Agreement (i) shall constitute the Administrator and either the Issuer or the Owner Trustee as members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (ii) shall be construed to impose any liability as such on any of them or (iii) shall be deemed to confer on any of them any express, implied or apparent authority to incur any obligation or liability on behalf of the others.

Section 1.08 Other Activities of Administrator . Nothing herein shall prevent the Administrator or its Affiliates from engaging in other businesses or, in its sole discretion, from acting in a similar capacity as an administrator for any other Person or entity, even though such person or entity may engage in business activities similar to those of the Issuer, the Owner Trustee or the Indenture Trustee.

Section 1.09 Term of Agreement; Resignation and Removal of Administrator . This Agreement shall continue in force until the dissolution of the Issuer, upon which event this Agreement shall automatically terminate.

(a) Subject to Sections 1.09(d) and 1.09(e), the Administrator may resign its duties hereunder by providing the Issuer with at least sixty (60) days’ prior written notice.

(b) Subject to Sections 1.09(d) and 1.09(e), the Issuer may remove the Administrator without cause by providing the Administrator with at least sixty (60) days’ prior written notice.

(c) Subject to Sections 1.09(d) and 1.09(e), at the sole option of the Issuer, the Administrator may be removed immediately upon written notice of termination from the Issuer to the Administrator if any of the following events shall occur:

(i) the Administrator shall fail to perform in any respect any of its covenants or agreements under this Agreement, which failure materially and adversely affects the rights of the Issuer or the Noteholders, and which continues unremedied for ninety (90) days after discovery thereof by the Administrator or receipt by the Administrator of written notice of the failure from the Indenture Trustee (acting at the direction of the Noteholders of at least 25% of the Outstanding Amount) or from the Noteholders of at least 25% of the Outstanding Amount; or

(ii) any event of insolvency occurs such that, with respect to the Administrator, (A) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Administrator or any substantial part of its property in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Administrator or for any substantial part of its property, or ordering the winding-up or liquidation of the Administrator’s affairs, and such decree or order shall remain unstayed and in effect for a period of ninety (90) consecutive days; or (B) the commencement by the Administrator of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Administrator to the entry of an order for relief in an involuntary case under any such law, or the consent by the Administrator to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Administrator or for any substantial part of its property, or the making by the Administrator of any general assignment for the benefit of creditors, or the failure by the Administrator generally to pay its debts as such debts become due, or the taking of action by the Administrator in furtherance of any of the foregoing.

The Administrator agrees that if any of the events specified in clause (ii) above shall occur, it shall give written notice thereof to the Issuer and the Indenture Trustee within ten (10) Business Days after the occurrence of such event.

(d) No resignation or removal of the Administrator pursuant to this Section shall be effective until (i) a successor Administrator shall have been appointed by the Issuer, (ii) such successor Administrator shall have agreed in writing to be bound by the terms of this Agreement in the same manner as the Administrator is bound hereunder and (iii) such successor Administrator shall have agreed to coordinate with the Depositor or AHFC regarding communications to the Rating Agencies.

(e) The appointment of any successor Administrator shall be effective only after satisfaction of the Rating Agency Condition with respect to the proposed appointment.

(f) Subject to Sections 1.09(d) and 1.09(e), the Administrator acknowledges that upon the appointment of a successor Servicer pursuant to the Sale and Servicing Agreement, the Administrator shall immediately resign and such successor Servicer shall automatically become the Administrator under this Agreement.

(g) The Issuer, subject to Section 1.13 hereof, may waive in writing any failure by the Administrator in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past failure by the Administrator, such failure shall cease to exist, and any failure arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other failure by the Administrator or impair any right consequent thereon.

Section 1.10 Action Upon Termination, Resignation or Removal . Promptly upon the effective date of termination of this Agreement pursuant to the first sentence of Section 1.09 or the resignation or removal of the Administrator pursuant to Section 1.09(a), (b) or (c), respectively, the Administrator shall be entitled to be paid all fees and reimbursable expenses accruing to it to the date of such termination, resignation or removal. The Administrator shall forthwith upon such termination pursuant to the first sentence of Section 1.09 deliver to the Issuer all property and documents of or relating to the Collateral then in the custody of the Administrator. In the event of the resignation or removal of the Administrator pursuant to Section 1.09(a), (b) or (c), respectively, the Administrator shall cooperate with the Issuer and take all reasonable steps requested to assist the Issuer in making an orderly transfer of the duties of the Administrator.

Section 1.11 Notices . (a) All demands, notices and communications hereunder shall be in writing and shall be delivered or mailed by United States mail, postage prepaid, hand delivery, overnight delivery service or by electronic mail (if an address therefore has been provided by the respective party in writing), and addressed to each party to this Agreement at the address set forth on Schedule A to the Sale and Servicing Agreement, or to such other address as any party shall have provided to the other parties in writing.

(b) (i) Notices required to be given to each Rating Agency by the Administrator shall be in writing, personally delivered or mailed by certified mail, return receipt requested, electronic mail (if an address therefore has been provided by the respective party in writing) or overnight delivery service to the address set forth for such Rating Agency on Schedule A to the Sale and Servicing Agreement, or at such other address (including electronic mail addresses) as shall be designated by written notice to the party or parties providing notice under this paragraph.

(ii) Notwithstanding Section 1.11(b)(i) above, notices required to be given to each Rating Agency under this Agreement may be made available by the Administrator through a website post, provided that the Administrator shall inform or cause each Rating Agency to be informed in writing (including by electronic mail) that a notice has been posted.

Section 1.12 Amendments .

(a) Any term or provision of this Agreement may be amended by the Sponsor, the Administrator, the Issuer and the Depositor without the consent of the Indenture Trustee, so long as there is no adverse effect on the Indenture Trustee, any Securityholders, the Issuer or any other Person subject to the satisfaction of one of the following conditions:

(i) the Sponsor or the Depositor delivers an Opinion of Counsel to the Indenture Trustee to the effect that such amendment will not materially and adversely affect the interests of any Noteholders; or

(ii) the Rating Agency Condition is satisfied with respect to such amendment and the Sponsor or the Administrator notifies the Indenture Trustee in writing that the Rating Agency Condition is satisfied with respect to such amendment;

provided , that in the event that any Trust Certificates are then held by anyone other than the Depositor or any of its Affiliates, this Agreement may only be amended by the Sponsor, the Administrator, the Issuer and the Depositor if (i) the Certificateholders evidencing a majority of the Certificate Balance of the Trust Certificates consent to such amendment or (ii) such amendment shall not, as evidenced by an Officer’s Certificate of the Administrator or the Depositor or an Opinion of Counsel delivered to the Owner Trustee, materially and adversely affect the interests of the Certificateholders.

(b) This Agreement may also be amended from time to time by the Sponsor, the Administrator and the Depositor, without the consent of the Indenture Trustee, so long as there is no adverse effect on the Indenture Trustee, and with the written consent of the Noteholders evidencing not less than a majority of the Outstanding Amount of the Notes and the consent of the Certificateholders evidencing not less than a majority of all the percentage interests evidenced by the Certificates, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Securityholders.

(c) Any term or provision of this Agreement may also be amended from time to time by the Sponsor, the Administrator and the Depositor, for the purpose of conforming the terms of this Agreement to the description thereof in the Prospectus, without the consent of any Securityholders, the Issuer or any other Person.

(d) Promptly after the execution of any such amendment, the Administrator shall furnish written notification of the substance of such amendment to the Indenture Trustee and each Rating Agency. It shall not be necessary for the consent of Securityholders pursuant to this Section to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of Certificateholders of the execution thereof shall be subject to such reasonable requirements as the Owner Trustee may require.

(e) Prior to its execution of any amendment to this Agreement, the Owner Trustee and the Indenture Trustee shall be entitled to receive and rely upon an Opinion of Counsel, provided at the expense of the party requesting such amendment, that such amendment is authorized and permitted by this Agreement. No amendment that adversely affects the Trustees shall be effective without the prior written consent of the party adversely affected. The Trustees may, but shall not be obligated to, enter into any such amendment which affects the Owner Trustee’s, the Delaware Trustee’s or the Indenture Trustee’s, as applicable, own rights, duties or immunities under this Agreement or otherwise.

Section 1.13 Successors and Assigns . This Agreement may not be assigned by the Administrator unless such assignment is previously consented to in writing by the Issuer and the Owner Trustee and subject to the satisfaction of the Rating Agency Condition in respect thereof. An assignment with such consent and satisfaction, if accepted by the assignee, shall bind the assignee hereunder in the same manner as the Administrator is bound hereunder. Notwithstanding the foregoing, this Agreement may be assigned by the Administrator without the consent of the Issuer or the Owner Trustee to a corporation or other organization that is a successor (by merger, consolidation or purchase of assets) to the Administrator; provided, that such successor organization executes and delivers to the Issuer, the Owner Trustee and the Indenture Trustee an agreement, in form and substance reasonably satisfactory to the Owner Trustee and the Indenture Trustee, in which such corporation or other organization agrees to be bound hereunder by the terms of said assignment in the same manner as the Administrator is bound hereunder. Subject to the foregoing, this Agreement shall bind any successors or permitted assigns of the parties hereto.

Section 1.14 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial . THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

Each of the parties hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each of the parties hereto hereby further irrevocably waives any claim that any such courts lack jurisdiction over such party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement in any of the aforesaid courts, that any such court lacks jurisdiction over such party. Each of the parties hereto irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this agreement.

Section 1.15 Headings . The headings of the various Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof.

Section 1.16 Counterparts; Electronic Transmission .

(a) This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, e-mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act or any other similar state laws based on the Uniform Electronic Transactions Act.

(b) The Indenture Trustee, the Owner Trustee, the Delaware Trustee and the Issuer are authorized to accept written instructions, directions, reports, notices or other communications signed manually, by way of faxed signatures, or delivered by Electronic Transmission. In the absence of bad faith or negligence on its part, each of the Indenture Trustee, the Owner Trustee, the Delaware Trustee and the Issuer may conclusively rely on the fact that the Person sending instructions, directions, reports, notices or other communications or information by Electronic Transmission is, in fact, a Person authorized to give such instructions, directions, reports, notices or other communications or information on behalf of the party purporting to send such Electronic Transmission and, in the absence of bad faith or negligence, shall not have any liability for any losses, liabilities, costs or expenses incurred or sustained by any party as a result of such reliance upon or compliance with such instructions, directions, reports, notices or other communications or information to the Indenture Trustee, the Owner Trustee, the Delaware Trustee or the Issuer, including, without limitation, the risk of either the Indenture Trustee, the Owner Trustee, the Delaware Trustee or the Issuer acting on unauthorized instructions, notices, reports or other communications or information, and the risk of interception and misuse by third parties.

Section 1.17 Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 1.18 Limitation of Liability of Owner Trustee and Indenture Trustee .

(a) Notwithstanding anything contained herein to the contrary, this instrument has been countersigned by The Bank of New York Mellon, in its capacity as Owner Trustee of the Issuer and in no event shall The Bank of New York Mellon in its individual capacity have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles Six, Seven and Eight of the Trust Agreement as if specifically set forth herein.

(b) Notwithstanding anything contained herein to the contrary, this Agreement has been executed by U.S. Bank Trust Company, National Association, in its capacity as Indenture Trustee under the Indenture and in no event shall U.S. Bank Trust Company, National Association, in its individual capacity, have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer.

Section 1.19 Third-Party Beneficiary . The Owner Trustee and the Delaware Trustee and other indemnitees hereunder are third-party beneficiaries to this Agreement and are entitled to the rights and benefits hereunder and may enforce the provisions hereof as if they were parties hereto.

Section 1.20 Rights of the Indenture Trustee . The Indenture Trustee shall be afforded the same rights, protections, immunities and indemnities set forth in the Indenture as if specifically set forth herein.

Section 1.21 Additional Requirements of the Administrator .

(a) Reporting Requirements .

(i) If so requested by the Issuer for the purpose of satisfying its reporting obligation under the Exchange Act with respect to any class of asset-backed securities, the Administrator shall (i) notify the Issuer in writing of any material litigation or governmental proceedings pending against the Administrator and (ii) provide to the Issuer a description of such proceedings.

(ii) As a condition to the succession to Administrator as administrator by any Person as permitted by Section 1.09 hereof the Administrator shall provide to the succeeding Administrator, on behalf of the Issuer, at least ten (10) Business Days prior to the effective date of such succession or appointment, (x) written notice of such succession or appointment and (y) in writing all information in order to comply with its reporting obligation under Item 6.02 of Form 8-K with respect to any class of asset-backed securities.

(iii) In addition to such information as the Administrator, as administrator, is obligated to provide pursuant to other provisions of this Agreement, if so requested by the Issuer, the Administrator shall provide such information regarding the performance or servicing of the Receivables as is reasonably required to facilitate preparation of distribution reports in accordance with Item 1121 of Regulation AB.

(b) Administrator Compliance Statement . On or before ninety (90) days after the end of each fiscal year, commencing with the fiscal year ended March 31 st immediately following the Closing Date, the Administrator shall deliver to the Issuer a statement of compliance addressed to the Issuer and signed by an authorized officer of the Administrator to the effect that (i) a review of the Administrator’s activities during the immediately preceding reporting year (or applicable portion thereof) and of its performance under this Agreement during such period has been made under such officer’s supervision, and (ii) to the best of such officer’s knowledge, based on such review, the Administrator has fulfilled all of its obligations under this Agreement in all material respects throughout such reporting year (or applicable portion thereof) or, if there has been a failure to fulfill any such obligation in any material respect, specifically identifying each such failure known to such officer and the nature and the status thereof. If the Administrator is the same party as the Servicer, such party’s compliance with Section 3.11(a) of the Sale and Servicing Agreement will satisfy the Administrator’s obligations set forth in this Section 1.21(b).

(c) Report on Assessment of Compliance and Attestation . On or before ninety (90) days after the end of each fiscal year during which the Issuer is required to file a report on Form 10-K with the Securities and Exchange Commission, commencing with the fiscal year ended March 31 st immediately following the Closing Date, the Administrator shall:

(i) deliver to the Issuer and Owner Trustee a report (in form and substance reasonably satisfactory to the Issuer) regarding the Administrator’s assessment of compliance with the Servicing Criteria during the immediately preceding reporting year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be addressed to the Issuer and the Owner Trustee and signed by an authorized officer of the Administrator, and shall address each of the Servicing Criteria applicable to the Administrator;

(ii) deliver to the Issuer and the Owner Trustee a report of a registered public accounting firm reasonably acceptable to the Issuer that attests to, and reports on, the assessment of compliance made by the Administrator and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act; and

(iii) deliver to the Issuer and the Owner Trustee and any other Person that will be responsible for signing the certification a Sarbanes Certification on behalf of an asset-backed issuer with respect to a securitization transaction a certification in the form attached hereto as Exhibit B.

The Administrator acknowledges that the parties identified in clause (a)(iii) above may rely on the certification provided by the Administrator pursuant to such clause in signing a Sarbanes Certification and filing such with the Commission. The Issuer will not request delivery of a certification under clause (a)(iii) above unless the Depositor is required under the Exchange Act to file an annual report on Form 10-K with respect to an issuing entity whose asset pool includes the Receivables.

If the Administrator is the same party as the Servicer, such party’s compliance with Section 3.12 of the Sale and Servicing Agreement will satisfy the Administrator’s obligations set forth in this Section 1.21(c).

(d) Intent of the Parties; Reasonableness . The Issuer and the Administrator acknowledge and agree that the purpose of Section 1.21 of this Agreement is to facilitate compliance by the Issuer with the provisions of Regulation AB and related rules and regulations of the Commission.

Neither the Issuer nor the Administrator shall exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the federal securities laws, including the Securities Act, the Exchange Act and the rules and regulations of the Commission thereunder (or the provision in a private offering of disclosure comparable to that required under the Securities Act). The Administrator acknowledges that the requirements of, and that the interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the asset-backed securities markets, advice of counsel, amendments to the regulation, or otherwise, and agrees to comply with requests made by the Indenture Trustee, the Servicer or any other party to the Transaction Documents in good faith for delivery of information under these provisions on the basis of evolving interpretations and rules of Regulation AB. In connection therewith, the Administrator shall deliver to the Issuer (including any of its assignees or designees), any and all statements, reports, certifications, records and any other information necessary in the good faith determination of the Issuer, to permit the Issuer to comply with the provisions of Regulation AB.

The Issuer (including any of its assignees or designees) shall provide timely notice of requests for information under these provisions and reasonably limit such requests to information required to comply with Regulation AB.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.

EXHIBIT A

POWER OF ATTORNEY PURSUANT TO SECTION 1.02(c) OF ADMINISTRATION AGREEMENT

KNOW ALL MEN BY THESE PRESENTS, that Honda Auto Receivables 2024-2 Owner Trust, a Delaware statutory trust (the “ Grantor ”), does hereby appoint American Honda Finance Corporation, a California corporation (the “ Grantee ”), located at 1919 Torrance Blvd. 5 th Floor, Torrance, California 90501, as its attorney-in-fact with full power of substitution and hereby authorizes and empowers the Grantee, in the name of and on behalf of the Grantor, to take the following actions from time to time with respect to the duties of the Administrator under the Administration Agreement, dated May 21, 2024 (the “ Administration Agreement ”), among the Grantor, the Administrator, American Honda Receivables LLC, as depositor, and U.S. Bank Trust Company, National Association, as indenture trustee, for the purpose of executing on behalf of the Grantor all such documents, reports, filings, instruments, certificates and opinions required pursuant to the Related Documents:

The Grantee is hereby empowered to do any and all lawful acts necessary or desirable to effect the performance of the duties under the Administration Agreement and the Grantor hereby ratifies and confirms any and all lawful acts the Grantee shall undertake pursuant to and in conformity with this Power of Attorney.

This Power of Attorney is revocable in whole or in part as to the powers herein granted upon notice by the Grantor. If not earlier revoked, this Power of Attorney shall expire completely or, if so indicated, in part, upon the earlier of (i) the termination of the Amended and Restated Trust Agreement, dated May 21, 2024 (the “ Trust Agreement ”), among American Honda Receivables LLC, as depositor, The Bank of New York Mellon, as owner trustee and BNY Mellon Trust of Delaware, as Delaware trustee, or (ii) the termination of the Administration Agreement, as each may be amended, restated or supplemented from time to time. Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Trust Agreement or the Administration Agreement, as the case may be.

This Power of Attorney shall be created under and governed and construed under the internal laws of the State of New York.

The Grantor executes this Power of Attorney with the intent to be legally bound hereby, and with the intent that such execution shall have the full dignity afforded by the accompanying witnessing and notarization and all lesser dignity resulting from the absence of such witnessing and notarization or any combination thereof.

Dated this ___ day of ______________.

[Unofficial Witness]

EXHIBIT B

FORM OF SARBANES CERTIFICATE

I, [____________], certify that:

1. I have reviewed this report on Form 10-K and all reports on Form 10-D required to be filed in respect of the period covered by this report on Form 10-K of Honda Auto Receivables 2024-2 Owner Trust (the “ Exchange Act periodic reports ”);

2. Based on my knowledge, the Exchange Act periodic reports, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, all of the distribution, servicing and other information required to be provided under Form 10-D for the period covered by this report is included in the Exchange Act periodic reports;

4. I am responsible for reviewing the activities performed by the servicer and based on my knowledge and the compliance review conducted in preparing the servicer compliance statement required in this report under Item 1123 of Regulation AB, and except as disclosed in the Exchange Act periodic reports, the servicer has fulfilled its obligations under the servicing agreement in all material respects; and

5. All of the reports on assessment of compliance with servicing criteria for asset-backed securities and their related attestation reports on assessment of compliance with servicing criteria for asset-backed securities required to be included in this report in accordance with Item 1122 of Regulation AB and Exchange Act Rules 13a-18 and 15d-18 have been included as an exhibit to this report, except as otherwise disclosed in this report. Any material instances of noncompliance described in such reports have been disclosed in this report on Form 10-K.

In giving the certifications above, I have reasonably relied on information provided to me by the following unaffiliated parties: [_____________]

Date: [____________]

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Astros Trade Brandon Bielak To Athletics

By Steve Adams | May 16, 2024 at 11:22am CDT

The Astros traded right-hander Brandon Bielak to the Athletics in exchange for cash, per a team announcement. Houston designated him for assignment last week. The A’s designated left-hander Easton Lucas for assignment to open a spot on the 40-man roster.

Bielak, 28, struggled with the ’Stros this season, posting a 5.71 earned run average in ten appearances (17 1/3 innings). His 10.8% strikeout rate and 5.5% swinging-strike rate both stand as career-low marks.

That said, Bielak was a solid swingman in three prior seasons with Houston. From 2021-23, he notched a 4.05 ERA over the life of 142 1/3 innings, fanning a combined 19.2% of his opponents against a 9.8% walk rate. The former 11th-round pick made 15 starts and tallied another 33 relief appearances during that time. He’s not a flamethrower, but Bielak averaged 93.4 mph on his heater during that three-year stint and kept the ball on the ground at a strong 48.1% clip. He’s posted similar numbers in parts of four Triple-A campaigns, recording a 3.98 ERA with a 24.3% strikeout rate and 9.6% walk rate through 246 2/3 frames.

Bielak is out of minor league options, so he’ll jump right onto the Oakland staff. The A’s have placed starters Joe Boyle (back strain), Paul Blackburn (stress reaction in foot) and Alex Wood (shoulder tendinitis) on the injured list this month. They also announced that injured lefty Ken Waldichuk is done for the season due to elbow surgery. The addition of Bielak will help replenish some of that depth, whether he steps right into the rotation or provides a long-relief option. Rule 5 righty Mitch Spence has been Oakland’s primary long man this year, but he’s pitched well and could feasibly step into the rotation himself.

Because he has just 2.110 years of big league service, Bielak can be controlled for three more years beyond the current season. He’ll need to carve out a role for himself on the Athletics’ roster and get back to his 2021-23 form if that’s to even become a factor, but there’s potential for him to be a multi-year acquisition if Bielak can get back on track. He’ll be arbitration-eligible for the first time this winter and shouldn’t see an especially large raise, given his role as a low-leverage swingman and occasional back-end starter.

The addition of Bielak to the roster comes at the expense of the 27-year-old Lucas, who made his big league debut with the A’s last year but has only seen 10 1/3 total innings in the majors. It’s been a struggle in that small sample, to say the least. Lucas has been charged with a dozen earned runs (10.45 ERA) on 18 hits and a dozen walks with 13 strikeouts. A massive .459 average on balls in play has contributed to his ugly numbers, but Lucas hasn’t done himself any favors by walking just over 12% of his opponents.

As one would expect, things have gone better in the upper minors. Lucas split the 2023 season between Double-A and Triple-A, posting a combined 3.86 ERA in 46 2/3 innings. He punched out 25.8% of opponents against an 8.6% walk rate. The southpaw posted a 2.87 ERA in 15 2/3 innings of Triple-A work this year as well — albeit with just 13 strikeouts against six unintentional walks. The A’s acquired Lucas from the Orioles last July in the trade sending righty Shintaro Fujinami back to Baltimore.

Oakland selected Lucas to the 40-man roster last summer but passed him unclaimed through outright waivers just a couple months later, in November. Because of that prior outright assignment, he’ll have the right to reject a minor league assignment in favor of free agency even if he goes unclaimed a second time. As such, there’s a chance that today’s DFA ends his time with the A’s organization less than a year after he was acquired in a deadline swap.

48 Comments

19 hours ago

18 hours ago

Is it a trade or was he sold when cash is being exchanged back? Also, old fashioned cash and not a wire transfer? Lol. I’m having a bad work day and needed to vent without getting fired…

17 hours ago

Astros traded for cash trying to recover/recoup some of that 95 million they should not have paid Hader.

Bielak is so bad the Astros should be paying the A’s to take him haha, instant WIN!

He’s a month and a half into the contract and looks like he turned a corner. Hyperbole is not your friend.

Sorry. I hope he does turn it around and it looks like the team as a whole is actually in the process now of turning it around. So Bravo to them and I’m a Mariners fan.

If they traded him to the Athletics for cash it couldn’t have been more than 5 bucks or this is propaganda.

George Kirby is my most favorite non Astros pitcher. Guy has a Cy Young in his future

16 hours ago

He was great as the lead character in Topper, too.

15 hours ago

Mariners starting pitching is mind-bendingly elite. We have four guys who could be #1 starters on many teams and a fifth starter who could be a lot of team’s #2. Just praying for good luck on injuries and that the offense starts clicking with the warmer weather. Jerry will likely pick up a guy or two as well. I agree with you about Kirby (5 walks all season, he may have more HBP than BB lol) and I think Logan Gilbert could do the same thing. Cheers…hang in there Astros are definitely on the upswing, can feel their momentum up here…Rangers might actually be the team that stagnates this year.

13 hours ago

I agree with you re: elite, was just thinking about Mariners pitching last night. My fave non-Astro pitchers are Gerrit Cole, then Bradish, but next two are Gilbert & Kirby.

I *think* Astros are still the team to beat in the Division, that they are, at worst, same team as last year, and PROBABLY, actually, better than they showed last year. I’ll tell you what, though, last two weeks of last season, if we had NOT won every game we won, and you and the Rangers had not lost each of the games y’all lost, …… we squeeked in by the BAREST of margins.

Hopefully, y’all will notice us getting closer & closer behind you in the next week!

11 hours ago

I have total respect for the Astros due to their domination of the AL West over the last seven years. Regardless of where they are in the standings, they are the team the Mariners have to beat to get to the next level. It was encouraging to see the Mariners actually win the season series from them last year, after all the one-sided domination over the years…so baby steps. And yeah, the last two weeks of 2023 was indeed a roller coaster ride of emotions as we just missed out. It was so close there at the end, games hinging on one play or one pitch that the way the teams ended up was a roll of the dice. I appreciate you mentioning how nip and tuck things were, an admission that I never hear from Rangers or Astros fans. See your team here in Seattle soon for a 4 game set, cheers.

Some guy named Guido with a broken nose delivers a suitcase full of cash before they let the player get on a plane.

Helps a lot now that Bally isn’t paying anybody.

Smart that they wait until they have a series against a team to make a trade with them, that way the player(s) only have to walk across the field to a different dugout.

Wonder what they see in him, because his track record is that he walks alot, gives up hits, and does not strike out much, so he seems to pitch himself into jams

Most underrated stadium/history/team/fanbase/city/culture in MLB and Manfred owes them a huge apology and how dare he call it a piece of metal.

They got punished how they did because they embarrassed Manfred and MLB for how crude and moronic and blatant their cheating mechanism was…BANG BANG BANG is as caveman as it gets. So of course Manfred had to do something.

said this 50 minutes ago in a previous discussion, and now I’m sad

“I REALLY like having Bielak around; there are FAR worse options out there, and most teams are having to make do with those – he WILL get picked up by somebody, and provide some MLB value. Hope we get SOMETHING out of it, but I’d rather he stay here. It is comforting to have 10 or 11 viable MLBstarters around the org”

He’s just not a good enough pitcher. He can provide innings if you are desperate for a starter but he is not bullpen worthy. The Astros are getting healthy in their rotation so he became obsolete. The fact he was traded for cash shows what teams valued him at. Even the white Sox considered corey julks more valuable.

Have you ever watched baseball before?

Is this worse than being demoted to AAA?

Given that the Stros and A’s are essentially tied for 3rd place, seems like a wash. Both 6.5 games from the WC and 5.5 from 1st in the West.

And if you think the Astros and A’s are going to finish the year with essentially the same record you might need to find a new hobby.

Astros going nowhere this year. They’ll be a .500 ball club and miss the playoffs.

The A’s are making moves while the Cardinals are hard at work putting together the list of 2025 Cardinal Hall of Fame candidates and accompanying highlight video.

“If you can’t beat ’em, try to distract everyone with memories of when you could beat ’em!”

10 hours ago

Don’t worry the Cincinnati Reds are here to save Cardinal fans the indignity of finishing last in the NL Central.

Dumpster diving

Let the Houston fire sale begin…

They are like 2 players away from being a good playoff team, Old Dork

@Liberalsteve

You’re so mean, calling me a Dork. Now I’ll go cry to my mommy…

Pics of mom?

Who’s?

Trading Bielak actually makes the Astros better lol, new to baseball?

Yes, first time ever watching baseball in my whole life. I watched the Chicago Bears play the Yankees of New York City just recently. Great game, great game!

The A’s have a better bullpen than the Cubs, despite a more than 150MM difference in payrolls.

Yeah but that’s all they have that’s better than the Cubs. At least until some people start healing anyway. Then they won’t have that either.

Alzolay can heal all he wants, but he will never be Mason Miller.

Alzolay wasn’t even in my plans before the season started. Giving him the Closers job was a big mistake. Was really talking about Merryweather, Smyly and Palencia. That would solidify the pen and leave the kids for emergencies and let them hone their craft a bit at AAA.

has this writer never heard of Kyle Muller? He has had a better year in long relief than Spence

Bielak did an admirable job this season with all of the starter issues in Houston. There was a couple of stretches where he would pitch several days a week for multi innings when the starter self cumbusted. With all of the pitcher injuries this year, I’m surprised he was not one of them.

He did a REMARKABLE job last year, to keep us in it, in the face of a bunch of injuries too!

Easton back to Marlins? If they’re sellers, they’re gonna need arms.

14 hours ago

That’s the start of the Astros fire sale. Next up Verlander and Bregman to the Tigers

Julks – tick, Bielak – tick, Meyers – Anyone ?

Sometimes it Bielak that.

5 hours ago

Seems like the As already Stock up their pen with random Dudes for when they will trade away their “A” side of the pen.

Not sure if they trade miller (probably would take an absolute haul) but erceq certainly will be gone and maybe more guys.

10 mins ago

Why wouldn’t they trade Miller? He’s likely at the absolute max value this season. Whether he can convert into a starter is a huge unknown. If they keep him and he doesn’t pitch well as a starter or gets injured next season his value takes a huge hit. AJ Puk is example #1 of why this strategy carries massive risk. Ultimately, the A’s will take the biggest haul they’re offered at the deadline.

I think for the right haul they would trade him but only if it is massive.

When there isn’t a big enough offer they will roll the dice.

We will see how the market will be. I think the starter kit is 2 top100 prospect plus an organizational top15 prospect.

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