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Rating Action:

MOODY'S CONFIRMS Aaa AND PRIME-1 RATINGS OF CERTIFICATES ISSUED BY DISCOVER CARD MASTER TRUST I; SUBORDINATE RATINGS REMAIN UNDER REVIEW FOR POSSIBLE DOWNGRADE

22 Jul 2005
MOODY'S CONFIRMS Aaa AND PRIME-1 RATINGS OF CERTIFICATES ISSUED BY DISCOVER CARD MASTER TRUST I; SUBORDINATE RATINGS REMAIN UNDER REVIEW FOR POSSIBLE DOWNGRADE

Approximately $23 Billion of Asset-Backed Securities Affected

New York, July 22, 2005 -- Moody's Investors Service has confirmed the ratings on twenty classes of the senior Class A securities issued through Discover Card Master Trust I (the Trust) as well as the Prime-1-rated certificates issued out of the Newcastle Certificate Program. The twenty classes of the subordinate Class B securities remain under review for possible downgrade. These securities were placed under review for possible downgrade on April 13, 2005.

Moody's actions today follow the July 20, 2005, downgrade of Discover Bank's (Discover) deposit rating to A3 from Aa3, bank financial strength rating to C- from C, and short-term rating to Prime-2 from Prime-1. Discover Bank's long-term ratings (except for the financial strength rating) remain under review for possible further downgrade. The ultimate outcome of the continuing rating review is dependent upon Morgan Stanley's final decision on whether to proceed with a spin-off of Discover. This action reflects Moody's opinion that Discover is now less of a strategic asset for Morgan Stanley than prior to the announcement of the spin-off. If the spin-off occurs as planned, then Moody's expects to assign a Baa2 long-term deposit rating and Baa3 senior unsecured rating to Discover Bank, with a stable outlook.

Moody's ratings on the asset-backed securities (ABS) are closely related to those of Discover Bank due to the risks associated with the Discover Card proprietary payments network and the reliance on a unique structural feature of the Trust that was a key factor in setting credit enhancement levels. The Discover Card network allows merchants to accept Discover Card transactions and, because it is an independent network, its viability is inextricably linked to the credit strength of Discover Bank. Likewise, the efficacy of the fixed finance charge allocation feature in the Trust is dependent upon the viability of the underlying card program.

In Moody's view, though the three-notch downgrade of Discover Bank's deposit rating to A3 increases the likelihood that there could be a partial or full shutdown of purchases on the Discover Card network, this increased risk is not enough to warrant a downgrade on any of the outstanding ABS certificates. This rating confirmation is contingent on maintenance of Discover's current deposit rating.

If the spin-off occurs, as stated earlier, Moody's expects to assign a Baa2 long-term deposit rating and Baa3 senior unsecured rating to Discover Bank, with a stable outlook. In this case, the probability of a full or partial shutdown of purchases on the Discover network is higher than in the non-spin-off case, which increases the risk to bondholders. This increased risk is not sufficient to result in a downgrade of the current Aaa or Prime-1 ratings on the ABS bonds, but the current ratings will be more volatile than newly issued credit card securities. In addition, in the event of a spin-off, the subordinate Class B securities would likely be downgraded to A3 from A2 unless compensating actions are taken by Discover.

Furthermore, if Discover Bank is spun off, the required credit enhancement for newly issued senior and subordinate bonds would likely increase in order to achieve respective Aaa and A2 ratings.

In its analysis, Moody's assumed that Discover will continue to maintain the seller's interest in the Trust at well above the contractually required minimum of 7%. Since 2001, the Trust's seller's interest has ranged from 10.3% to 24.8%. Though not typically considered incremental credit enhancement, in certain scenarios, the additional seller's interest provides some benefit to the overall enhancement levels. For example, a larger seller's interest is of incremental value if it is assumed that card utility has been closed and the securitized portfolio is declining.

The performance of the securitized Discover Card portfolio remains within the bounds of Moody's expectations and is not a principal factor in the ratings review. The long-term average yield has remained slightly below the industry average as measured by Moody's Credit Card Index. The chargeoff rate and payment rate have trended above the industry average.

The complete rating action is as follows:

The following ratings were confirmed:

Issuer: Discover Card Master Trust I

$4,000,000,000 Newcastle Certificate Program, Series 2000-A, rated Prime-1

$600,000,000 6.05% Class A Certificates, Series 1996-3, rated Aaa

$1,000,000,000 Floating Rate Class A Certificates, Series 1996-4, rated Aaa

$671,980,000 Floating Rate Class A Certificates, Series 1998-5, rated Aaa

$650,000,000 Floating Rate Class A Certificates, Series 2000-4, rated Aaa

$850,000,000 Floating Rate Class A Certificates, Series 2000-7, rated Aaa

$500,000,000 6.35% Class A Certificates, Series 2000-9, rated Aaa

$1,200,000,000 Floating Rate Class A Certificates, Series 2001-1, rated Aaa

$1,100,000,000 Floating Rate Class A Certificates, Series 2001-2, rated Aaa

$750,000,000 Floating Rate Class A Certificates, Series 2001-3, rated Aaa

$500,000,000 5.75% Class A Certificates, Series 2001-6, rated Aaa

$750,000,000 5.15% Class A Certificates, Series 2002-2, rated Aaa

$900,000,000 Floating Rate Class A Certificates, Series 2002-3, rated Aaa

$750,000,000 Floating Rate Class A Certificates, Series 2002-4, rated Aaa

$500,000,000 Floating Rate Class A Certificates, Subseries 1, Series 2003-1, rated Aaa

$500,000,000 Floating Rate Class A Certificates, Subseries 2, Series 2003-1, rated Aaa

$500,000,000 Floating Rate Class A Certificates, Subseries 3, Series 2003-1, rated Aaa

$1,000,000,000 Floating Rate Class A Certificates, Series 2003-2, rated Aaa

$900,000,000 Floating Rate Class A Certificates, Series 2003-3, rated Aaa

$1,100,000,000 Floating Rate Class A Certificates, Subseries 1, Series 2003-4, rated Aaa

$750,000,000 Floating Rate Class A Certificates, Subseries 2, Series 2003-4, rated Aaa

$1,250,000,000 Floating Rate Class A Certificates, Series 2004-1, rated Aaa

$1,250,000,000 Floating Rate Class A Certificates, Subseries 1, Series 2004-2, rated Aaa

$500,000,000 Floating Rate Class A Certificates, Subseries 2, Series 2004-2, rated Aaa

$1,500,000,000 Floating Rate Class A Certificates, Series 2005-1, rated Aaa

The following ratings remain under review for possible downgrade:

$31,579,000 6.25% Class B Certificates, Series 1996-3, rated A2

$52,632,000 Floating Rate Class B Certificates, Series 1996-4, rated A2

$35,368,000 Floating Rate Class B Certificates, Series 1998-5, rated A2

$34,211,000 Floating Rate Class B Certificates, Series 2000-4, rated A2

$44,737,000 Floating Rate Class B Certificates, Series 2000-7, rated A2

$26,316,000 Floating Rate Class B Certificates, Series 2000-9, rated A2

$63,158,000 Floating Rate Class B Certificates, Series 2001-1, rated A2

$57,895,000 Floating Rate Class B Certificates, Series 2001-2 rated A2

$39,474,000 Floating Rate Class B Certificates, Series 2001-3, rated A2

$26,316,000 Floating Rate Class B Certificates, Series 2001-6, rated A2

$39,474,000 5.45% Class B Certificates, Series 2002-2, rated A2

$47,369,000 Floating Rate Class B Certificates, Series 2002-3, rated A2

$39,474,000 Floating Rate Class B Certificates, Series 2002-4, rated A2

$26,316,000 Floating Rate Class B Certificates, Subseries 1, Series 2003-1, rated A2

$26,316,000 3.45% Class B Certificates, Subseries 2, Series 2003-1, rated A2

$26,316,000 Floating Rate Class B Certificates, Subseries 3, Series 2003-1, rated A2

$52,632,000 3.85% Class B Certificates, Series 2003-2, rated A2

$47,369,000 Floating Rate Class B Certificates, Series 2003-3, rated A2

$57,895,000 Floating Rate Class B Certificates, Subseries 1, Series 2003-4, rated A2

$39,474,000 Floating Rate Class B Certificates, Subseries 2, Series 2003-4, rated A2

$65,790,000 Floating Rate Class B Certificates, Series 2004-1, rated A2

$65,790,000 Floating Rate Class B Certificates, Subseries 1, Series 2004-2, rated A2

$26,316,000 Floating Rate Class B Certificates, Subseries 2, Series 2004-2, rated A2

$78,948,000 Floating Rate Class B Certificates, Series 2005-1, rated A2

BACKGROUND

Discover Bank, the originator and servicer of the Discover card receivables, is a Delaware-chartered, FDIC-insured bank and an indirect subsidiary of Morgan Stanley. Discover Bank has a long-term deposit rating of A3, a short-term deposit rating of Prime-2, which are under review for possible downgrade, and a bank financial strength rating of C- (not under review). Moody's rates Morgan Stanley's long-term debt Aa3 (negative outlook) and rates its commercial paper Prime-1.

New York
Jay Eisbruck
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William Black
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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