Discover 2011 Annual Report Download - page 91

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Other Long-Term Borrowings—Student Loans. At November 30, 2011, we had $438 million of funding related to
federal student loans, which are currently held for sale, and $2.6 billion of funding related to private student loans. We obtained
$500 million of funding in April 2010, of which $438 million is still outstanding as of November 30, 2011, through an
agreement with an asset-backed commercial paper conduit sponsored by the U.S. Department of Education under the Ensuring
Continued Access to Student Loans Act of 2008. However, upon sale of the related federal student loans, this loan facility will
be repaid or assumed by the buyer. We assumed $3.2 billion principal amount outstanding of securitization debt in December
2010 as part of the SLC acquisition, of which $2.8 billion remained outstanding as of November 30, 2011. Principal and
interest payments on the underlying student loans will reduce the balance of these secured borrowings over time.
Additional Funding Sources
Private Asset-Backed Securitizations. We have access to committed undrawn capacity through privately placed asset-
backed securitizations to support the funding of our credit card loan receivables. Under these arrangements, we had used $250
million of capacity and had undrawn capacity of $6.8 billion at November 30, 2011.
Federal Reserve. Discover Bank has access to the Federal Reserve Bank of Philadelphia’s discount window. As of
November 30, 2011, Discover Bank had $8.7 billion of available capacity through the discount window based on the amount of
assets pledged. We have no borrowings outstanding under the discount window.
Credit Ratings
Our borrowing costs and capacity in certain funding markets, including securitizations and senior and subordinated debt,
may be affected by the credit ratings of Discover Financial Services, Discover Bank and the securitization trusts. Downgrades
in these credit ratings could result in higher interest expense on our unsecured debt and asset securitizations. In addition to
increased funding costs, deterioration in credit ratings could reduce our borrowing capacity in the unsecured debt and asset
securitization capital markets.
We also have agreements with certain of our derivative counterparties that contain provisions that require Discover
Bank’s debt to maintain an investment grade credit rating from specified major credit rating agencies. If Discover Bank’s credit
rating is reduced to below investment grade, we would be required to post additional collateral, which, as of November 30,
2011, would have been $66 million.
A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any
time by the assigning rating organization, and each rating should be evaluated independently of any other rating. The credit
ratings are summarized in the following table:
Moody’s
Investors
Service
Standard &
Poor’s
Fitch Ratings
Discover
Financial
Services
Senior
Unsecured
Debt
Ba1
BBB-
BBB
Discover
Bank
Senior
Unsecured
Debt
Baa3
BBB
BBB
Outlook
for Senior
Unsecured
Debt
Stable
Stable
Stable
Discover
Bank
Subordinated
Debt
Ba1
BBB-
BBB-
Discover Card
Master Trust I
Class A(1)
Aaa
AAA(sf)
AAAsf
Class B
A1(sf)
AA+(sf)
AAsf
Discover Card Execution
Note Trust
Class A(1)
Aaa(sf)
AAA(sf)
AAAsf
Class B
A1(sf)
AA+(sf)
AA-sf
Class C
N/A(2)
N/A(2)
N/A(2)
(1) A “sf” in the rating denotes an identification for structured finance product ratings that was implemented for these products by the rating agencies as of
September 2010.
(2) All Class C notes are currently held by subsidiaries of Discover Bank and therefore, are not publicly rated.
Several rating agencies have announced that they will be evaluating the effects of the Reform Act in order to determine
the extent, if any, to which financial institutions, including us, may be negatively impacted. While we are currently unaware of
any negative actions, there is no assurance that our credit ratings could not be downgraded in the future as a result of any such
reviews. See “—Regulatory Environment and Developments” for information regarding the Reform Act.
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