American Express 2015 Annual Report Download - page 133

NOTE 6
ASSET SECURITIZATIONS
The Company periodically securitizes Card Member receivables and loans arising from its card business, including
Card Member loans and receivables HFS, through the transfer of those assets to securitization trusts. The trusts then
issue debt securities to third-party investors, collateralized by the transferred assets.
Card Member receivables are transferred to the American Express Issuance Trust II (the Charge Trust). Card
Member loans are transferred to the American Express Credit Account Master Trust (the Lending Trust, collectively
the Trusts). The Trusts are consolidated by American Express Travel Related Services Company, Inc. (TRS), which is a
consolidated subsidiary of the Company. The Trusts are considered VIEs as they have insufficient equity at risk to
finance their activities, which are to issue debt securities that are collateralized by the underlying Card Member
receivables and loans. Details on the principles of consolidation can be found in the summary of significant accounting
policies (refer to Note 1).
TRS, in its role as servicer of the Trusts, has the power to direct the most significant activity of the Trusts, which is
the collection of the underlying Card Member receivables and loans. In addition, TRS, excluding its consolidated
subsidiaries, owned approximately $1.0 billion of subordinated securities issued by the Lending Trust as of
December 31, 2015. These subordinated securities have the obligation to absorb losses of the Lending Trust and
provide the right to receive benefits from the Lending Trust, both of which are significant to the VIE. TRS’ role as
servicer for the Charge Trust does not provide it with a significant obligation to absorb losses or a significant right to
receive benefits. However, TRS’ position as the parent company of the entities that transferred the receivables to the
Charge Trust makes it the party most closely related to the Charge Trust. Based on these considerations, TRS is the
primary beneficiary of both Trusts.
The debt securities issued by the Trusts are non-recourse to the Company. The securitized Card Member
receivables and loans held by the Charge Trust and the Lending Trust, respectively, are available only for payment of
the debt securities or other obligations issued or arising in the securitization transactions (refer to Note 3). The long-
term debt of each Trust is payable only out of collections on their respective underlying securitized assets (refer to
Note 9).
The following table presents the restricted cash held by the Charge Trust and the Lending Trust as of
December 31, 2015 and 2014, included in Other Assets on the Company’s Consolidated Balance Sheets:
(Millions) 2015 2014
Charge Trust ................................................................................ $2$2
Lending Trust ............................................................................... 153 62
Total ....................................................................................... $155 $64
These amounts relate to collections of Card Member receivables and loans to be used by the Trusts to fund future
expenses and obligations, including credit losses, interest paid on the debt securities and upcoming debt maturities.
Under the respective terms of the Charge Trust and the Lending Trust agreements, the occurrence of certain
triggering events associated with the performance of the assets of each Trust could result in payment of trust
expenses, establishment of reserve funds, or, in a worst-case scenario, early amortization of investor debt securities.
During the year ended December 31, 2015, no such triggering events occurred.
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