Discover 2010 Annual Report Download - page 124

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 4.50%, 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, 2010, no economic or other
early amortization events have occurred.
The tables below provide information concerning investors’ interests and related excess spreads at November 30,
2010 (dollars in thousands):
Investors’
Interests(1)
# of Series
Outstanding
Discover Card Master Trust I ......................................................................................................................................... $ 7,696,865 12
Discover Card Execution Note Trust (DiscoverSeries notes) ................................................................................................. 11,832,402 21
Total investors’ interests............................................................................................................................................. $19,529,267 33
(1) Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.
3-Month Rolling
Average Excess
Spread(1)(2)
Group excess spread percentage..................................................................................................................................................... 13.46%
DiscoverSeries excess spread percentage .......................................................................................................................................... 12.97%
(1) DCMT certificates refer to the higher of Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of Group or DiscoverSeries excess
spread in assessing whether an economic early amortization has been triggered.
(2) Discount Series (DCMT 2009-SD) makes 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 reflect the availability of these collections.
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.
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. At November 30, 2009, the Company’s
retained interests in credit card securitizations were accounted for as follows (dollars in thousands):
November 30,
2009
Available-for-sale investment securities ............................................................................................................................................... $ 2,204,969
Held-to-maturity investment securities ................................................................................................................................................. 2,296,139
Loan receivables (seller’s interest)(1) .................................................................................................................................................... 9,852,352
Amounts due from asset securitization:
Cash collateral accounts(2) ............................................................................................................................................................. 822,585
Accrued interest receivable............................................................................................................................................................ 519,275
Interest-only strip receivable........................................................................................................................................................... 117,579
Other subordinated retained interests .............................................................................................................................................. 220,288
Other......................................................................................................................................................................................... 12,324
Amounts due from asset securitization ............................................................................................................................................. 1,692,051
Total retained interests ............................................................................................................................................................... $16,045,511
(1) Loan receivables net of allowance for loan losses were $9.1 billion at November 30, 2009.
(2) $0.8 billion was pledged as security against a long-term borrowing.
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