CREDIT CARD RECEIVABLE TRANSACTION

On October 1, 2015, we completed the sale of substantially all of our U.S. Visa and private label credit card portfolio to TD. In connection with the sale, we entered into a long-term program agreement under which TD is the exclusive issuer of our U.S. consumer credit cards. The following events summarize our credit card receivable transaction:


•	Receivables Reclassification – In the second quarter of 2015, we reclassified substantially all of our U.S. Visa and private label credit card receivables from "held for investment" to "held for sale" and, as such, recorded these receivables at the lower of cost (par) or fair value, resulting in the reversal of an allowance for credit losses of $64.


•	Secured Notes Defeasance – In September 2015, we completed the defeasance of our $325 Series 2011-1 Class A Notes in order to provide the credit card receivables to TD free and clear.


•	Transaction Close – At close we received $2.2 billion in cash consideration reflecting the par value of the receivables sold, and incurred $32 in transaction related expenses during the third quarter.


•	Program Agreement – Pursuant to the agreement, we are obligated to offer and administer our loyalty program and perform other account servicing functions. In return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables.

Transaction Accounting

The Purchase and Sale and Program agreements constitute a multiple element arrangement. These agreements were accounted for in accordance with Accounting Standards Codification ("ASC") 605, Revenue Recognition and ASC 860, Transfers and Servicing. We allocated the upfront cash consideration to each of the contract elements, including but not limited to receivables, accounts and loyalty obligations based upon relative selling price or fair value. We then recognized revenue relative to each of the contract elements that were delivered or earned, including receivables sold and accounts delivered, and deferred revenue on each of the elements that remained undelivered or unearned, including loyalty obligations.

We recorded the following assets and liabilities associated with the arrangement:


•	Beneficial interest asset of $62 – represents the present value of the expected profits on the receivables sold.


•	Deferred revenue of $289 – primarily related to our obligation to offer and administer our loyalty program over the term of the agreement.


•	Investment in contract asset of $210 – represents the future economic benefit associated with the arrangement and is equal to the difference between the carrying value of the delivered elements and the upfront cash consideration allocated to those elements.


•	We did not record a servicing asset or liability as our servicing fee approximates that of a market participant and represents adequate compensation.

The beneficial interest asset is carried at fair value (see Note 6: Fair Value Measurements) and is amortized over approximately four years based primarily on the payment rate of the associated receivables. The deferred revenue and investment in contract asset are recognized/amortized over seven years on a straight line basis, following the delivery of the contract obligations and expected life of the agreement. We record each of these items in Credit card revenue, net in our Condensed Consolidated Statements of Earnings.