Discover 2011 Annual Report Download - page 90

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Another feature of our securitization structure, which is applicable only to the notes issued from DCENT, is a reserve
account funding requirement in which, in limited circumstances, 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 4.50%, with increasing funding requirements as excess spread levels decline below preset levels to 0%. See
Note 7: Credit Card and Student Loan Securitization Activities to our consolidated financial statements for additional
information regarding the structures of DCMT and DCENT and for tables providing information concerning investors’ interests
and related excess spreads at November 30, 2011.
At November 30, 2011, we had $13.0 billion of outstanding public asset-backed securities, $0.3 billion of outstanding
private asset-backed securitizations and $5.2 billion of outstanding asset-backed securities that had been issued to our wholly-
owned subsidiaries. The following table summarizes expected contractual maturities of the investors’ interests in credit card
securitizations excluding those that have been issued to our wholly-owned subsidiaries at November 30, 2011 (dollars in
thousands):
Scheduled maturities of long-term borrowings—
owed to credit card securitization investors
Total
$ 13,293,481
Less Than
One Year
$ 3,325,989
One Year
Through
Three Years
$ 7,967,989
Four Years
Through
Five Years
$ 999,639
After Five
Years
$ 999,864
At November 30, 2011, we had capacity to issue up to $7.8 billion in triple-A rated asset-backed securities from DCENT
without the issuance of additional Class B or Class C notes as subordination. The triple-A rating of DCENT Class A Notes
issued to date has been based, in part, on an FDIC rule which created a safe harbor that provides that the FDIC, as conservator
or receiver, will not, using its power to disaffirm or repudiate contracts, seek to reclaim or recover assets transferred in
connection with a securitization, or recharacterize them as assets of the insured depository institution, provided such transfer
satisfies the conditions for sale accounting treatment under previous GAAP. Pursuant to amendments to GAAP related to
transfers of financial assets, effective for us on December 1, 2009, certain transfers of assets to special purpose entities
(including Discover Bank’s transfers of assets to the DCMT) no longer qualify for sale accounting treatment. However, on
September 27, 2010, the FDIC approved a final rule that preserves the safe-harbor treatment applicable to revolving trusts and
master trusts, including the DCMT, so long as those trusts would have satisfied the original FDIC safe harbor if evaluated under
GAAP pertaining to transfers of financial assets in effect prior to December 1, 2009. Other legislative and regulatory
developments, namely the proposed SEC Regulation AB II (including the SEC's July 2011 reproposal of certain of its
provisions), the August 2011 SEC advance notice of proposed rulemaking regarding the rule exempting securitization entities
from being regarded as "investment companies" under the Investment Company Act of 1940, the securitization and rating
agency provisions of the Reform Act and the rules promulgated or proposed thereunder, including proposed rules requiring us
to retain risk in our securitization on an unhedged basis, may, however, impact our ability and/or desire to issue asset-backed
securities in the future.
Short-Term Borrowings. We primarily access short-term borrowings through the Federal Funds market or through
repurchase agreements. In the past two years, we have rarely used short-term borrowings; however, we have recently been
borrowing overnight Federal Funds on an opportunistic basis. Total short-term borrowings as of November 30, 2011 were $50.0
million and the weighted-average interest rate was 0.08%. Information about our use of short-term borrowings for the year
ended November 30, 2011 is shown in the table below (dollars in thousands):
Overnight Federal Funds purchased
Overnight repurchase agreements
November 30, 2011
Maximum Daily Balance
During the Period
$ 265,000
50,414
Corporate and Bank Debt. At November 30, 2011, we had $800 million in principal amount of senior unsecured notes
outstanding and Discover Bank had $1.2 billion in principal amount of subordinated notes outstanding. Our senior unsecured
notes are comprised of two issuances, each $400 million in principal amount, with one issuance maturing in June 2017 and the
other issuance maturing in July 2019. The senior unsecured notes would require us to offer to repurchase the notes at a price
equal to 101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change of control
involving us and a corresponding ratings downgrade to below investment grade. Discover Bank’s subordinated notes are
comprised of one $700 million issuance due in November 2019 and a $500 million issuance due in April 2020. For more
information, see Note 11: Borrowings to our consolidated financial statements.
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