Fitch Does Not Anticipate Rating Changes on Discover Card ABS Following Spin-off.

NEW YORK -- Morgan Stanley's announced spin-off of its Credit Services business, including the Discover Card network and franchise, is not expected to affect the ratings of the approximately $27 billion in outstanding series of credit card asset-backed securities (ABS) issued by the Discover Card Master Trust I (DCMT I) according to Fitch Ratings. This expectation is based on Fitch's belief that the standalone Discover entity will be structured to remain an investment grade rated institution, coupled with the quality of the receivables, collateral performance trends, available credit enhancement, the transactions' sound legal and cash flow structures, and servicing capabilities provided by Discover Bank.

While details of its standalone financial profile have yet to be finalized, based on information provided by and conversations with Morgan Stanley's management, Fitch anticipates the entity would remain in the investment grade category. This is an important consideration from an ABS perspective, given the Discover Card proprietary payment network and structural features that benefit bondholders.

With the available credit enhancement, the transactions are able to withstand considerable economic and credit stress scenarios consistent with the assigned ratings and still return full principal and timely interest to bondholders under early amortization. Fitch's stress scenarios include one whereby a full purchase rate stress is applied (i.e. cards can no longer be used for new purchases) in conjunction with stresses applied to chargeoffs, monthly payment rate, portfolio yield, and investor coupon. Under this scenario, senior bonds can withstand chargeoffs reaching nearly 30% during the early amortization period. The full purchase rate stress assumes no new receivables are generated during early amortization and eliminates the benefit ABS bondholders receive from fixed allocation of finance charges, a structural feature that allocates a larger percentage of collections to investors during early amortization. While Fitch considers this a very conservative scenario, it addresses the risk associated with the uniqueness of the Discover Card payment network. Alternatively, assuming a partial purchase rate stress of 50%, available enhancement covers chargeoffs approaching 60%, highlighting the benefit of the fixed allocation of finance charge mechanism.

As of Feb. 28, 2005 the DCMT I contained roughly $32.7 billion in principal receivables which supported approximately $27.1 billion in outstanding investor certificates. Collateral performance metrics continue to be within Fitch's expectations. For the collection period ending February 28, 2005, yield, MPR and chargeoffs registered 16.2%, 19%, and 6.5%, respectively. Excess spread, which can be used to gauge the overall health of the trust, has remained strong averaging 5.3% for the last 12-months. With respect to year-over-year performance, trust variables (yield, MPR, chargeoffs, 60+ delinquencies and three-month excess spread) continue to exhibit stability and perform similar to industry standards. For the 12-month period ended February 2005, MPR, chargeoffs and three-month excess spread averaged 19.4%, 7% and 5.3%, respectively.

Earlier this week, Fitch placed the long- and short-term debt ratings of both Morgan Stanley and Discover Bank on Rating Watch Negative, while affirming the individual ratings of both entities. Discover Bank as seller/servicer, currently assumes the same long-term rating as Morgan Stanley ('AA-/F1+'). Morgan Stanley's stated intention, while subject to alteration, is to structure the divested company to be strong enough to issue debt on a standalone basis. Discover's standalone financial profile would warrant the assignment of a lower, albeit investment grade, long-term debt rating. Discover maintains a B/C individual rating based on profitability, asset quality, funding and capital structure independent of Morgan Stanley. Fitch is of the opinion that capital and funding and asset quality and operations will not be negatively impacted by the planned divestiture. Future rating actions for Discover will depend on the funding and equity structure of the company. Fitch will also consider challenges such as scale, growth and product.

Fitch will continue to monitor collateral pool performance and evaluate the impact to Discover Bank as a stand alone entity as it relates to DCMT I's outstanding ratings.