Discover Card Master Trust I’s $500 million 5.75% class A credit card pass-through certificates, series 1998- 4, are expected to be rated ‘AAA’ by Fitch IBCA. The corresponding $26.3 million 5.90% class B certificates are expected to be rated ‘A’.
Series 1998-4 expected ratings reflect the high quality of the receivables generated by Discover Card holders, 8.5% available subordinated amount supporting class A, 4% cash collateral account protecting class B, sound legal and cash flow structures, and excellent servicing provided by Greenwood TrustCo.
Economic and credit stress scenarios were applied to the collateral pool to determine the appropriate levels of credit enhancement for the certificates. One of the more severe ‘AAA’ scenarios involved decreasing yield by more than 30%, cutting monthly payment rate by 40% and increasing chargeoffs over 30%. The ‘A’ stress decreased yield by 25%, payment rate by 30% and increased chargeoffs to 23%. With the credit enhancement currently available, the securities could withstand these stresses simultaneously and still make full and timely payments of principal and interest to class A and class B investors.
Investors are protected from a deterioration in asset quality, seller insolvency or servicer default by early amortization triggers. If certain adverse events occur, an accelerated payout of investor principal will begin possibly earlier than expected. During such an amortization event, finance charge collections normally allocated to the seller will become available to cover trust expenses through a structural feature that fixes the finance charge allocation based upon pre-amortization invested amounts. Allocating finance charge collections in this manner allows funds otherwise designated to the seller to flow through to the trust. Greenwood has the option to allocate collections on a floating basis, which would require enhancement levels to be increased to 13.5% for class A and 8.5% for class B.
Class A and B certificateholders will receive semiannual interest payments at a fixed rate of 5.75% and 5.90% per annum, respectively, throughout the revolving and accumulation periods and on the expected final payment date, provided an early amortization event does not occur. Interest will be paid the 15th of each October and April, commencing October 1998. Following a variable accumulation period, principal is expected to be paid to class A certificateholders on the April 2001 distribution date and to class B one month later. As a part of Group One, series 1998-4 will share excess finance charge and principal collections with other Group One series.Details