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Rating Action:

Moody's assigns definitive Aaa (sf) to Discover's A(2018-2) card ABS

14 Mar 2018

$550 million of securities rated

New York, March 14, 2018 -- Moody's Investors Service has assigned a definitive Aaa (sf) rating to the DiscoverSeries Class A(2018-2) Notes issued by the Discover Card Execution Note Trust (the trust), sponsored by Discover Bank (Discover). Moody's also announced today that the issuance of the Discover Card Execution Note Trust, DiscoverSeries Class A(2018-2) Notes on March 14, 2018 would not, in and of itself and as of this time, result in the downgrade or withdrawal of the ratings assigned to any class of outstanding securities issued by the trust.

Moody's rating action is as follows:

Issuer: Discover Card Execution Note Trust, DiscoverSeries Notes

$550,000,000 DiscoverSeries Class A(2018-2) Notes, Definitive Rating Assigned Aaa (sf)

RATINGS RATIONALE

The rating is based on the quality of the underlying credit card receivables, the expertise of Discover as servicer, the transaction's legal and structural protections including early amortization trigger events, the credit enhancement provided by subordinate notes, and the likelihood of the sponsor becoming insolvent and shutting down its credit card portfolio. Moody's assesses this likelihood from the sponsor's counterparty risk assessment (CR Assessment).

The DiscoverSeries Class A(2018-2) Notes have a floating rate coupon of one-month LIBOR plus 0.33%, an expected maturity date of February 15, 2023, and a legal maturity date of August 15, 2025. Moody's rating addresses the likelihood of interest payments being made when due and the return of principal by the legal maturity date.

The assets of the trust consist of the Series 2007-CC collateral certificate, issued by the Discover Card Master Trust I (the master trust), which represents an undivided interest in the master trust's credit card receivables originated, and serviced, by Discover. Discover's long-term deposit rating is A3 positive/long-term senior unsecured Baa3 positive, long-term CR Assessment Baa2(cr), short-term deposits P-2, and BCA baa3.

Summary of Analytical Outputs

Moody's Aaa LGSD and Aaa CE are 30.7% and 19.1% respectively for this transaction. The Aaa LGSD reflects Moody's expectation of the trust's performance following a sponsor default and portfolio shutdown. The Aaa CE reflects the level of credit enhancement consistent with a Aaa (sf) rating by haircutting the Aaa LGSD based on the rating of the sponsor.

Moody's expects performance in the range of 2.75% - 3.25% for charge-offs, 18.0% - 21.0% for yield and 20.0% - 23.0% for the principal payment rate.

Moody's performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities were rated. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Methodology Underlying the Rating Action:

The principal methodology used in this rating was "Moody's Approach to Rating Credit Card Receivables-Backed Securities" published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to a downgrade of the rating:

Moody's could downgrade the rating of the Class A(2018-2) Notes if our expectation of the trust's performance following a sponsor default and portfolio shutdown (i.e., Aaa LGSD) deteriorates materially, specifically, if the charge-off rate rises or the payment rate or yield falls. An increase in Moody's assessment of the likelihood of the sponsor shutting down its credit card portfolio, generally reflected from a downgrade in the sponsor's CR Assessment, could also lead to a downgrade to the rating of the Class A(2018-2) Notes.

Loss and Cash Flow Analysis:

In rating this transaction, Moody's uses a cash flow model to determine the collateral losses in a maximum stress scenario. As a second step, Moody's haircuts such collateral losses based on the sponsor's credit quality. Finally, Moody's compares note available credit enhancement with the adjusted collateral losses, taking into account loss allocation and other structural features, to derive the expected loss for each rated instrument.

Stress Scenarios:

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

RATINGS OF EXISTING NOTES UNAFFECTED

Moody's also announced today that the issuance of the Discover Card Execution Note Trust, DiscoverSeries Class A(2018-2) Notes on March 14, 2018 would not, in and of itself and as of this time, result in the downgrade or withdrawal of the ratings assigned to any class of outstanding securities issued by the trust.

The issuance of the Class A(2018-2) Notes will increase the investor's share of the collateral pool of credit card receivables by the proportional amount of the new issuance and will correspondingly decrease the seller's share of the pool by the same proportion. Both the Class A(2018-2) Notes and the outstanding securities share a pro rata undivided interest in the same collateral pool of credit card receivables, and have similar terms. Moody's has therefore determined that the issuance, in and of itself and at this time, will not result in the downgrade or withdrawal of the ratings currently assigned to any class of outstanding securities issued by the trust.

However, Moody's opinion addresses only the credit impact associated with the issuance of the Class A(2018-2) Notes, and Moody's is not expressing any opinion as to whether the issuance has, or could have, other non-credit related effects that may have a detrimental impact on the interests of noteholders and/or counterparties.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1115902

Moody's describes its loss and cash flow analysis in the section "Ratings Rationale" of this press release.

Moody's describes the stress scenarios it has considered for this rating action in the section "Ratings Rationale" of this press release.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alan Birnbaum
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Pedro Sancholuz Ruda
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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