American Express 2008 Annual Report Download - page 89

notes to consolidated financial statements
american express company
87
In the event the excess spread, net in the Lending Trust becomes
negative, and the issuer rate collections are utilized to pay
Lending Trust expenses, this would be reflected as an expense
in securitization income, net in the Company’s Consolidated
Statements of Income and as a reduction of the Total Excess
Spread Rate, net.
In the event the excess spread rate, net for a given fixed or
floating rate series is reduced below certain levels for either the
Lending Trust or the Charge Trust, certain triggering events
occur, including:
•฀ If the three-month average excess spread rate, net for a
given fixed or floating rate series falls below five percent
or four percent for the Lending Trust and Charge Trust,
respectively, the affected Trust is required to fund a cash
reserve account (from cash that would normally revert back
to the Company through its subsidiaries) in increasing
amounts from $6 million up to a maximum of approximately
$2.0 billion for the Lending Trust and from $52 million up
to maximum $207 million for the Charge Trust, depending
on the fixed or floating rate series Total Trust Excess Spread
Rate, net. During February 2009, for certain fixed rate series
within the Lending Trust, a cash reserve account is required
to be funded in the amount of $22 million of which a partial
funding in the amount of $1.5 million is being recorded in
other receivables on the Company’s Consolidated Balance
Sheets. The Company has rights to this cash, and it will only
be used if this cash is required to help pay-off any outstanding
principal or interest at maturity or in the event of an early
amortization (see below). These fixed rate series, referred to
above, will mature in 2009 and 2011, and it is expected that
the cash in the cash reserve account will revert back to the
Company upon maturity.
•฀ If the three-month average excess spread rate, net for a given
fixed or floating rate series for either Trust falls below zero
percent, an early amortization of the affected Trust will
occur. The applicable cash reserve account (see above) for
each Trust is available to the investors if the collections from
the securitized loans and receivables are insufficient to pay
the principal balance of the investors’ notes and certificates.
•฀ In the event of an early amortization of the Lending Trust,
the lending receivable assets and investor certificates issued
by the Lending Trust would revert to the Company’s balance
sheet and the investor certificates would be required to be
repaid over an approximate four month period, based on
the estimated average life of the securitized loans. Although
the repayment of the investor certificates is non-recourse
to the Company, the Company would need an alternate
source of funding for the lending receivables assets that, as
a consequence of the early amortization, would revert to the
Company’s balance sheet, as well as for lending receivables
assets that would be generated in the future from the accounts
that are the source of the reverted receivables.
•฀ In the event of an early amortization of the Charge Trust, the
underlying investor notes issued by the Charge Trust are required
to be repaid over an approximate one month period, based on
the estimated average life of the securitized receivables.
With respect to both the Lending Trust and the Charge Trust,
a decline in the actual or implied short-term credit rating of
TRS below A-1/P-1 would 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.