American Express 2003 Annual Report Download - page 58

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(p.56_axp_ financial review)
No officer, director or employee holds any equity interest in the trusts or receives any direct or indirect compensation
from the trusts. The trusts in the Company’s securitization programs do not own stock of the Company or the stock of
any affiliate.
TRS’ securitization programs are operated through its special purpose subsidiaries and two trusts. The American Express
Credit Account Master Trust (the Master Trust) securitizes assets consisting of loans arising in a portfolio of designated con-
sumer American Express Credit Card, Optima Line of Credit and Sign & Travel/Extended Payment Option revolving credit
accounts or features owned by Centurion Bank. In the future, it may include other charge or credit accounts, features or
products. The Master Trust securitized $3.5 billion and $4.6 billion of loans in 2003 and 2002, respectively, through the
public issuance of investor certificates. During 2003 and 2002, $1.0 billion and $2.0 billion, respectively, of investor cer-
tificates that were previously issued by the Master Trust matured. When investor certificates mature, principal collections
received from the Master Trust assets are used to redeem the certificates. At December 31, 2003 and 2002, TRS had a total
of $19.4 billion and $16.9 billion, respectively, of trust-related securitized cardmember loans that are not on the Consoli-
dated Balance Sheets. Retained subordinated interests related to these assets totaled $1.8 billion and $1.5 billion at Decem-
ber 31, 2003 and 2002, respectively, and are on the Consolidated Balance Sheets.
Under the terms of the Master Trust pooling and servicing agreement, the occurrence of certain events could result in the
Master Trust being required to pay down the investor certificates before their expected payment dates over an early amor-
tization period. Examples of these events include: the failure of the securitized assets to generate specified yields over a
defined period of time and the decline of the total of the securitized assets’ principal balances below a specified percentage
of total investor certificates outstanding after the failure to add additional securitized assets as required by the agreement.
The Company does not expect an early amortization event to occur. In the event of a pay down, $17.6 billion of assets would
revert to the balance sheet and an alternate source of funding of a commensurate amount would have to be obtained. Had
a total pay down hypothetically occurred at a single point in time at December 31, 2003, the one-time negative effect on
results of operations would have been approximately $750 million pretax to re-establish reserves and accelerate amortiza-
tion of the interest-only strip related to these securitizations that would revert to the balance sheet. Subject to the perfor-
mance of the loans, the one-time negative effect would be offset by finance charge revenue over the life of the loans.
The second trust used by the Company, the American Express Master Trust (the Trust), securitizes charge card receivables
generated under designated American Express Card, Gold Card and Platinum Card consumer accounts through the
issuance of trust certificates. The assets in this Trust remain on the Company’s Consolidated Balance Sheets. In 2002, the Trust
securitized $1.8 billion of accounts receivable trust certificates and, in 2003, $2.0 billion of accounts receivable trust cer-
tificates that were previously issued by the Trust matured. The Trust specifies events the occurrence of which would result
in a pay down. The Company does not expect a pay down to occur. While virtually no financial statement impact would
result from a pay down, an alternate source of funding for the December 31, 2003 outstanding balance of $2.8 billion of
receivables would have to be obtained.
With respect to both the Master Trust and the Trust, a decline in the actual or implied short-term credit rating of TRS below
A-1/P-1 will trigger a requirement that TRS, as servicer, transfer collections on the securitized assets to investors on a daily,
rather than a monthly, basis or make alternative arrangements with the rating agencies to allow TRS to continue to transfer
collections on a monthly basis. Such alternative arrangements include obtaining appropriate guarantees for the performance
of the payment and deposit obligations of TRS, as servicer.