Discover Card Master Trust I’s $750 million floating rate class A credit card pass-through certificates, series 1997-1, are expected to be rated ‘AAA’ by Fitch. The corresponding $39.5 million floating rate class B certificates are expected to be rated ‘A+’. With a weighted average life of five years, the securities represent the trust’s first issuance of the year and first since the merger with Morgan Stanley.
Series 1997-1 ratings reflect the high quality of the receivables generated by Discover Card accountholders, the 12.5% available subordinated amount supporting class A, the 7.5% cash collateral account available for class B, the sound legal and cash flow structures, and the 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 series 1997- 1 certificates. One of the more severe ‘AAA’ scenarios involved decreasing yield by more than 30%, cutting payment rates by 40% and increasing defaults to 31%. The less stringent ‘A+’ stress decreased yield by 25%, payment rates by 30% and increased defaults to 23%. Under the transaction’s current enhancement, the bonds could withstand these scenarios and still make full 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, due to 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.
Investors holding class A certificates will receive monthly interest payments of one-month LIBOR plus 0.09% 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 monthly to class B certificateholders at one-month LIBOR plus 0.27%. Following a variable accumulation period, principal is expected to be paid to class A on Aug. 15, 2002 and to class B one month later. The termination date is Feb. 16, 2005. As a part of Group One, series 1997-1 will share excess finance charge and principal collections with 13 other Group One series.Details