Discover 2010 Annual Report Download - page 94

Department of Education (“DOE”) under ECASLA, which matures August 2013. The FFELP loans that secure this funding
arrangement were classified as held for sale as of November 30, 2010. This funding will be repaid upon the sale of the
financed loans.
The Student Loan Corporation Acquisition. On December 31, 2010, we acquired The Student Loan Corporation
(“SLC”) in a merger transaction in which we acquired approximately $4.2 billion of private student loans and other
assets, along with assuming approximately $3.4 billion of SLC’s existing asset-backed securitization debt funding and
other liabilities. The acquisition significantly increased the size of our private student loan portfolio and long-term
borrowings owed to securitization investors.
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
$0.5 billion of capacity and had an undrawn capacity of $3.3 billion at November 30, 2010.
Unsecured Committed Credit Facility. Our unsecured committed credit facility of $2.4 billion is available through May
2012. This facility serves to diversify our funding sources and enhance our liquidity. This facility is provided by a group of
major global banks, and is available to both Discover Financial Services and Discover Bank (Discover Financial Services
may borrow up to 30% and Discover Bank may borrow up to 100% of the total commitment). The facility is available to
support general liquidity needs and may be drawn to meet short-term funding needs from time to time. The terms of the
credit facility include various affirmative and negative covenants, including financial covenants related to the maintenance
of certain capitalization and tangible net worth levels, and certain double leverage, delinquency and tier 1 capital to
managed loans ratios. The credit facility also includes customary events of default with corresponding grace periods,
including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness for borrowed
money and bankruptcy-related defaults. The facility may be terminated upon an event of default. We have no outstanding
balances due under the facility.
Federal Reserve.Discover Bank has access to the Federal Reserve Bank of Philadelphia’s discount window. As of
November 30, 2010, Discover Bank had $8.2 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,
as well as potentially higher fees related to borrowings under our lines of credit. 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, 2010, would have been $31 million.
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