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Rating Action:

Moody's Affirms Aaa Ratings of Class A Certificates Issued by Discover Card Master Trust I, Places Ratings of 22 Class B Certificates Under Review for Possible Downgrade

19 Dec 2006
Moody's Affirms Aaa Ratings of Class A Certificates Issued by Discover Card Master Trust I, Places Ratings of 22 Class B Certificates Under Review for Possible Downgrade

Approximately $23 Billion of Asset-Backed Securities Affected.

New York, December 19, 2006 -- Moody's Investors Service has placed the ratings of twenty-two classes of subordinate, Class B certificates issued from Discover Card Master Trust I (the Trust) under review for possible downgrade. The Aaa ratings on the related twenty-six classes of senior, Class A certificates were affirmed.

This ratings action follows Morgan Stanley's December 19, 2006 announcement that its board of directors had authorized management to pursue a spin-off of its subsidiary, Discover Financial Services (Discover). As a result, Moody's affirmed the Aa3 senior unsecured rating of Discover's parent company, Morgan Stanley. At the same time, the A3 bank deposit and debt ratings, and the short-term Prime-2 rating of Discover's wholly owned bank, Discover Bank, were placed under review for possible downgrade. If the spin-off occurs as planned, then Moody's expects to assign a Baa2 long-term deposit rating and Baa3 senior unsecured debt rating to Discover Bank, with a stable outlook.

The spin-off, which is subject to regulatory approval and other customary conditions, is expected to occur in the third quarter of 2007.

The completely rating action is as follows:

THE FOLLOWING RATINGS WERE AFFIRMED

Issuer: Discover Card Master Trust I

$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

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

$750,000,000 Floating Rate Class A Certificates, Series 2002-2, rated Aaa

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

$800,000,000 Floating Rate Class A Certificates, Series 2005-2, rated Aaa

$1,500,000,000 Floating Rate Class A Certificates, Series 2005-3, rated Aaa

$700,000,000 Floating Rate Class A Certificates, Subseries 1, Series 2005-4, rated Aaa

$800,000,000 Floating Rate Class A Certificates, Subseries 2, Series 2005-4, rated Aaa

$750,000,000 Floating Rate Class A Certificates, Subseries 1, Series 2006-1, rated Aaa

$750,000,000 Floating Rate Class A Certificates, Subseries 2, Series 2006-1, rated Aaa

$600,000,000 Floating Rate Class A Certificates, Subseries 1, Series 2006-2, rated Aaa

$600,000,000 Floating Rate Class A Certificates, Subseries 2, Series 2006-2, rated Aaa

$320,000,000 Floating Rate Class A Certificates, Subseries 3, Series 2006-2, rated Aaa

$500,000,000 Floating Rate Class A Certificates, Series 2006-3, rated Aaa

UNDER REVIEW FOR POSSIBLE DOWNGRADE

Issuer: Discover Card Master Trust I

$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

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

$42,106,000 Floating Rate Class B Certificates, Series 2005-2, rated A2

$78,948,000 Floating Rate Class B Certificates, Series 2005-3, rated A2

$36,843,000 Floating Rate Class B Certificates, Subseries 1, Series 2005-4, rated A2

$42,106,000 Floating Rate Class B Certificates, Subseries 2, Series 2005-4, rated A2

$39,474,000 Floating Rate Class B Certificates, Subseries 1, Series 2006-1, rated A2

$39,474,000 Floating Rate Class B Certificates, Subseries 2, Series 2006-1, rated A2

$31,579,000 Floating Rate Class B Certificates, Subseries 1, Series 2006-2, rated A2

$31,579,000 Floating Rate Class B Certificates, Subseries 2, Series 2006-2, rated A2

$16,843,000 Floating Rate Class B Certificates, Subseries 3, Series 2006-2, rated A2

$26,316,000 Floating Rate Class B Certificates, Series 2006-3, 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 which is expected to occur prior to the spin-off.

$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

$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

RATIONALE

In Moody's view, if the spin-off of Discover occurs, the likely two-notch downgrade of the Discover Bank's deposit rating to Baa2 increases the probability of a full or partial shutdown of purchases on the Discover network, which increases the risk to bondholders. This increased risk is not sufficient to result in a review of the current Aaa ratings on the Class A Certificates, but the current ratings may be more volatile than newly issued credit card securities. If the Discover spin-off occurs, the subordinate Class B securities may be downgraded to A3 from A2 unless compensating actions are taken by Discover. Furthermore, if Discover Bank is spun off, the credit enhancement for newly issued senior and subordinate bonds may increase in order to achieve respective Aaa and A2 ratings.

Moody's ratings on the Discover Card Master Trust I Certificates 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.

Moody's analysis assumed that Discover Bank will continue to maintain the seller's interest in the Trust at well above that contractually required minimum of 7%. In fact, since 2001, the Trust's seller's interest has ranged from approximately 10% to 25%. 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.

Moody's review of the certificates will also incorporate, among other factors, aspects of its updated approach to rating credit card ABS which were introduced on December 4, 2006, in a report entitled, "Moody's Approach to Rating Credit Card Receivables-Backed Securities."

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

New York
Jinhua (Rachel) Sun
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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