Discover 2009 Annual Report Download - page 90

The following table summarizes expected maturities of the investors’ interests in securitizations excluding those that
have been issued to subsidiaries of the Company at November 30, 2009 (dollars in thousands):
Total
Less Than
One Year
One Year
Through
Three
Years
Four Years
Through
Five Years
After Five
Years
Scheduled maturities of the investors’ interests in securitizations issued to third
parties ..................................................................................................... $22,305,269 $9,923,686 $9,263,160 $2,118,423 $1,000,000
We access the public asset-backed securitization market through DCMT and DCENT, using receivables generated by
our credit card business. Through DCMT we have used a structure utilizing Class A and Class B certificates held by third
parties, with credit enhancement provided by the subordinated Class B certificates, a cash collateral account and a more
subordinated Series 2009-CE certificate described below. DCENT consists of four classes of securities (Class A, B, C and
D), with credit enhancement provided by the subordinated classes of notes. As of November 30, 2009, $2.3 billion of
Class B and C notes are owned by subsidiaries of Discover Bank. We have completed the following transactions for
DCMT and DCENT since mid-2009:
• In the third quarter of 2009, we issued the DiscoverSeries Class D (2009-1) note from DCENT that added 6.5%
credit enhancement to all outstanding notes of the DiscoverSeries and is available to support new issuances of
DiscoverSeries notes through increases in the stated principal amount. On November 30, 2009, the stated principal
amount of the Class D notes was $829 million, which was approximately 6.5% of the then outstanding notes of
DCENT including the Class D notes. In January 2010, we increased the size of the Class D (2009-1) note to further
support the more senior DCENT securities. A wholly-owned subsidiary of Discover Bank owns the DCENT Class D
(2009-1) note.
• In the third quarter of 2009, we issued Series 2009-CE from DCMT to provide credit enhancement to DCMT investor
certificates. This subordinate series supports all outstanding series of DCMT other than Series 2007-CC (which
supports the DCENT notes, for which the DiscoverSeries Class D notes were issued). On November 30, 2009, the
stated principal amount of this subordinate series was $902 million, which is generally equivalent to 6.5% of the
series investor interests, including the subordinate series. DCMT Series 1996-4, which had lower initial levels of
credit enhancement, received additional credit enhancement through the subordinate series in an amount bringing
its enhancement levels in line with other comparable series of DCMT certificates. In January 2010, we increased the
size of Series 2009-CE to further support the more senior DCMT certificates. The DCMT Series 2009-CE investor
certificates are owned by a wholly-owned subsidiary of Discover Bank.
In addition, in September 2009 we issued Series 2009-SD from DCMT to enhance excess spread for all outstanding
series of investor certificates and tranches of DiscoverSeries notes. Series 2009-SD makes all of its principal collections
available for reallocation on an as-needed basis to all outstanding series (including the DiscoverSeries) to cover shortfalls
in interest and servicing fees and to reimburse charge-offs for those other series. The availability of these principal
collections increases excess spread levels for DCMT and for the DiscoverSeries notes. The Series 2009-SD interest will
remain equal to approximately 2.0% of the total investors’ interests. The DCMT Series 2009-SD investor certificates are
owned by a wholly-owned subsidiary of Discover Bank.
The securitization structures include certain features designed to protect investors that could result in earlier than
expected repayment of the underlying securities, accelerating the need for alternative funding. The primary feature relates
to the availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements, the
insufficiency of which triggers early repayment of the securities. We refer to this as “economic early amortization,” which
is based on excess spread levels. Excess spread is the amount by which income received by a trust during a collection
period, including interest collections, fees and interchange, as well as the amount of certain principal collections available
to be reallocated from Series 2009-SD, exceeds the fees and expenses of the trust during such collection period, including
interest expense, servicing fees and charged-off receivables. In the event of an economic early amortization, which would
occur if the excess spread falls below 0% for a contractually specified period, generally a three-month rolling average, we
would be required to repay the affected outstanding securitized borrowings over a period of a few months. As of
November 30, 2009, no economic early amortization events have occurred.
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