INSURANCE AGREEMENT

Exhibit 10.4

EXECUTION COPY

FINANCIAL GUARANTY INSURANCE COMPANY,

as Note Insurer

CAPITAL ONE AUTO FINANCE, INC.,

individually and as Servicer

CAPITAL ONE AUTO RECEIVABLES, LLC,

as Seller

CAPITAL ONE AUTO FINANCE TRUST 2006-C,

as Issuer

and

THE BANK OF NEW YORK

as Indenture Trustee

INSURANCE AGREEMENT

$1,750,000,000

Capital One Auto Finance Trust 2006-C

Auto Loan Asset Backed Notes, Series 2006-C

Class A-1 Notes, Class A-2 Notes,

Class A-3-A Notes, Class A-3-B Notes and Class A-4 Notes

Dated as of November 22, 2006

TABLE OF CONTENTS

 

 

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INSURANCE AGREEMENT

This INSURANCE AGREEMENT (this “Insurance Agreement”) is dated as of November 22, 2006 by and among FINANCIAL GUARANTY INSURANCE COMPANY (the “Note Insurer”), CAPITAL ONE AUTO FINANCE, INC., in its individual capacity (“COAF”) and as the Servicer (the “Servicer”), , CAPITAL ONE AUTO RECEIVABLES, LLC, as Seller (the “Seller”), CAPITAL ONE AUTO FINANCE TRUST 2006-C, as Issuer (the “Issuer”) and THE BANK OF NEW YORK, in its capacity as indenture trustee (the “Indenture Trustee”).

WHEREAS, the Indenture Trustee is authenticating $1,750,000,000 principal amount of the Capital One Auto Finance Trust 2006-C, Auto Loan Asset Backed Notes, Series 2006-C, Class A-1 Notes, Class A-2 Notes, Class A-3-A Notes, Class A-3-B Notes and Class A-4 Notes, pursuant to an Indenture as more specifically defined below. The Notes will be secured by the Trust Estate as defined in the Indenture;

WHEREAS, the Issuer, Seller, COAF and Servicer have requested that the Note Insurer issue its Financial Guaranty Insurance Policy (the “Note Policy”) to guarantee payment of Insured Payments (as defined in Note Policy) with respect to the Class A Notes, upon such terms and conditions as were mutually agreed upon by the parties and subject to the terms and conditions of the Note Policy and has asked the Note Insurer to issue a Financial Guaranty Insurance Policy For Swap Agreement (the “Swap Policy”) and together with the Note Policy, the “Policies”) and the Note Insurer has agreed to insure certain amounts which may be due from the Owner Trustee on behalf of Capital One Auto Finance Trust 2006-C (the “Issuer”) to the Swap Provider under the Swap Agreement;

WHEREAS, the parties hereto desire to specify the conditions precedent to the issuance of the Policies by the Note Insurer, the indemnity and reimbursement to be provided by COAF and the Servicer in respect of amounts paid by the Note Insurer under the Policies and to provide for certain other matters;

WHEREAS, the Note Insurer shall be paid an insurance premium pursuant to the Transaction Documents, and the details of such premium are set forth herein; and

WHEREAS, each COAF Company (as defined below) has undertaken certain obligations in consideration for the Note Insurer’s issuance of the Policies;

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

The terms defined in this Article I shall have the meanings provided herein for all purposes of this Insurance Agreement, unless the context clearly requires otherwise, in both singular and plural form, as appropriate. Unless the context clearly requires

otherwise, all capitalized terms used herein and not otherwise defined in this Article I shall have the meanings assigned to them in the Transaction Documents (as defined below). All words used herein shall be construed to be of such gender or number as the circumstances require. This “Insurance Agreement” shall mean this Insurance Agreement as a whole and as the same may, from time to time hereafter, be amended, supplemented or modified. The words “herein,” “hereby,” “hereof,” “hereto,” “hereinabove” and “hereinbelow,” and words of similar import, refer to this Insurance Agreement as a whole and not to any particular paragraph, clause or other subdivision hereof, unless otherwise specifically noted.

“Business Day” means any day other than a Saturday or a Sunday or a day on which banking institutions in the states of Delaware, California, Texas, Virginia or New York, or in the state in which the Corporate Trust Office of the Indenture Trustee is located, are authorized or obligated by law, executive order or government decree to be closed.

“Capital One Information” means the information included in the Prospectus, but excluding the Note Insurer Information and the Underwriter Information.

“Class A Notes” means the Capital One Auto Finance Trust 2006-C, Auto Loan Asset Backed Notes, Series 2006-C, designated as Class A-1 Notes, Class A-2 Notes, Class A-3-A Notes, Class A-3-B Notes and Class A-4 Notes issued in accordance with the provisions of the Indenture.

“Closing Date” means November 22, 2006.

“COAF” means Capital One Auto Finance, Inc., a Texas corporation, and its successors and assigns.

“COAF Company” means COAF, in its individual capacity as seller under the Purchase Agreement and as Servicer, and the Seller.

“COFC” means Capital One Financial Corporation.

“Commission” means the Securities and Exchange Commission.

“Cumulative Net Charge-Off Ratio” means, as of any Determination Date, the ratio of (i) the aggregate Principal Balance of Receivables that became Defaulted Receivables plus all the Cram Down Losses which occurred during the period from the Initial Cut-Off Date through the end of the related Collection Period reduced by the amount of Liquidation Proceeds with respect to Defaulted Receivables received during such period which are applied to principal of the Defaulted Receivables to (ii) the sum of (A) the initial aggregate Principal Balance of the Initial Receivables plus (B) the initial aggregate Principal Balance of the Subsequent Receivables as of their respective Subsequent Cut-Off Dates.

“Date of Issuance” means the date on which each Policy is issued as specified therein.

 

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“Default” means any event which results, or which with the giving of notice or the lapse of time or both would result, in an Event of Default.

“Delinquency Ratio” means, as of a Determination Date, the ratio of (i) the aggregate Principal Balance of Receivables that were Delinquent Receivables at the end of the related Collection Period to (ii) the aggregate Principal Balance of all Receivables as of the first day of such related Collection Period.

“Delinquent Receivable” means any Receivable as to which the Obligor fails to pay for more than 60 days past the due date the portion of a scheduled payment necessary for the receivable to be considered contractually current under the Servicer’s Customary Servicing Practices (excluding (i) any Receivable that has become a Defaulted Receivable and (ii) any Receivable as to which the Servicer has repossessed the related Financed Vehicle) from the date on which it is due and payable.

“Event of Default” means any event of default specified in Section 5.01 of this Insurance Agreement.

“Exchange Act Reports” means all Distribution Reports on Form 10-D, Current Reports on Form 8-K and Annual Reports on Form 10-K that are required to be filed by the Seller or the Issuer with respect to the Notes pursuant to the Exchange Act.

“Fee Letter” means the fee letter dated as of November 22, 2006, from the Note Insurer to the Owner Trustee, the Servicer, and the Indenture Trustee.

“Financial Statements” means, with respect to COFC, the balance sheets and the statements of income, retained earnings and cash flows for the 12-month period then ended and the notes thereto which have been provided to the Note Insurer.

“Fitch” means Fitch Ratings, and any successor thereto, and, if such corporation shall for any reason no longer perform the functions of a securities rating agency, “Fitch” shall be deemed to refer to any other nationally recognized rating agency designated by the Note Insurer.

“Indemnification Agreement” means that certain Indemnification Agreement dated as of November 14, 2006, by and among the Note Insurer and Banc of America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wachovia Capital Markets, LLC, as Representatives of the several Underwriters.

“Indenture” means that certain Indenture dated as of November 22, 2006, between the Issuer and the Indenture Trustee.

“Insurance Agreement Event of Default” means any of the following:

(a) any failure (i) to observe or perform any covenant or obligation of the Owner Trustee, COAF, the Seller, the Issuer or the Servicer set forth herein, or in the Indenture, the Sale and Servicing Agreement or the Purchase Agreement which has not

 

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been cured within sixty (60) days (or such longer period not in excess of ninety (90) as may be reasonably necessary to remedy such failure; provided that (i) such failure is capable of remedy within ninety (90) days or less and (ii) the Note Insurer consents in its sole discretion to that longer period) from the date of receipt by the Owner Trustee, COAF, the Seller, the Issuer or the Servicer, as the case may be, of written notice from the Indenture Trustee or the Note Insurer of such breach or default and such breach or default could reasonably have a material adverse effect on the interests of the Note Insurer or the Noteholders (as determined in the Note Insurer’s sole discretion), or (ii) of any Person to deposit into the Collection Account or the Reserve Account all amounts required to be deposited therein by the required deposit date and such failure could reasonably have a material adverse effect on the interests of the Note Insurer or the Noteholders (as determined in the Note Insurer’s sole discretion) and such failure has continued for a period of at least five (5) Business Days (A) after notice is received by such Person from the Indenture Trustee or the Note Insurer or (B) after discovery of such failure by a responsible officer of such Person; provided, however, that no Insurance Agreement Event of Default will result from the breach by the Servicer of any covenant for which the repurchase of the affected Receivables is specified as the sole remedy pursuant to Section 3.6 of the Sale and Servicing Agreement and such repurchase takes place within the time frame required by Section 2.3 and Section 3.6 of the Sale and Servicing Agreement;

(b) any representation, warranty or statement of the Indenture Trustee, the Servicer, the Owner Trustee, COAF, the Issuer or the Seller (other than representations and warranties under Schedule I of the Sale and Servicing Agreement and Section 3.2 of the Purchase Agreement) contained herein or in the Indenture, the Sale and Servicing Agreement, the Purchase Agreement or in any report, document or certificate delivered pursuant to the foregoing agreements shall prove to be incorrect in any material respect as of the time when the same shall have been made and, within sixty (60) days (or such longer period not in excess of ninety (90) as may be reasonably necessary to remedy such failure; provided that (i) such failure is capable of remedy within ninety (90) days or less and (ii) the Note Insurer consents in its sole discretion to that longer period) after written notice thereof shall have been given to the Indenture Trustee and the defaulting party (if not the Indenture Trustee) by the Servicer, the Note Insurer, the Indenture Trustee or by Noteholders constituting Noteholder Approval, the circumstances or condition in respect of which such representation, warranty or statement was incorrect shall not have been eliminated or otherwise cured or waived by the Note Insurer and could reasonably have a material adverse affect on the interests of the Note Insurer or the Noteholders (as determined in the Note Insurer’s sole discretion);

(c) the cessation of a valid perfected first priority security interest in the Receivables or the Trust Accounts in favor of the Indenture Trustee which is not cured within seven (7) Business Days of receipt of notice thereof;

(d) [Reserved];

 

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(e) as of the Determination Date with respect to each Collection Period, the three month average of the Delinquency Ratios for such Collection Period and the two Collection Periods immediately preceding such Collection Period is greater than the level specified for such month in such table:

 

provided, that an Insurance Agreement Event of Default occurring under this clause (e) shall be deemed to have been cured if, as of the Determination Date with respect to each of any three (3) consecutive Collection Periods following the occurrence of an Insurance Agreement Event of Default pursuant to this clause (e), the average of the Delinquency Ratios for such Collection Periods is less than the percentage above for the applicable Collection Period;

 

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(f) a draw is made on the Note Policy;

(g) as of the Determination Date in any month prior to and including the applicable month set forth in the table below, the Cumulative Net Charge-Off Ratio exceeds the level specified for such month in such table:

 

(h) except as permitted by the Sale and Servicing Agreement, any assignment by the Servicer of its rights and obligations under the Sale and Servicing Agreement or any attempt to make such an assignment;

(i) failure to make any payment with respect to the Class A Notes pursuant to the Indenture according to the priorities set forth in Section 4.4(a) of the Sale and Servicing Agreement, which continues unpaid for a period of five (5) Business Days;

(j) [Reserved];

(k) the occurrence of a Servicer Termination Event or Event of Default under the Indenture; or

 

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(l) any Event of Default or Termination Event (as defined in the Swap Agreement) occurs under the Swap Agreement.

“Investment Company Act” means the Investment Company Act of 1940, including, unless the context otherwise requires, the rules and regulations thereunder, as amended.

“Issuer” means Capital One Auto Finance Trust 2006-C.

“Late Payment Rate” means the rate of interest as it is publicly announced by Citibank, N.A. at its principal office in New York, New York as its prime rate (any change in such prime rate of interest to be effective on the date such change is announced by Citibank, N.A.) plus 3%. The Late Payment Rate shall be computed on the basis of a year of 365 days calculating the actual number of days elapsed. In no event shall the Late Payment Rate exceed the maximum rate permissible under any applicable law limiting interest rates.

“Managed Assets” means, with respect to any Person, receivables owned, receivables sold to securitization trusts and serviced by such Person, and all other serviced or owned assets.

“Material Adverse Change” means, with respect to any event or circumstance, a material adverse effect on (a) th