American Express 2008 Annual Report Download - page 88

notes to consolidated financial statements
american express company
86
Other Disclosures
The table below summarizes cash flows received from the
Lending Trust for the years ended December 31:
(Millions) 2008 2007
Proceeds from new securitizations
during the period $9,619 $5,909
Proceeds from collections reinvested
in revolving cardmember securitizations $78,164 $63,714
Servicing fees received $543 $425
Other cash flows received on retained
interests from interest-only strips $2,363 $2,407
The following table presents quantitative information about
delinquencies, net credit losses, and components of securitized
cardmember loans on a trust basis at December 31:
(Billions)
Tota l
Principal
Amount of
Loans
Amount of
Loans 30
Days or
More Past
Due
Net
Credit
Write-offs
During
the Year
2008
Cardmember loans managed(a) $71.2 $3.3 $4.9
Less: Cardmember loans
securitized 29.0 1.4 1.7
Cardmember loans
on-balance sheet $42.2 $1.9 $3.2
2007
Cardmember loans managed $ 77.1 $2.1 $2.8
Less: Cardmember loans
securitized 22.7 0.6 0.8
Cardmember loans
on-balance sheet $54.4 $1.5 $2.0
(a) Excludes subordinated accrued interest receivable classified in other assets.
Refer to Note 8.
on-balance sheet securitizations
The Company’s securitizations of cardmember receivables are
accounted for as secured borrowings, rather than as qualifying
sales, because the receivables are transferred to a non-qualifying
special purpose entity, the American Express Issuance Trust (the
Charge Trust). The Charge Trust is considered a variable interest
entity and is consolidated by American Express Receivables
Financing Corporation V, LLC, its primary beneficiary, which
is in turn consolidated by the Company.
The cardmember receivables securitized through this entity
are not accounted for as sold and continue to be reported as
owned assets on the Company’s Consolidated Balance Sheets.
The related securities issued to third-party investors are reported
as long-term debt on the Company’s Consolidated Balance
Sheets. The Company, through its subsidiaries, is required
to maintain an undivided, pro rata interest in the transferred
cardmember receivables (seller’s interest) at a minimum level
of 15 percent of the total receivables in the Charge Trust. If
the seller’s interest was reduced below the 15 percent level, the
Company would be required to add additional cardmember
receivables to the Charge Trust. As of December 31, 2008, the
amount of seller’s interest was approximately 32 percent of the
total receivables in the Charge Trust.
The following table summarizes the total assets and
liabilities held by the Charge Trust at December 31:
(Billions) 2008 2007
Assets $7.8 $9.0
Liabilities $5.0 $ 3.1
These receivables are available only for payment of the debt or other
obligations issued or arising in the securitization transactions. For
these assets, the carrying values approximate fair value because
these are short-term in duration. The long-term debt is payable
only out of collections on the underlying securitized assets. The
fair value of these liabilities was $4.4 million and $3.2 million at
December 31, 2008 and 2007, respectively.
trust triggers
Under the respective terms of the Lending Trust and the
Charge Trust agreements, the occurrence of certain events
could result in payment of trust expenses, establishment of
reserve funds, or in a worst-case scenario, early amortization of
investor certificates.
The following table below presents key metrics reported by
each trust at December 31, 2008:
Lending
Trust
Charge
Trust
Total trust excess spread rate,
net – three months average 6.97%(a) 25.99%(b)
Floating rate series excess spread rate,
net – three months average 6.85%(c) 26.25%(c)
Fixed rate series excess spread rate,
net – three months average 5.20%(c) 25.00%(c)
(a) Total Trust Excess Spread Rate, net in the Lending Trust is the sum of
the net cash flows of the (i) excess spread, net and (ii) issuer rate, as a
percentage of the outstanding investors’ certificates. Excess spread, net is
the net cash flows from interest and fee collections allocated to the investors’
interests after deducting the interest paid on investors’ certificates, credit
losses, contractual servicing fees and other expenses. The deductions may
be a greater amount than the collections, resulting in negative spread losses.
Excess spread, net is reported by the Company in securitization income, net
in the Consolidated Statements of Income. See above for the disclosure of
excess spread, net. Issuer rate collections are a portion of monthly discount
revenue that is earned and collected by the Company on new transactions by
cardmembers that have their loans sold into the Lending Trust. These cash
flows are available to pay monthly Lending Trust expense. The issuer rate is
reported in discount revenue in the Company’s Consolidated Statements of
Income.
(b) Total Trust Excess Spread Rate, net in the Charge Trust is the net cash
flows from the discounted portion of principal collections allocated to the
investors’ interests after deducting the interest paid on investors’ notes, credit
losses, contractual servicing fees and other expenses, as a percentage of the
outstanding investors’ notes.
(c) Rates are calculated based on a 30/360 annualization factor.