Discover Card Master Trust I’s $750 million floating rate credit card pass-through certificates, series 1998-3, class A, are expected to be rated ‘AAA’ by Fitch IBCA. The corresponding $39.47 million floating rate class B certificates are expected to be rated ‘A’.
The expected ratings reflect the high quality of the receivables generated by Discover Card holders, 12.5% available subordinated amount supporting class A, 7.5% cash collateral account protecting class B, sound legal and cash flow structures, and excellent servicing provided by Greenwood Trust Co.
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 partially 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 17.5% for class A and 12.5% for class B.
Class A and B certificateholders will receive monthly interest payments of 12.5 basis points (bps) and 29 bps over one-month LIBOR, respectively, throughout the revolving and accumulation periods and on the scheduled payment date, provided an early payout event does not occur. Interest will be paid on the 15th of each month commencing in April 1998.
Following a variable accumulation period, principal is expected to be paid to class A on the March 2003 distribution date and to class B one month later. The series termination date is September 2005. As a part of Group One, series 1998-3 will share excess finance charge and principal collections with other Group One series.Details