Discover 2009 Annual Report Download - page 115

At November 30, 2009, the Company had 27 investment securities in an unrealized loss position. The following table
provides information about investment securities with aggregate gross unrealized losses and the length of time that
individual investment securities have been in a continuous unrealized loss position as of November 30, 2009 and 2008
(dollars in thousands):
Less than 12 months More than 12 months
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
At November 30, 2009
Available-for-Sale Investment Securities
Certificated retained interests in DCENT.................................................................................... $1,149,143 $(115,857) $889,848 $(10,152)
Credit card asset-backed securities of other issuers ..................................................................... $ 127,509 $ (34) $ — $ —
Held-to-Maturity Investment Securities..........................................................................................
Certificated retained interests in DCENT and DCMT .................................................................... $1,865,484 $(430,655) $ — $ —
State and political subdivisions of states .................................................................................... $ — $ — $ 51,778 $ (6,162)
At November 30, 2008
Available-for-Sale Investment Securities
Certificated retained interests in DCENT.................................................................................... $ 705,549 $ (44,451) $276,193 $(38,807)
Credit card asset-backed securities of other issuers ..................................................................... $ 66,192 $ (708) $ — $ —
Equity securities .................................................................................................................... $ — $ — $ 29 $ (787)
Held-to-Maturity Investment Securities
State and political subdivisions of states .................................................................................... $ 8,715 $ (1,285) $ 33,293 $(15,847)
Certificated retained interests in DCENT and DCMT included in available-for-sale and held-to-maturity investment
securities are certificated Class B (single-A rated), Class C (BBB rated) and Class D (not rated) notes issued by DCENT and
Series 2009-CE (not rated) and Series 2009-SD (not rated) certificates issued by DCMT, which the Company holds as
other retained beneficial interests. During the years ended November 30, 2009 and 2008, the trusts issued a net amount
of $3.6 billion and $750 million, respectively, of certificated retained interests to a wholly-owned subsidiary of the
Company, which had the effect of reducing the Company’s seller’s interest, a component of loan receivables. For more
information on these certificated retained interests, see Note 6: Credit Card Securitization Activities and for information
on their fair value calculations, see Note 24: Fair Value Disclosures.
The estimated fair value of the certificated retained interests in DCENT and DCMT classified as held-to-maturity
investment securities is based on the discounted present value of the proceeds to be received at maturity. The difference
between the carrying value and the fair value of each security does not represent other-than-temporary impairment
because the Company expects to receive the full par value of each security at its maturity date according to its contractual
terms. All of these held-to-maturity investment securities are non-interest bearing and unrated, and the Company has the
positive intent and ability to hold them to maturity. In contrast, the retained DCENT Class B and Class C notes are
classified as available for sale.
Upon adoption of Statements No. 166 and 167 on December 1, 2009, the Company’s certificated retained interests in
DCENT and DCMT will be derecognized and the Company will instead report on its consolidated statement of financial
condition the loan receivables underlying those interests.
For the years ended November 30, 2009 and 2008, the Company recorded other-than-temporary impairments of
$8.2 million and $49.1 million, respectively, on its investment in the asset-backed commercial paper notes of Golden Key
U.S. LLC, which invested in mortgage-backed securities. These notes had a principal amount of $120.1 million and, as of
November 30, 2009, an estimated fair value of $58.8 million. These notes are no longer traded and, as such, fair value
of the notes is estimated by management utilizing a valuation analysis, reflecting an estimate of the market value of the
assets held by the issuer. During the fourth quarter of 2009, a valuation analysis of this investment resulted in an increase
of $7.5 million in the estimated fair value, which was recognized as an unrealized gain within other comprehensive
income.
-103-