Fitch Rates Discover Card Execution Note Trust, Class A (2016-4)

NEW YORK--()--Fitch Ratings has assigned the following ratings to Discover Card Execution Note Trust, class A (2016-4):

--$1,200,000,000 class A (2016-4) 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS

Fitch's ratings are based on the underlying receivables pool, available credit enhancement, Discover Bank's underwriting and servicing capabilities, and the transaction's legal and cash flow structures, which employ early redemption triggers.

The transaction structure for both issuances is the same as class A (2016-3), with credit enhancement totalling 21.00% for class A.

Criteria Variations

Eligible Investments: Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness, as per the Counterparty Criteria for Structured Finance and Covered Bonds, dated Sept. 1, 2016. The definition of eligible investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest are monthly collections, and the funds can only be invested for a short duration of one month given the payment frequency of the notes, Fitch doesn't believe such variation has a measurable impact upon the ratings assigned.

Eligible Institution: Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness, as per the Counterparty Criteria for Structured Finance and Covered Bonds, dated Sept. 1, 2016. The definition of eligible institutions for this deal allows for the possibility of using a depository institution not rated by Fitch, which does not meet the Fitch counterparty criteria for a 'AAAsf' rated note. Since U.S. Bank, N.A., as account bank, currently maintains a 'AA'/F1+'/Stable Outlook rating, Fitch doesn't believe such variation have a measurable impact upon the ratings assigned.

Commingling: Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness, as per the Counterparty Criteria for Structured Finance and Covered Bonds, dated Sept. 1, 2016. The deal allows for the servicer to commingle without requiring a minimum rating from Fitch, which does not meet Fitch's counterparty criteria. Since Discover does not currently maintain the short-term credit ratings to allow it to be excluded from the two day remittance period, Fitch doesn't believe such a variation has a measurable impact upon the ratings assigned.

RATING SENSITIVITIES

Fitch models three different scenarios when evaluating the rating sensitivity compared to expected performance for credit card asset-backed securities transactions: 1) increased defaults; 2) a reduction in purchase rate, and 3) a combination stress of higher defaults and lower Monthly Payment Rate (MPR).

Decreasing purchase rate alone has the least impact on rating migration even in the most severe scenario of a 100% decrease in purchase rate. The rating sensitivity to an increase in defaults also does not have any rating migration. The harshest scenario assumes both stresses to defaults and MPR to occur simultaneously. The ratings would only be downgraded under the severe stress of a 75% increase in defaults and 35% reduction in MPR.

To date, the transactions have exhibited strong performance with all performance metrics within Fitch's initial expectations. For further discussion of our sensitivity analysis, please see the related presale report.

For a discussion of the representations, warranties, and enforcement mechanisms available to investors in this transaction please see the related presale appendix.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/site/re/879815

Global Credit Card ABS Rating Criteria (pub. 21 Jul 2016)

https://www.fitchratings.com/site/re/885146

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Related Research

Discover Card Execution Note Trust, Class A (2016-4), DiscoverSeries Notes -- Appendix

https://www.fitchratings.com/site/re/887644

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011991

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011991

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings, Inc.
Primary Analyst
John Alberici
Associate Director
+1-212-908-0370
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Harry Kohl
Director
+1-212-908-0837
or
Committee Chairperson
Herman Poon
Senior Director
+1-212-908-0847
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
John Alberici
Associate Director
+1-212-908-0370
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Harry Kohl
Director
+1-212-908-0837
or
Committee Chairperson
Herman Poon
Senior Director
+1-212-908-0847
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com