Cabela's 2012 Annual Report Download - page 96

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86
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
4. CABELA’S MASTER CREDIT CARD TRUST
The Financial Services segment utilizes the Trust for the purpose of routinely selling and securitizing credit
card loans and issuing beneficial interest to investors. The Trust issues variable funding facilities and long-term
notes each of which has an undivided interest in the assets of the Trust. The Financial Services segment must retain
a minimum 20 day average of 5% of the loans in the securitization trust which ranks pari passu with the investors’
interests in the securitized trusts. In addition, the Financial Services segment owns notes issued by the Trust from
some of the securitizations, which in some cases may be subordinated to other notes issued. The consolidated
assets of the Trust are subject to credit, payment, and interest rate risks on the transferred credit card loans. The
secured borrowings contain legal isolation requirements which would protect the assets pledged as collateral for the
securitization investors as well as protect Cabela’s and WFB from any liability from default on the notes.
To protect investors, the securitization structures include certain features that could result in earlier-than-
expected repayment of the securities, which could cause the Financial Services segment to sustain a loss of one
or more of its retained interests and could prompt the need to seek alternative sources of funding. The primary
investor protection feature relates to the availability and adequacy of cash flows in the securitized pool of loans to
meet contractual requirements, the insufficiency of which triggers early repayment of the securities. The Financial
Services segment refers to this as the early amortization feature. Investors are allocated cash flows derived from
activities related to the accounts comprising the securitized pool of loans, the amounts of which reflect finance
charges collected, certain fee assessments collected, allocations of interchange, and recoveries on charged-off
accounts. These cash flows are considered to be restricted under the governing documents to pay interest to
investors, servicing fees, and to absorb the investor’s share of charge-offs occurring within the securitized pool
of loans. Any cash flows remaining in excess of these requirements are reported to investors as excess spread. An
excess spread of less than zero percent for a contractually specified period, generally a three-month average, would
trigger an early amortization event. Such an event could result in the Financial Services segment incurring losses
related to its retained interests. In addition, if the retained interest in the loans of the Financial Services segment
falls below the 5% minimum 20 day average and the Financial Services segment fails to add new accounts to the
securitized pool of loans, an early amortization event would be triggered. The investors have no recourse to the
other assets of WFB for failure of debtors to pay other than for breaches of certain customary representations,
warranties, and covenants. These representations, warranties, covenants, and the related indemnities do not protect
the Trust or third party investors against credit-related losses on the loans.
Another feature, which is applicable to the notes issued from the Trust, is one in which excess cash flows
generated by the transferred loans are held at the Trust for the benefit of the investors. This cash reserve account
funding is triggered when the three-month average excess spread rate of the Trust decreases to below 4.50% or
5.50% (depending on the series) with increasing funding requirements as excess spread levels decline below preset
levels or as contractually required by the governing documents. Similar to early amortization, this feature also is
designed to protect the investors’ interests from loss thus making the cash restricted. Upon scheduled maturity
or early amortization of a securitization, the Financial Services segment is required to remit principal payments
received on the securitized pool of loans to the Trust which are restricted for the repayment of the investors’
principal note. Credit card loans performed within established guidelines and no events which could trigger an
early amortization occurred during the years ended 2012, 2011, and 2010.