When Capital One finished buying Discover it had one loose end in the bond market: $2.85bn of credit-card notes sold to investors between 2021 and 2023, backed by a pool of Discover card receivables it wanted out of the trust. On 18 December 2025 it settled the problem by defeasance — depositing assets sufficient to pay the notes, releasing the receivables, and terminating Discover Card Master Trust I the same day.
The Defeasance Agreement filed with the SEC the following morning names what went in. For each of the three tranches Capital One bought a single zero-coupon Treasury bill maturing days before that tranche’s own expected maturity date: $1.25bn of face value due 12 March 2026 against a note due on the 16th, $1bn due 11 June against a note due on the 15th, $600m due 3 September against the last note, due on the 15th. That is $2,850,000,000 of face value against $2,850,000,000 of principal — matched to the day, tranche by tranche.
Then it added cash. The agreement calls them Initial Principal Credits and states them to the cent: $625,000,000.00, $500,000,000.00 and $300,000,000.00. Each is exactly half of its tranche’s principal. Because the Treasury bills are carried in the monthly servicer reports at face value, the accounts open at exactly $4,275,000,000 against $2.85bn of debt — one and a half times over, on the aggregate and on every tranche individually.
That precise 1.5 is arithmetic rather than a finding: par plus half of par is always 1.5 times par. What is worth attention is the half, because the indenture does not ask for it. Section 1310, the provision this deal was done under, requires collateral "at least sufficient to pay and discharge … all remaining scheduled interest and principal payments", verified by a nationally recognised accounting or verification firm. It sets no ratio at all. It does set a ceiling on how much can be left sitting there: whatever is required to effect the defeasance, "plus (ii) 2% of the amount described in the immediately preceding clause (i)", with the rest released.
Capital One built one half of the transaction to that 2% and the other half to 50%. The interest funding accounts are exact: the September 2026 tranche pays $515,000 a month and had nine payments left, so $4,635,000 was owed and $4,727,700.00 was deposited — 102%, to the dollar. The June 2026 tranche had $24,650,000 of coupons left and received $25,143,000.00, again exactly 102%. On the principal side the same company chose an extra $1.425bn.
Section 1310 also required nothing of the kind on 20 September 2021, when the first of these tranches was sold, because Section 1310 did not exist. Searching all three prospectuses — 2021, and the two from 2023 — returns the word "defeasance" zero times. The clause was added by Amendment No. 1 to the indenture, dated 18 December 2025, executed under Section 1001(b), the provision that lets the issuer and the trustee amend the terms without a noteholder vote on an officer’s certificate that the change will not materially and adversely affect holders. The instrument that authorised the transaction and the transaction itself are dated the same day.
The surplus has been coming back since. The Defeasance Agreement directs that whatever remains after noteholders are paid "shall be paid by the Paying Agent to the Beneficiary", and names the Beneficiary as Discover Funding LLC, a wholly owned Capital One subsidiary. On 16 March, when the first tranche matured, $629,536,905.95 left the principal accounts and $13,470,000.01 left the interest account. On 15 June the second tranche returned $508,170,263.31 and $493,000.02. The total already returned is $1,151,670,169.29, and it is a floor: the June filing footnotes that its figure excludes investment income accrued in the first half of that month.
At the 15 July reporting date the last tranche’s principal accounts held $905,793,920.87 against $600m of debt, and its interest account $1,122,700.00 against four remaining coupons. On 15 September, 36 days from now, the note is repaid and roughly $306m of principal surplus plus a $92,700 interest residue — exactly 2% of that tranche’s coupons, the number the clause allows — go back the same way. Total recovery will be at least $1,457,556,790.16.
The cushion has also been earning while it waits, though less than the headline balance suggests. Only the cash half earns anything: the Treasury bills are zero-coupon instruments reported at par, and they do not accrete in these statements. Measured against the cash, the monthly credits run at 3.36% to 3.68% on an actual/360 basis — an ordinary money-market return. Measured against the full reported balance they would imply 1.12% to 1.23%, which no money market paid in 2026, and which is the arithmetic tell that the $600m line is not working.
Two things this is not. Nothing was repaid early: each tranche came due on the date printed in its own term sheet in 2021 and 2023, and the last one is still outstanding. And none of the numbers above were prised out of anywhere — the agreement, the amendment and every monthly certificate have been public since December. What no filing states, because no filing is required to, is the running total: eight months in, a little over $1.15bn of the money Capital One set aside for Discover’s bondholders has gone back to Capital One.
What the filings no longer carry is anything about the cards themselves. Since the defeasance every monthly report has arrived with its pool sections marked not applicable and nothing to report; the last public data on the performance of Discover’s securitised cardholders is the statement dated 15 December 2025. On 15 September the disclosure ends altogether.