CCRT » Topics » 7. Credit Card Receivables Acquisitions

This excerpt taken from the CCRT 10-K filed Mar 8, 2005.

7.     Credit Card Receivables Acquisitions

        On August 1, 2003, the Company purchased a 62.5% interest in Embarcadero Holdings, LLC ("Embarcadero Holdings") for $26.5 million. Embarcadero Holdings was formed by an unaffiliated investor and one of the Company's wholly owned subsidiaries in connection with the acquisition of approximately $824.0 million (face amount) in credit card receivables from Providian Bank. These


receivables were then transferred to Embarcadero, LLC ("Embarcadero"), a wholly owned subsidiary of Embarcadero Holdings, and then on to a trust pursuant to a Statement No. 140 transfer in exchange for notes and a subordinated, certificated interest issued by the trust ("Embarcadero Trust"), thereby resulting in securitization income of $31.4 million. (See Note 9, "Off Balance Sheet Arrangements," for further discussion.) Embarcadero retained the subordinated, certificated interest originally issued by the Embarcadero Trust until the initial conduit facility underlying the securitization was replaced in January 2004 with a new 10-year amortizing term facility; Embarcadero now owns the subordinated, certificated interest underlying the new 10-year amortizing term facility. The assets and liabilities of Embarcadero Holdings and Embarcadero, and their associated earnings from operations, are presented as part of the Company's consolidated financial statements with a minority interest being shown to reflect the affiliated investor's portion of the operations. The minority interest on the consolidated statements of operations is not shown net of tax because Embarcadero is a pass-through entity for income tax purposes. For a fee that represents adequate compensation for servicing, the Company has agreed to service the entire portfolio of credit card receivables underlying the Embarcadero Trust. In addition, Embarcadero is obligated to provide for the purchase of receivables in the unlikely event that the Embarcadero Trust is unable to fund such receivables. To date, there have been no, and management does not expect any, borrowings related to this obligation.

        See separately the discussion of credit card receivables acquired by the Company's equity-method investees in Note 5, "Equity-Method Investments," above.

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