The Discover Card Execution Note Trust (DCENT) platform is preparing a $500 million issuance of notes secured by receivables on credit card accounts, which have only shown slight performance weaknesses.
Discover Bank is the originator and servicer of the deal's collateral. Performance numbers align with analysts' indices for credit quality, seasoning, geographic concentration, delinquencies and credit card usage rates, according to Fitch Ratings, which assigned preliminary ratings to the notes.
From a high-level point of view, Fitch describes a program that is growing—with 12.1 million total accounts, and $24.5 billion in receivables and that generally stable—with slightly mixed performance metrics.
Every account is seasoned for at least 60 months. Gross yields on the underlying credit card accounts improved on a year-over-year basis, reaching 20.64% by the February 2023 collection period, up from 18.54% for February 2022.
Other revenue characteristics appear to be showing weaker trends, however. On a 12-month average basis, the gross chargeoff rate was 2.08%, lower than the previous year's rate of 2.20%, and lower than Fitch's gross chargeoff steady state assumption of 6.00%. For just the February 2023 collection period, gross chargeoffs were 2.21%, up from 2.10% a year prior, which suggests that the rate is on a weakening trajectory.
As for delinquencies, payments late by 60 days rose to 0.97%, from 0.74% in February 2022. This is moving closer to the February 2020 level, Fitch said.
Fitch noted that despite some of the February performance concerns, robust loss multiples continue to be in line with current ratings. Another positive aspect of the deal, from a credit standpoint, is that the trust's performance has remained within Fitch's steady state assumptions. Residual impacts from prior coronavirus pandemic relief measures, elevated household savings and positive impacts from a strong labor market has stabilized performance over the last 12 months.
BofA Securities, Citigroup Global Markets, and RBC Capital Markets are lead underwriters on the transaction, known as Discover Card Execution Note Trust, Class A (2023-1).
All of the notes are fixed-rate, and the notes have no Libor or Secured Overnight Financing Rate (SOFR) exposure, according to Fitch.
Fitch intends to assign ratings of 'AAA' to the notes, which have a credit enhancement level of 21.0%, and a legal final maturity of March 15, 2028.
