Discover 2011 Annual Report Download - page 130

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118
Another feature of the Company’s securitization structure that is designed to protect investors’ interests from loss, which
is applicable only to the notes issued from DCENT, is a reserve account funding requirement in which excess cash flows
generated by the transferred loan receivables are held at the trust. This funding requirement is triggered when DCENT’s three-
month average excess spread rate decreases to below 4.5%, with increasing funding requirements as excess spread levels
decline below preset levels to 0%.
In addition to performance measures associated with the transferred credit card loan receivables, there are other events or
conditions which could trigger an early amortization event. As of November 30, 2011, no economic or other early amortization
events have occurred.
The tables below provide information concerning investors’ interests and related excess spreads at November 30, 2011
(dollars in thousands):
Discover Card Master Trust I
Discover Card Execution Note Trust (DiscoverSeries notes)
Total investors’ interests
Investors’
Interests(1)
$ 3,262,331
15,189,944
$ 18,452,275
# of Series
Outstanding
6
32
38
(1) Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.
Group excess spread percentage
DiscoverSeries excess spread percentage
3-Month Rolling
Average Excess
Spread(1)(2)
17.43%
17.35%
(1) DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to
the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.
(2) Discount Series (Series 2009-SD) made principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees
and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections. These
collections and their contribution to excess spread terminated when the Series 2009-SD certificates matured on January 17, 2012.
The Company continues to own and service the accounts that generate the loan receivables held by the trusts. Discover
Bank receives servicing fees from the trusts based on a percentage of the monthly investor principal balance outstanding.
Although the fee income to Discover Bank offsets the fee expense to the trusts and thus is eliminated in consolidation, failure to
service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing
rights and the loss of future servicing income, net of related expenses.
The following disclosures apply to securitization activities of the Company prior to December 1, 2009, when transfers of
receivables to the trusts were treated as sales in accordance with prior GAAP. See Note 2: Change in Accounting Principle for
discussion of prior accounting and related adjustments made in conjunction with adopting Statement No. 166. Retained
interests classified as available-for-sale investment securities at November 30, 2009 were carried at amounts that approximated
fair value with changes in the fair value estimates recorded in other comprehensive income, net of tax. Retained interests
classified as held-to-maturity investment securities were carried at amortized cost. All other retained interests in credit card
asset securitizations were recorded in amounts due from asset securitization at amounts that approximated fair value.
During the year ended November 30, 2009, the Company recognized a net revaluation of its subordinated retained
interests resulting in a loss of $160.1 million in securitization income in the consolidated statement of income. Included in this
amount is $16.7 million of initial gains on new securitization transactions, net of issuance discounts, as applicable.
The following table summarizes certain cash flow information related to the securitized pool of loan receivables (dollars
in millions):
Proceeds from third-party investors in new credit card securitizations
Proceeds from collections reinvested in previous credit card securitizations
Contractual servicing fees received
Cash flows received from retained interests
Purchases of previously transferred credit card receivables (securitization maturities)
For the Year Ended
November 30, 2009
$ 3,543
$ 46,753
$ 490
$ 1,980
$ 5,739
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