Cabela's 2010 Annual Report Download - page 90

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80
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
Cabela’s Master Credit Card Trust:
The Trust issues variable funding facilities and long-term notes each of which has an undivided interest in the
assets of the Trust. WFB must retain a minimum 20 day average of 5% of the loans in the securitization trust which
ranks pari passu with the investors’ interests in the securitized trusts. In addition, WFB owns notes issued by the
Trust from some of the securitizations, which in some cases may be subordinated to other notes issued. WFB’s
retained interests were eliminated upon consolidation of the Trust. The consolidated assets of the Trust are subject
to credit, payment, and interest rate risks on the transferred credit card loans. In the consolidated balance sheet, the
credit card loans of the Trust are included in credit card loans as “restricted credit card loans of the Trust” and the
obligations of the Trust are recorded as secured borrowings in “secured variable funding obligations of the Trust”
and “secured long-term obligations of the Trust.”
To protect investors, the securitization structures include certain features that could result in earlier-than-
expected repayment of the securities, which could cause WFB to sustain a loss of one or more of its retained
interests and could prompt the need for WFB to seek alternative sources of funding. The primary investor
protection feature relates to the availability and adequacy of cash flows in the securitized pool of loans to meet
contractual requirements, the insufficiency of which triggers early repayment of the securities. WFB refers to
this as the “early amortization” feature. Investors are allocated cash flows derived from activities related to the
accounts comprising the securitized pool of loans, the amounts of which reflect finance charges collected, certain
fee assessments collected, allocations of interchange, and recoveries on charged-off accounts. These cash flows are
considered to be restricted under the governing documents to pay interest to investors, servicing fees, and to absorb
the investor’s share of charge-offs occurring within the securitized pool of loans. Any cash flows remaining in
excess of these requirements are reported to investors as excess spread. An excess spread of less than zero percent
for a contractually specified period, generally a three-month average, would trigger an early amortization event.
Such an event could result in WFB incurring losses related to its retained interests. In addition, if WFB’s retained
interest in the loans falls below the 5% minimum 20 day average and WFB fails to add new accounts to the
securitized pool of loans, an early amortization event would be triggered. The investors have no recourse to WFB’s
other assets for failure of debtors to pay other than for breaches of certain customary representations, warranties,
and covenants. These representations, warranties, covenants, and the related indemnities do not protect the Trust or
third party investors against credit-related losses on the loans.
Another feature, which is applicable to the notes issued from the Trust, is one in which excess cash flows
generated by the transferred loans are held at the Trust for the benefit of the investors. This cash reserve account
funding is triggered when the three-month average excess spread rate of the Trust decreases to below 4.50% or
5.50% (depending on the series) with increasing funding requirements as excess spread levels decline below preset
levels or as contractually required by the governing documents. Similar to early amortization, this feature also is
designed to protect the investors’ interests from loss thus making the cash restricted. Upon scheduled maturity or
early amortization of a securitization, WFB is required to remit principal payments received on the securitized
pool of loans to the Trust which are restricted for the repayment of the investors’ principal note. Credit card loans
performed within established guidelines and no events which could trigger an “early amortization” occurred during
the years ended 2010, 2009, and 2008.