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Rating Action:

MOODY'S PLACES 49 CLASSES OF CERTIFICATES ISSUED BY THE DISCOVER CARD MASTER TRUST I UNDER REVIEW FOR POSSIBLE DOWNGRADE

13 Apr 2005
MOODY'S PLACES 49 CLASSES OF CERTIFICATES ISSUED BY THE DISCOVER CARD MASTER TRUST I UNDER REVIEW FOR POSSIBLE DOWNGRADE

Approximately $25 Billion of Asset-Backed Securities Affected.

New York, April 13, 2005 -- Moody's Investors Service has placed the ratings on forty-nine classes of securities in twenty-one series issued through Discover Card Master Trust I (the Trust) under review for possible downgrade. Included in the review are the Prime-1-rated certificates issued out of the Newcastle Certificate Program. The ratings of five series scheduled to mature within the next six months are unaffected by this rating action.

Moody's said that this rating action follows the April 4, 2005 announcement by Morgan Stanley that its board of directors had authorized management to pursue a spin-off of its subsidiary, Discover Financial Services. Morgan Stanley's management recommendations are to be reported to the board for final determination. On April 5, 2005, Moody's affirmed the Aa3 ratings of Morgan Stanley and changed the outlook to negative from stable. At the same time, Discover Bank's Aa3 long-term deposit rating, C bank financial strength rating, and Prime-1 short-term deposit rating were placed under review for downgrade.

Moody's review of the asset-backed securities will focus on the financial strength and management of Discover Bank -- an important factor in Moody's overall credit assessment of the Discover Card master trust receivables-backed securities.

The complete rating action is as follows:

UNDER REVIEW FOR POSSIBLE DOWNGRADE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The ratings of the following classes of certificates are not affected by this rating action because of their scheduled maturity within the next six months.

$39,474,000 Floating Rate Class B Certificates, Series 2000-2, rated A2

$1,200,000,000 Floating Rate Class A Certificates, Series 2000-5, rated Aaa

$63,158,000 Floating Rate Class B Certificates, Series 2000-5, rated A2

$700,000,000 Floating Rate Class A Certificates, Series 2000-6, rated Aaa

$36,843,000 Floating Rate Class B Certificates, Series 2000-6, rated A2

RATIONALE

Moody's ratings on the asset-backed securities 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 Payments Network

The Discover Card proprietary payments network is a distinguishing feature of the Discover Card franchise. This 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. By contrast, the strength of the more broadly accepted VISA and MasterCard payments networks is not directly related to the credit strength of any individual member bank. As a result, if Discover Bank should encounter financial difficulty, it is possible the credit cards will lose utility. The loss of card utility would prohibit cardholders from making purchases on their cards and would adversely affect the credit performance of the underlying pool of credit card receivables.

Fixed Allocation of Finance Charge Collections

Another important consideration in Moody's ratings of the receivable-backed securities issued from the Trust is a structural feature that allows a fixed allocation of finance charge collections.

From a credit perspective, this feature can be quite powerful. Under the fixed finance charge allocation method, as principal on the investor certificates is paid down during an early amortization period, certificateholders continue to be allocated a percentage of the finance charge collections on each payment date based on the certificate principal amount prior to the commencement of the early amortization period. The result is an "over-collateralization" of finance charge collections, which may be applied to make up shortfalls in amounts due to certificateholders.

Moody's has historically given as much as a 5% reduction in required credit enhancement for both the senior and subordinate certificates (e.g., from 17.5% to 12.5% for the Aaa-rated senior certificates) due to the inclusion of the fixed finance charge allocation feature in the Discover master trust. However, the benefit that this feature accrues is predicated on the assumption that the underlying card program is viable and/or is supported by a highly rated entity. For example, in a scenario in which card utility is lost and cardholders can no longer make purchases, the fixed allocation feature would no longer provide any incremental benefit.

COLLATERAL PERFORMANCE

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.

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 Aa3, a short-term deposit rating of Prime-1, and a bank financial strength rating of C, all of which are under review for possible downgrade. 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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