Prospectus Supplement dated February 8, 2006

to Prospectus dated February 8, 2006

 

LOGO

MBNA Credit Card Master Note Trust

Issuing Entity

 

MBNA America Bank, National Association

Sponsor and Depositor

MBNAseries

 

The issuing entity will issue and sell:     

Class C(2006-1) Notes


Principal amount

     $350,000,000

Interest rate

     one-month LIBOR plus
0.42% per year (determined as described in the following Class C(2006-1) summary)

Interest payment dates

     15th day of each month,
beginning in April 2006

Expected principal payment date

     February 15, 2013

Legal maturity date

     July 15, 2015

Expected issuance date

     February 17, 2006

Price to public

     $350,000,000 (or 100%)

Underwriting discount

     $1,487,500 (or 0.425%)

Proceeds to the issuing entity

     $348,512,500 (or 99.575%)

 

The Class C(2006-1) notes are a tranche of the Class C notes of the MBNAseries.

 

Credit Enhancement: The Class C(2006-1) notes will have the benefit of a Class C Reserve Account.

 

 

You should consider the discussion under “Risk Factors” beginning on page 30 of the accompanying prospectus before you purchase any notes.

 

The notes are obligations of the issuing entity only and are not obligations of MBNA, its affiliates or any other person. Noteholders will have no recourse to any other assets of the issuing entity for the payment of the notes.

 

The primary asset of the issuing entity is the collateral certificate, Series 2001-D, representing an undivided interest in MBNA Master Credit Card Trust II, whose assets include the receivables arising in a portfolio of unsecured consumer revolving credit card accounts.

 

The notes are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality.

 

 

Neither the SEC nor any state securities commission has approved the notes or determined that this prospectus supplement or the prospectus is truthful, accurate or complete. Any representation to the contrary is a criminal offense.

 

Underwriters

 

Banc of America Securities LLC

Deutsche Bank Securities

Lehman Brothers

 

 


Important Notice about Information Presented in this Prospectus Supplement and the Accompanying Prospectus

 

We provide information to you about the notes in two separate documents: (a) this prospectus supplement, which will describe the specific terms of the Class C(2006-1) notes and (b) the accompanying prospectus, which provides general information about the MBNAseries notes and each other series of notes which may be issued by the MBNA Credit Card Master Note Trust, some of which may not apply to the MBNAseries or the Class C(2006-1) notes. References to the prospectus means the prospectus accompanying this prospectus supplement.

 

This prospectus supplement may be used to offer and sell the Class C(2006-1) notes only if accompanied by the prospectus.

 

This prospectus supplement supplements disclosure in the prospectus.

 

You should rely only on the information provided in this prospectus supplement and the prospectus including the information incorporated by reference. We have not authorized anyone to provide you with different information. We are not offering the Class C(2006-1) notes in any state where the offer is not permitted. We do not claim the accuracy of the information in this prospectus supplement or the prospectus as of any date other than the dates stated on their respective covers.

 

We include cross-references in this prospectus supplement and in the prospectus to captions in these materials where you can find further related discussions. The Table of Contents in this prospectus supplement and in the prospectus provide the pages on which these captions are located.

 

Parts of this prospectus supplement and the prospectus use defined terms. You can find a listing of defined terms in the “Glossary of Defined Terms” beginning on page 168 in the prospectus.

 


 

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Table of Contents

 

 

 

     Page

Class C(2006-1) Summary

   S-4

Transaction Parties

   S-8

MBNA Credit Card Master Note Trust

   S-8

MBNA Master Credit Card Trust II

   S-8

MBNA

   S-8

Use of Securitization as a Source of Funding

   S-9

The Bank of New York

   S-9

Wilmington Trust Company

   S-9

The Class C(2006-1) Notes

   S-9

Securities Offered

   S-10

The MBNAseries

   S-10

Interest

   S-10

Principal

   S-11

Nominal Liquidation Amount

   S-12

Subordination; Credit Enhancement

   S-12

Required Subordinated Amount

   S-14

Class C Reserve Account

   S-15

Revolving Period

   S-16

Early Redemption of Notes

   S-16

Optional Redemption by the Issuing Entity

   S-16

Events of Default

   S-17
     Page

Issuing Entity Accounts

   S-17

Security for the Notes

   S-17

Limited Recourse to the Issuing Entity

   S-18

Accumulation Reserve Account

   S-18

Shared Excess Available Funds

   S-18

Stock Exchange Listing

   S-19

Ratings

   S-19

Underwriting

   S-19

Annex I:

    

The Master Trust II Portfolio

   A-I-1

Delinquency and Principal Charge-Off Experience

   A-I-1

Revenue Experience

   A-I-3

Interchange

   A-I-5

Principal Payment Rates

   A-I-5

Renegotiated Loans and Re-Aged Accounts

   A-I-6

The Receivables

   A-I-6

Annex II:

    

Outstanding Series, Classes and Tranches of Notes

   A-II-1

Annex III:

    

Outstanding Master Trust II Series

   A-III-1

 

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Class C(2006-1) Summary

 

This summary does not contain all the information you may need to make an informed investment decision. You should read this prospectus supplement and the accompanying prospectus in their entirety before you purchase any notes.

 

Only the Class C(2006-1) notes are being offered through this prospectus supplement and the prospectus. Other series, classes and tranches of notes, including other tranches of notes that are included in the MBNAseries as a part of the Class C notes or other notes that are included in the Class C(2006-1) tranche, may be issued by the MBNA Credit Card Master Note Trust in the future without the consent of, or prior notice to, any noteholders.

 

Other series of certificates of master trust II and other series, classes and tranches of the MBNA Credit Card Master Note Trust may be issued without the consent of, or prior notice to, any noteholders or certificateholders.

 

Transaction Parties

 

Issuing Entity of the Notes

   MBNA Credit Card Master Note Trust

Issuing Entity of the Collateral Certificate

   MBNA Master Credit Card Trust II

Seller, Servicer, Depositor, Sponsor

   MBNA America Bank, National Association

Master Trust II Trustee, Indenture Trustee

   The Bank of New York

Owner Trustee

   Wilmington Trust Company
Assets     

Issuing Entity Assets

   Collateral Certificate

Collateral Certificate

   Undivided interest in master trust II

Master Trust II Assets

   Receivables in unsecured credit card accounts

Accounts and Receivables in the Master Trust II Portfolio (as of beginning of the day on January 27, 2006)

   Principal receivables:    $70,960,448,471
     Finance charge receivables:    $1,354,037,833
     Account average principal balance:    $1,704
     Account average credit limit:    $14,504
     Account average age:    approximately 85 months
     Account billing addresses:   

all 50 States plus the

District of Columbia

and Puerto Rico

     Aggregate total receivable balance as a percentage of aggregate total credit limit:    12.0%

Accounts in the Master Trust II Portfolio (as of December 31, 2005)

   With regard to statements prepared for cardholders during December 2005 only, accounts in the Master Trust II Portfolio that had cardholders that made the minimum payment under the terms of the related credit card agreement:    3.06%

 

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     With regard to statements prepared for cardholders during December 2005 only, accounts in the Master Trust II Portfolio that had cardholders that paid their full balance under the terms of the related credit card agreement:    10.81%

Asset Backed Securities Offered

  

Class C(2006-1)

Class

   Class C     

Series

   MBNAseries     

Initial Principal Amount

   $350,000,000     

Initial Nominal Liquidation Amount

   $350,000,000     

Expected Issuance Date

   February 17, 2006     

Accumulation Reserve Account Targeted Deposit

   0.5% of outstanding dollar principal amount

Class C Reserve Account Targeted Deposit

   Nominal liquidation amount of all MBNAseries notes times funding percentage

Funding Percentage

  

Three-month average

excess available funds %


  

Funding %


    

4.50% or greater

   0.00%
    

4.00% to 4.49%

   1.25%
    

3.50% to 3.99%

   2.00%
    

3.00% to 3.49%

   2.75%
    

2.50% to 2.99%

   3.50%
    

2.00% to 2.49%

   4.50%
    

1.99% or less

   6.00%
     Increases in the funding percentage will lead to a larger targeted deposit to the Class C reserve subaccount for these Class C(2006-1) notes. Funds on deposit in this Class C reserve subaccount will be available to cover shortfalls in interest and principal on the Class C(2006-1) notes. However, amounts on deposit in the Class C reserve subaccount may have been reduced due to withdrawals to cover shortfalls in interest or principal due in prior periods. In addition, the Class C reserve subaccount may not be fully funded if available funds after giving effect to prior required deposits are insufficient to make the full targeted deposit into the Class C reserve subaccount.

Excess Available Funds %

   Excess of Portfolio Yield over Base Rate. See “Class C(2006-1) Notes—Class C Reserve Account”.

Risk Factors

   Investment in the Class C(2006-1) notes involves risks. You should consider carefully the risk factors beginning on page 30 in the prospectus.

Interest

         

Interest Rate

   London inter-bank offered rate for U.S. dollar deposits for a one-month period (LIBOR) as of each LIBOR determination date plus 0.42% per year

 

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LIBOR Determination Dates

   (i) February 15, 2006 for the period from and including the issuance date to but excluding March 15, 2006, (ii) March 13, 2006 for the period from and including March 15, 2006 to but excluding April 17, 2006, and (iii) for each interest accrual period thereafter, the date that is two London business days before each distribution date

Distribution Dates

   April 17, 2006 and the 15th day of each following calendar month (or the next business day if the 15th is not a business day)

London Business Day

   London, New York, New York and Newark, Delaware Banking Day

Interest Accrual Method

   Actual/360

Interest Accrual Periods

   From and including the issuance date to but excluding the first interest payment date and then from and including each interest payment date to but excluding the next interest payment date

Interest Payment Dates

   Each distribution date starting on April 17, 2006

First Interest Payment Date

   April 17, 2006

Business Day

   New York, New York and Newark, Delaware

Principal

    

Expected Principal Payment Date

   February 15, 2013

Legal Maturity Date

   July 15, 2015

Revolving Period End

   Between 12 and 1 months prior to expected principal payment date

Servicing Fee

  

2% of nominal liquidation amount

Anticipated Ratings

   The C(2006-1) notes must be rated by at least one of the following nationally recognized rating agencies:
    

Moody’s:

  

Baa2

    

Standard & Poor’s:

  

BBB

    

Fitch:

  

BBB

Early Redemption Events

   Early redemption events applicable to the Class C(2006-1) notes include the following: (i) the occurrence of a note’s expected principal payment date; (ii) each of the Pay Out Events described under “Master Trust II—Pay Out Events” in the prospectus; (iii) the issuing entity becoming an “investment company” within the meaning of the Investment Company Act of 1940, as amended; and (iv) for any date the amount of Excess Available Funds for the MBNAseries notes averaged over the 3 preceding calendar months is less than the Required Excess Available Funds for the MBNAseries for such date. See “The Indenture—Early Redemption Events” in the prospectus.

Events of Default

   Events of default applicable to the Class C(2006-1) notes include the following: (i) the issuing entity’s failure, for a period of 35 days, to pay interest upon such notes when such interest becomes due and payable; (ii) the issuing entity’s

 

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     failure to pay the principal amount of such notes on the applicable legal maturity date; (iii) the issuing entity’s default in the performance, or breach, of any other of its covenants or warranties, as discussed in the prospectus; and (iv) the occurrence of certain events of bankruptcy, insolvency, conservatorship or receivership of the issuing entity. See “The Indenture—Events of Default” in the prospectus.

Optional Redemption

   If nominal liquidation amount is less than 5% of the highest outstanding dollar principal amount

ERISA Eligibility

   Yes, subject to important considerations described under “Benefit Plan Investors” in the prospectus (investors are cautioned to consult with their counsel)

Tax Treatment

   Debt for U.S. federal income tax purposes, subject to important considerations described under “Federal Income Tax Consequences” in the prospectus (investors are cautioned to consult with their tax counsel)

Stock Exchange Listing

   Application to be made to a stock exchange in Europe

Clearance and Settlement

   DTC/Clearstream/Euroclear

Recent Developments

   On January 1, 2006, MBNA Corporation merged with Bank of America Corporation. See “Transaction Parties—MBNA—Bank of America Corporation/MBNA Corporation Merger” in the prospectus for a discussion of the merger and its potential impact on MBNA, master trust II and noteholders.

 

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Transaction Parties

 

MBNA Credit Card Master Note Trust

 

The notes will be issued by MBNA Credit Card Master Note Trust (referred to as the issuing entity). For a description of the limited activities of the issuing entity, see “Transaction Parties—MBNA Credit Card Master Note Trust” in the prospectus.

 

MBNA Master Credit Card Trust II

 

MBNA Master Credit Card Trust II (referred to as master trust II) issued the collateral certificate. See “Transaction Parties—MBNA Master Credit Card Trust II” and “Master Trust II” in the prospectus. The collateral certificate is the issuing entity’s primary source of funds for the payment of principal of and interest on the notes. The collateral certificate is an investor certificate which represents an undivided interest in the assets of master trust II. Master trust II’s assets primarily include credit card receivables from selected MasterCard®, Visa® and American Express® unsecured revolving credit card accounts that meet the eligibility criteria for inclusion in master trust II. These eligibility criteria are discussed in the prospectus under “Master Trust II—Addition of Master Trust II Assets.”

 

The credit card receivables in master trust II consist primarily of principal receivables and finance charge receivables. Principal receivables include amounts charged by cardholders for merchandise and services and amounts advanced to cardholders as cash advances. Finance charge receivables include periodic finance charges, annual membership fees, cash advance fees, late charges and certain other fees billed to cardholders, and recoveries on receivables in defaulted accounts.

 

In addition, MBNA is permitted to add to master trust II participations representing interests in a pool of assets primarily consisting of receivables arising under consumer revolving credit card accounts owned by MBNA and collections thereon.

 

See “Annex I: The Master Trust II Portfolio” in this prospectus supplement for detailed financial information on the receivables and the accounts.

 

The collateral certificate is the certificate comprising the Series 2001-D certificate issued by master trust II. Other series of certificates may be issued by master trust II in the future without the consent of any noteholders or certificateholders. See “Annex III: Outstanding Master Trust II Series” in this prospectus supplement for information on the other outstanding series issued by master trust II.

 

MBNA

 

MBNA America Bank, National Association (referred to as MBNA), a national bank organized in January 1991 as the successor to a national bank formed in 1982, formed master trust II and has transferred and may continue to transfer credit card receivables to master trust II. MBNA will be responsible for servicing, managing and making collections on the credit card receivables in master trust II. See “MBNA’s Credit Card Activities” in the prospectus. In addition, MBNA is the holder of the seller interest in master trust II and the beneficiary of the issuing entity. See “Transaction Parties—MBNA” in the prospectus for a description of MBNA and its responsibilities.

 

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MBNA is a wholly-owned subsidiary of Bank of America Corporation. MBNA has two wholly-owned non-U.S. bank subsidiaries, MBNA Europe Bank Limited, formed in 1993 with its headquarters in the United Kingdom, and MBNA Canada Bank, formed in 1997.

 

Use of Securitization as a Source of Funding

 

MBNA (including its predecessor bank, Maryland Bank National Association) has been securitizing credit card receivables since 1986. MBNA created MBNA Master Credit Card Trust II on August 4, 1994. MBNA Credit Card Master Note Trust was created on May 4, 2001. In addition to sponsoring the securitization of the consumer credit card receivables in master trust II, MBNA or its affiliates is the sponsor to other master trusts securitizing other consumer and small business lending products.

 

MBNA uses a variety of funding sources to meet its liquidity goals. Funding sources for MBNA include, but are not limited to, securitization, retail deposits and debt issuances. As of December 31, 2005, approximately 83% of MBNA’s total U.S. credit card portfolio (measured by aggregate receivables balance) was securitized.

 

The Bank of New York

 

The Bank of New York, a New York banking corporation, is the indenture trustee under the indenture for the notes and the trustee under the master trust II agreement for the master trust II investor certificates. See “The Indenture—Indenture Trustee” in the prospectus for a description of the limited powers and duties of the indenture trustee and “Master Trust II—Master Trust II Trustee” in the prospectus for a description of the limited powers and duties of the master trust II trustee. See “Transaction Parties—The Bank of New York” in the prospectus for a description of The Bank of New York.

 

Wilmington Trust Company

 

Wilmington Trust Company, a Delaware banking corporation, is the owner trustee of the issuing entity. See “Transaction Parties—Wilmington Trust Company” in the prospectus for a description of the ministerial powers and duties of the owner trustee and for a description of Wilmington Trust Company.

 

The Class C(2006-1) Notes

 

The notes will be issued by the issuing entity pursuant to the indenture and an indenture supplement. The following discussion and the discussions under “The Notes” and “The Indenture” in the prospectus summarize the material terms of the notes, the indenture and the MBNAseries indenture supplement. These summaries do not purport to be complete and are qualified in their entirety by reference to the provisions of the notes, the indenture and the MBNAseries indenture supplement. There is no limit the total principal amount of notes that may be issued.

 

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Securities Offered

 

The Class C(2006-1) notes are part of a series of notes called the MBNAseries. The MBNAseries consists of Class A notes, Class B notes and Class C notes. The Class C(2006-1) notes are a tranche of Class C notes of the MBNAseries. The Class C(2006-1) notes are issued by, and are obligations of, the MBNA Credit Card Master Note Trust.

 

The Class C(2006-1) notes are expected to be the twenty-fourth tranche of Class C notes outstanding in the MBNAseries.

 

The MBNAseries

 

The MBNAseries notes will be issued in classes. Each class of notes has multiple tranches which may be issued at different times and have different terms (including different interest rates, interest payment dates, expected principal payment dates, legal maturity dates or other characteristics). Whenever a “class” of notes is referred to in this prospectus supplement or the prospectus, it includes all tranches of that class of notes, unless the context otherwise requires.

 

Notes of any tranche can be issued on any date so long as a sufficient amount of subordinated notes or other acceptable credit enhancement has been issued and is outstanding. See “The Notes—Issuances of New Series, Classes and Tranches of Notes” in the prospectus. The expected principal payment dates and legal maturity dates of tranches of senior and subordinated classes of the MBNAseries are different. Therefore, subordinated notes may have expected principal payment dates and legal maturity dates earlier than some or all senior notes of the MBNAseries. Subordinated notes will generally not be paid before their legal maturity date unless, after payment, the remaining outstanding subordinated notes provide the credit enhancement required for the senior notes.

 

In general, the subordinated notes of the MBNAseries serve as credit enhancement for all of the senior notes of the MBNAseries, regardless of whether the subordinated notes are issued before, at the same time as, or after the senior notes of the MBNAseries. However, certain tranches of senior notes may not require subordination from each class of notes subordinated to it. For example, a tranche of Class A notes may be credit enhanced solely from Class C notes. In this example, the Class B notes will not provide credit enhancement for that tranche of Class A notes. The amount of credit exposure of any particular tranche of notes is a function of, among other things, the total amount of notes issued, the required subordinated amount, the amount of usage of the required subordinated amount and the amount on deposit in the senior tranches’ principal funding subaccounts.

 

As of the date of this prospectus supplement, the MBNAseries is the only issued and outstanding series of the issuing entity. See “Annex II: Outstanding Series, Classes and Tranches of Notes” for information on the other outstanding notes issued by the issuing entity.

 

Interest

 

Interest on the Class C(2006-1) notes will accrue at a floating rate equal to the London interbank offered rate for US dollar deposits for a one-month period (LIBOR) plus a spread.

 

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LIBOR appears on Telerate Page 3750 on the Moneyline Telerate Service (or comparable replacement page) and will be the rate available at 11:00 a.m., London time, on each determination date. If the rate does not appear on that page, the rate will be the average of the rates offered by four prime banks in London. If less than two London banks provide a rate at the request of the indenture trustee, the rate will be the average of the rates offered by four major banks in New York City.

 

Interest on the Class C(2006-1) notes for any interest payment date will equal the product of:

 

    the Class C(2006-1) note interest rate for the applicable interest period; times

 

    the actual number of days in the related interest accrual period divided by 360; times

 

    the outstanding dollar principal amount of the Class C(2006-1) notes as of the related record date.

 

Generally, no payment of interest will be made on any Class B MBNAseries note until the required payment of interest has been made to all Class A MBNAseries notes. Similarly, generally, no payment of interest will be made on any Class C MBNAseries note until the required payment of interest has been made to all Class A and Class B MBNAseries notes. However, funds on deposit in the Class C reserve account will be available only to holders of Class C notes to cover shortfalls of interest on any interest payment date. The Class C(2006-1) notes generally will not receive interest payments on any payment date until the Class A notes and Class B notes have received their full interest payment on that date.

 

The issuing entity will pay interest on the Class C(2006-1) notes solely from the portion of MBNAseries Available Funds and from other amounts which are available to the Class C(2006-1) notes under the indenture and the MBNAseries indenture supplement after giving effect to all allocations and reallocations. If those sources are not sufficient to pay the interest on the Class C(2006-1) notes, Class C(2006-1) noteholders will have no recourse to any other assets of the issuing entity, MBNA or any other person or entity for the payment of interest on those notes.

 

Principal

 

The issuing entity expects to pay the stated principal amount of the Class C(2006-1) notes in one payment on its expected principal payment date, and is obligated to do so if funds are available for that purpose and not required for subordination. If the stated principal amount of the Class C(2006-1) notes is not paid in full on the expected principal payment date due to insufficient funds or insufficient credit enhancement, noteholders will generally not have any remedies against the issuing entity until the legal maturity date of the Class C(2006-1) notes.

 

In addition, if the stated principal amount of the Class C(2006-1) notes is not paid in full on the expected principal payment date, then an early redemption event will occur for the Class C(2006-1) notes and, subject to the principal payments rules described under “—Subordination; Credit Enhancement” and “—Required Subordinated Amount” below,

 

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principal and interest payments on the Class C(2006-1) notes will be made monthly until they are paid in full or until the legal maturity date occurs, whichever is earlier.

 

Principal of the Class C(2006-1) notes will begin to be paid earlier than the expected principal payment date if any other early redemption event or an event of default and acceleration occurs for the Class C(2006-1) notes. See “The Notes—Early Redemption of Notes, “The Indenture—Early Redemption Events” and “—Events of Default” in the prospectus.

 

The issuing entity will pay principal of the Class C(2006-1) notes solely from the portion of MBNAseries Available Principal Amounts and from other amounts which are available to the Class C(2006-1) notes under the indenture and the MBNAseries indenture supplement after giving effect to all allocations and reallocations. If those sources are not sufficient to pay the principal of the Class C(2006-1) notes, Class C(2006-1) noteholders will have no recourse to any other assets of the issuing entity, MBNA or any other person or entity for the payment of principal on those notes.

 

Nominal Liquidation Amount

 

The nominal liquidation amount of a tranche of notes corresponds to the portion of the investor interest of the collateral certificate that is available to support that tranche of notes. Generally, the nominal liquidation amount is used to determine the amount of available principal amounts and available funds that are available to pay principal of and interest on the notes. For a more detailed discussion of nominal liquidation amount, see “The Notes—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount” in the prospectus.

 

Subordination; Credit Enhancement

 

Credit enhancement for the Class C(2006-1) notes will be provided by the Class C Reserve Account.

 

Principal and interest payments on Class B and Class C MBNAseries notes are subordinated to payments on Class A MBNAseries notes as described above under “—Interest” and “—Principal. Subordination of Class B and Class C MBNAseries notes provides credit enhancement for Class A MBNAseries notes.

 

Principal and interest payments on Class C MBNAseries notes are subordinated to payments on Class A notes and Class B MBNAseries notes as described above under “—Interest” and “—Principal. Subordination of Class C MBNAseries notes provides credit enhancement for Class A notes and Class B MBNAseries notes.

 

MBNAseries Available Principal Amounts allocable to subordinated classes of MBNAseries notes (such as the Class C(2006-1) notes) may be reallocated to pay interest on senior classes of MBNAseries notes or to pay a portion of the master trust II servicing fee allocable to the MBNAseries, subject to certain limitations. See “Sources of Funds to Pay the

 

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Notes—Deposit and Application of Funds for the MBNAseries—Application of MBNAseries Available Principal Amounts” in the prospectus. The nominal liquidation amount of the subordinated notes will be reduced by the amount of those reallocations. In addition, charge-offs due to uncovered defaults on principal receivables in master trust II allocable to the MBNAseries generally are reallocated from the senior classes to the subordinated classes of the MBNAseries. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Allocations of Reductions from Charge-Offs” in the prospectus. The nominal liquidation amount of the subordinated notes will be reduced by the amount of charge-offs reallocated to those subordinate notes. See “The Notes—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount—Nominal Liquidation Amount” and “Master Trust II—Defaulted Receivables; Rebates and Fraudulent Charges” in the prospectus.

 

MBNAseries Available Principal Amounts remaining after any reallocations described above will be applied to make targeted deposits to the principal funding subaccounts of senior notes before being applied to make targeted deposits to the principal funding subaccounts of the subordinated notes if the remaining amounts are not sufficient to make all required targeted deposits.

 

In addition, principal payments on subordinated classes of MBNAseries notes are subject to the principal payment rules described below in “—Required Subordinated Amount.”

 

In the MBNAseries, payment of principal may be made on a subordinated class of notes before payment in full of each senior class of notes only under the following circumstances:

 

    If after giving effect to the proposed principal payment there is still a sufficient amount of subordinated notes to support the outstanding senior notes. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account” and “—Allocation to Principal Funding Subaccounts” in the prospectus. For example, if a tranche of Class A notes has been repaid, this generally means that, unless other Class A notes are issued, at least some Class B notes and Class C notes may be repaid when they are expected to be repaid even if other tranches of Class A notes are outstanding.

 

    If the principal funding subaccounts for the senior classes of notes have been sufficiently prefunded as described in “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account—Prefunding of the Principal Funding Account for Senior Classes” in the prospectus.

 

    If new tranches of subordinated notes are issued so that the subordinated notes that have reached their expected principal payment date are no longer necessary to provide the required subordination.

 

    If the subordinated tranche of notes reaches its legal maturity date and there is a sale of credit card receivables as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables” in the prospectus.

 

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Required Subordinated Amount

 

In order to issue notes of a senior class of the MBNAseries, the required subordinated amount of subordinated notes for those senior notes must be outstanding and available on the issuance date. Generally, the required subordinated amount of subordinated notes for each tranche of Class A MBNAseries notes is equal to a stated percentage of the adjusted outstanding dollar principal amount of that tranche of Class A notes.

 

Similarly, the required subordinated amount of Class C notes for each tranche of Class A and Class B MBNAseries notes is generally equal to a stated percentage of their adjusted outstanding dollar principal amounts. However, the required subordinated amount of Class C notes for any tranche of Class B MBNAseries notes may be adjusted to reflect its pro rata share of the portion of the adjusted outstanding dollar principal amount of all Class B MBNAseries notes which is not providing credit enhancement to the Class A notes.

 

For an example of the calculations of the MBNAseries required subordinated amounts, see the chart titled “MBNAseries Required Subordinated Amounts” in the prospectus.

 

Reductions in the adjusted outstanding dollar principal amount of a tranche of senior notes of the MBNAseries will generally result in a reduction in the required subordinated amount for that tranche. Additionally, a reduction in the required subordinated amount of Class C notes for a tranche of Class B MBNAseries notes may occur due to:

 

    a decrease in the aggregate adjusted outstanding dollar principal amount of Class A MBNAseries notes,

 

    a decrease in the Class A required subordinated amount of Class B notes for outstanding tranches of Class A MBNAseries notes, or

 

    the issuance of additional Class B MBNAseries notes;

 

any of which would reduce the amount of credit enhancement provided by an individual tranche of Class B MBNAseries notes to the Class A MBNAseries notes. However, if an early redemption event or event of default and acceleration for any tranche of Class B MBNAseries notes occurs, or if on any day its usage of the required subordinated amount of Class C notes exceeds zero, the required subordinated amount of Class C notes for that tranche of Class B notes will not decrease after that early redemption event or event of default and acceleration or after the date on which its usage of the required subordinated amount of Class C notes exceeds zero.

 

The percentages used in, or the method of calculating, the required subordinated amounts described above may change without the consent of any noteholders, if the rating agencies consent. In addition, the percentages used in, or the method of calculating, the required subordinated amount of subordinated notes of any tranche of MBNAseries notes (including other tranches in the same class) may be different than the percentages used in, or the method of calculating, the required subordinated amounts for the Class C(2006-1) notes. In addition, if the rating agencies consent and without the consent of any noteholders, the issuing entity may utilize forms of credit enhancement other than subordinated notes in order to provide senior classes of notes with the required credit enhancement.

 

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No payment of principal will be made on any Class B MBNAseries note unless, following the payment, the remaining available subordinated amount of Class B MBNAseries notes is at least equal to the required subordinated amount of Class B notes for the outstanding Class A MBNAseries notes less any usage of the required subordinated amount of Class B notes for the outstanding Class A MBNAseries notes. Similarly, no payment of principal will be made on any Class C MBNAseries note unless, following the payment, the remaining available subordinated amount of Class C MBNAseries notes is at least equal to the required subordinated amount of Class C notes for the outstanding Class A and Class B MBNAseries notes less any usage of the required subordinated amount of Class C notes for the outstanding Class A and Class B MBNAseries notes. However, there are some exceptions to this rule. See “—Subordination; Credit Enhancement” above and “The Notes—Subordination of Interest and Principal” in the prospectus.

 

Class C Reserve Account

 

The issuing entity will establish a Class C reserve subaccount to provide credit enhancement solely for the holders of the Class C(2006-1) notes. The Class C reserve subaccount will initially not be funded. The Class C reserve subaccount will not be funded unless and until the three-month average of the Excess Available Funds Percentage falls below the levels described in the table in “Class C(2006-1) Summary—Asset Backed Securities Offered—Class C Reserve Account—Funding Percentage” in this prospectus supplement or an early redemption event or event of default occurs for the Class C(2006-1) notes.

 

Funds on deposit in this Class C reserve subaccount will be available to holders of the Class C(2006-1) notes to cover shortfalls of interest payable on interest payment dates. Funds on deposit in this Class C reserve subaccount will also be available to holders of the Class C(2006-1) notes to cover certain shortfalls in principal. Only the holders of Class C(2006-1) notes will have the benefit of this Class C reserve subaccount. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Withdrawals from the Class C Reserve Account” in the prospectus.

 

The table in “Class C(2006-1) Summary—Asset Backed Securities Offered—Class C Reserve Account—Funding Percentage” in this prospectus supplement indicates the amount required to be on deposit in the Class C reserve subaccount for the Class C(2006-1) notes. For any month the amount targeted to be on deposit is equal to (i) the funding percentage (which corresponds to the average of the Excess Available Funds Percentage for each of the preceding three consecutive months as indicated in the table), times the sum of the initial dollar principal amounts of all outstanding MBNAseries notes, times, (ii) the nominal liquidation amount of the Class C(2006-1) notes, divided by the nominal liquidation amount of all Class C MBNAseries notes.

 

The amount targeted to be in the Class C reserve subaccount will be adjusted monthly to the percentages specified in the table in “Class C(2006-1) Summary—Asset Backed Securities Offered—Class C Reserve Account—Funding Percentage” in this prospectus supplement as

 

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the three-month average of the Excess Available Funds Percentage rises or falls. If an early redemption event or event of default occurs for the Class C(2006-1) notes, the targeted Class C reserve subaccount amount will be the aggregate adjusted outstanding dollar principal amount of the Class C(2006-1) notes. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits to the Class C Reserve Account” in the prospectus.

 

Revolving Period

 

Until principal amounts are needed to be accumulated to pay the Class C(2006-1) notes, principal amounts allocable to the Class C(2006-1) notes will either be applied to other MBNAseries notes which are accumulating principal or paid to MBNA as holder of the seller interest. This period is commonly referred to as the revolving period. Unless an early redemption event or event of default for the Class C(2006-1) notes occurs, the revolving period is expected to end twelve calendar months prior to the expected principal payment date. However, if the servicer reasonably expects that less than twelve months will be required to fully accumulate principal amounts in an amount equal to the outstanding dollar principal amount of the Class C(2006-1) notes, the end of the revolving period may be delayed. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account—Budgeted Deposits” in the prospectus.

 

Early Redemption of Notes

 

The early redemption events applicable to all notes, including the Class C(2006-1) notes, are described in “The Notes—Early Redemption of Notes” and “The Indenture—Early Redemption Events” in the prospectus.

 

Optional Redemption by the Issuing Entity

 

MBNA, as servicer, which is the beneficiary of the issuing entity, has the right, but not the obligation, to direct the issuing entity to redeem the Class C(2006-1) notes in whole but not in part on any day on or after the day on which the nominal liquidation amount of the Class C(2006-1) notes is reduced to less than 5% of their highest outstanding dollar principal amount. This repurchase option is referred to as a clean-up call.

 

The issuing entity will not redeem subordinated notes if those notes are required to provide credit enhancement for senior classes of notes of the MBNAseries.

 

If the issuing entity is directed to redeem the Class C(2006-1) notes, it will notify the registered holders at least thirty days prior to the redemption date. The redemption price of a note will equal 100% of the outstanding principal amount of that note, plus accrued but unpaid interest on the note to but excluding the date of redemption.

 

If the issuing entity is unable to pay the redemption price in full on the redemption date, monthly payments on the Class C(2006-1) notes will thereafter be made, subject to the

 

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principal payment rules described above under “—Subordination; Credit Enhancement,” until either the principal of and accrued interest on the Class C(2006-1) notes are paid in full or the legal maturity date occurs, whichever is earlier. Any funds in the principal funding subaccount and the interest funding subaccount and the Class C reserve subaccount for the Class C(2006-1) notes will be applied to make the principal and interest payments on the notes on the redemption date.

 

Events of Default

 

The Class C(2006-1) notes are subject to certain events of default described in “The Indenture—Events of Default” in the prospectus. For a description of the remedies upon an event of default, see “The Indenture—Events of Default Remedies” and “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables” in the prospectus.

 

Issuing Entity Accounts

 

The issuing entity has established a principal funding account, an interest funding account, an accumulation reserve account and a Class C reserve account for the benefit of the MBNAseries. The principal funding account, the interest funding account, the accumulation reserve account and the Class C reserve account will have subaccounts for the Class C(2006-1) notes.

 

Each month, distributions on the collateral certificate and other amounts will be deposited in the issuing entity accounts and allocated to the notes as described in the prospectus.

 

Security for the Notes

 

The Class C(2006-1) notes are secured by a shared security interest in:

 

    the collateral certificate;

 

    the collection account;

 

    the applicable principal funding subaccount;

 

    the applicable interest funding subaccount;

 

    the applicable accumulation reserve subaccount; and

 

    the applicable Class C reserve subaccount.

 

However, the Class C(2006-1) notes are entitled to the benefits of only that portion of those assets allocated to them under the indenture and the MBNAseries indenture supplement.

 

See “Sources of Funds to Pay the Notes—The Collateral Certificate” and “—Issuing Entity Accounts” in the prospectus.

 

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Limited Recourse to the Issuing Entity

 

The sole sources of payment for principal of or interest on the Class C(2006-1) notes are provided by:

 

    the portion of the available principal amounts and available funds allocated to the MBNAseries and available to the Class C(2006-1) notes after giving effect to any reallocations, payments and deposits for senior notes; and

 

    funds in the applicable issuing entity accounts for the Class C(2006-1) notes.

 

Class C(2006-1) noteholders will have no recourse to any other assets of the issuing entity, MBNA or any other person or entity for the payment of principal of or interest on the Class C(2006-1) notes.

 

However, following a sale of credit card receivables (i) due to an insolvency of MBNA, (ii) due to an event of default and acceleration for the Class C(2006-1) notes or (iii) on the legal maturity date for the Class C(2006-1) notes, as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables” in the prospectus, the Class C(2006-1) noteholders have recourse only to the proceeds of that sale.

 

Accumulation Reserve Account

 

The issuing entity will establish an accumulation reserve subaccount to cover shortfalls in investment earnings on amounts (other than prefunded amounts) on deposit in the principal funding subaccount for the Class C(2006-1) notes.

 

The amount targeted to be deposited in the accumulation reserve subaccount for the Class C(2006-1) notes is zero, unless more than one budgeted deposit is required to accumulate and pay the principal of the Class C(2006-1) notes on its expected principal payment date, in which case, the amount targeted to be deposited is 0.5% of the outstanding dollar principal amount of the Class C(2006-1) notes, or another amount designated by the issuing entity. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits to the Accumulation Reserve Account” in the prospectus.

 

Shared Excess Available Funds

 

The MBNAseries will be included in “Group A.” In addition to the MBNAseries, the issuing entity may issue other series of notes that are included in Group A. As of the date of this prospectus supplement, the MBNAseries is the only series of notes issued by the issuing entity.

 

To the extent that available funds allocated to the MBNAseries are available after all required applications of those amounts as described in “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Application of MBNAseries Available Funds” in the prospectus, these unused available funds, called shared excess available funds, will be applied to cover shortfalls in available funds for other series of notes in Group A. In addition, the MBNAseries may receive the benefits of shared excess available funds from

 

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other series in Group A, to the extent available funds for those other series of notes are not needed for those series. See “Sources of Funds to Pay the Notes—The Collateral Certificate,” and “—Deposit and Application of Funds for the MBNAseries—Shared Excess Available Funds” in the prospectus.

 

Stock Exchange Listing

 

The issuing entity will apply to list the Class C(2006-1) notes on a stock exchange in Europe. The issuing entity cannot guarantee that the application for the listing will be accepted or that, if accepted, the listing will be maintained. To determine whether the Class C(2006-1) notes are listed on a stock exchange you may contact the issuer at c/o Wilmington Trust Company, Rodney Square North, 1100 N. Market Street, Wilmington, Delaware 19890-0001, telephone number: (302) 651-1284.

 

Ratings

 

The issuing entity will issue the Class C(2006-1) notes only if they are rated at least “BBB” or “Baa2” or its equivalent by at least one nationally recognized rating agency.

 

Other tranches of Class C notes may have different rating requirements from the Class C(2006-1) notes.

 

A rating addresses the likelihood of the payment of interest on a note when due and the ultimate payment of principal of that note by its legal maturity date. A rating does not address the likelihood of payment of principal of a note on its expected principal payment date. In addition, a rating does not address the possibility of an early payment or acceleration of a note, which could be caused by an early redemption event or an event of default. A rating is not a recommendation to buy, sell or hold notes and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

 

See “Risk Factors—If the ratings of the notes are lowered or withdrawn, their market value could decrease” in the prospectus.

 

Underwriting

 

Subject to the terms and conditions of the underwriting agreement for the Class C(2006-1) notes, the issuing entity has agreed to sell to each of the underwriters named below, and each of those underwriters has severally agreed to purchase, the principal amount of the Class C(2006-1) notes set forth opposite its name:

 

Underwriters


   Principal
Amount


Banc of America Securities LLC

   $ 116,680,000

Deutsche Bank Securities Inc.

     116,660,000

Lehman Brothers Inc.

     116,660,000
    

Total

   $ 350,000,000
    

 

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The several underwriters have agreed, subject to the terms and conditions of the underwriting agreement, to purchase all $350,000,000 of the aggregate principal amount of the Class C(2006-1) notes if any of the Class C(2006-1) notes are purchased.

 

The underwriters have advised the issuing entity that the several underwriters propose initially to offer the Class C(2006-1) notes to the public at the public offering price determined by the several underwriters and set forth on the cover page of this prospectus supplement, and to certain dealers at that public offering price less a concession not in excess of 0.255% of the principal amount of the Class C(2006-1) notes. The underwriters may allow, and those dealers may reallow to other dealers, a concession not in excess of 0.128% of the principal amount.

 

After the initial public offering, the public offering price and other selling terms may be changed by the underwriters.

 

Each underwriter of the Class C(2006-1) notes has agreed that:

 

    it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the “FSMA”) with respect to anything done by it in relation to the Class C(2006-1) notes in, from or otherwise involving the United Kingdom; and

 

    it has only communicated or caused to be communicated and it will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Class C(2006-1) notes in circumstances in which Section 21(1) of the FSMA does not apply to the issuing entity.

 

In connection with the sale of the Class C(2006-1) notes, the underwriters may engage in:

 

    over-allotments, in which members of the syndicate selling the Class C(2006-1) notes sell more notes than the issuing entity actually sold to the syndicate, creating a syndicate short position;

 

    stabilizing transactions, in which purchases and sales of the Class C(2006-1) notes may be made by the members of the selling syndicate at prices that do not exceed a specified maximum;

 

    syndicate covering transactions, in which members of the selling syndicate purchase the Class C(2006-1) notes in the open market after the distribution has been completed in order to cover syndicate short positions; and

 

    penalty bids, by which the underwriter reclaims a selling concession from a syndicate member when any of the Class C(2006-1) notes originally sold by that syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions.

 

These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the Class C(2006-1) notes to be higher than it would otherwise be. These transactions, if commenced, may be discontinued at any time.

 

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The issuing entity and MBNA will, jointly and severally, indemnify the underwriters against certain liabilities, including liabilities under applicable securities laws, or contribute to payments the underwriters may be required to make in respect of those liabilities.

 

Banc of America Securities LLC, one of the underwriters of the Class C(2006-1) notes, is an affiliate of MBNA, the seller and the servicer of master trust II and the originator of the issuing entity, since MBNA is a wholly-owned subsidiary of Bank of America Corporation and Banc of America Securities LLC is an indirect wholly-owned subsidiary of Bank of America Corporation. See “Transaction Parties—MBNA—Bank of America Corporation/MBNA Corporation Merger” in the accompanying prospectus.

 

The proceeds to the issuing entity from the sale of the Class C(2006-1) notes and the underwriting discount are set forth on the cover page of this prospectus supplement. Proceeds to the issuing entity will be paid to MBNA. See “Use of Proceeds” in the prospectus. Additional offering expenses, which will be paid by MBNA, are estimated to be $400,000.

 

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Annex I

 

The Master Trust II Portfolio

 

The information provided in this Annex I is an integral part of the prospectus supplement, and is incorporated by reference into the prospectus supplement.

 

The receivables conveyed to master trust II arise in accounts selected from the Bank Portfolio on the basis of criteria set forth in the master trust II agreement as applied on the Cut-Off Date and, for additional accounts, as of the related date of their designation. The receivables in master trust II may include receivables that are contractually delinquent. The seller has the right, subject to certain limitations and conditions set forth therein, to designate from time to time additional accounts and to transfer to master trust II all receivables of those additional accounts. Any additional accounts designated must be Eligible Accounts as of the date the seller designates those accounts as additional accounts.

 

Static pool information regarding the performance of the receivables in master trust II is being provided through an Internet Web site at http://www.mbnastaticpool.com. See “Where You Can Find More Information” in the accompanying prospectus. Static pool information on such Internet Web site that relates to the performance of the receivables for periods commencing prior to January 1, 2006 does not form a part of this prospectus supplement, the accompanying prospectus or the registration statement relating to the notes. Static pool information with respect to payment rate for periods prior to January 1, 2006 is not available and cannot be obtained without unreasonable expense or effort.

 

Delinquency and Principal Charge-Off Experience

 

MBNA generally charges off open-end delinquent loans by the end of the month in which the account becomes 180 days contractually past due. Delinquent bankrupt accounts are charged off by the end of the second calendar month following receipt of notification of filing from the applicable court, but not later than the applicable 180-day timeframe described above. Accounts of deceased cardholders are charged off when the loss is determined, but not later than the applicable 180-day timeframe described above. Fraudulent accounts are charged off by the end of the calendar month of the 90th day after identifying the account as fraudulent, but not later than the applicable 180-day timeframe described above. Accounts failing to make a payment within charge-off policy timeframes are written off. See “MBNA’s Credit Card Portfolio—Charge-Off Policy” in the prospectus for greater detail regarding charge-offs.

 

The following table sets forth the delinquency experience for cardholder payments on the credit card accounts in the Master Trust II Portfolio for each of the dates shown. The receivables outstanding on the accounts consist of all amounts due from cardholders as posted

 

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to the accounts as of the date shown. We cannot provide any assurance that the delinquency experience for the receivables in the future will be similar to the historical experience set forth below.

 

Delinquency Experience

Master Trust II Portfolio

(Dollars in Thousands)

 

    December 31,

 
    2005

    2004

    2003

 
    Receivables

  Percentage
of Total
Receivables


    Receivables

  Percentage
of Total
Receivables


    Receivables

  Percentage
of Total
Receivables


 

Receivables Outstanding

  $ 73,475,619         $ 73,981,346         $ 77,426,846      

Receivables Delinquent:

                                   

30-59 Days

  $ 998,589   1.35 %   $ 1,171,256   1.58 %   $ 1,202,508   1.55 %

60-89 Days

    621,535   0.85       798,616   1.08       825,924   1.07  

90-119 Days

    490,511   0.67       615,720   0.83       714,683   0.93  

120-149 Days

    455,614   0.62       547,761   0.74       671,119   0.87  

150-179 Days

    475,357   0.65       544,124   0.74       597,052   0.77  

180 or More Days

    1,104   0.00       1,986   0.00       3,510   0.00  
   

 

 

 

 

 

Total

  $ 3,042,710   4.14 %   $ 3,679,463   4.97 %   $ 4,014,796   5.19 %
   

 

 

 

 

 

              December 31,

 
          2002

    2001

 
              Receivables

  Percentage
of Total
Receivables


    Receivables

  Percentage
of Total
Receivables


 

Receivables Outstanding

 

  $ 72,696,743         $ 66,500,791      

Receivables Delinquent:

 

                       

30-59 Days

 

  $ 1,343,708   1.85 %   $ 1,247,086   1.88 %

60-89 Days

 

    833,204   1.15       708,484   1.07  

90-119 Days

 

    673,670   0.93       687,073   1.03  

120-149 Days

 

    624,003   0.86       328,551   0.49  

150-179 Days

 

    548,596   0.75       442,299   0.67  

180 or More Days

 

    9,778   0.01       15,744   0.02  
               

 

 

 

Total

 

  $ 4,032,959   5.55 %   $ 3,429,237   5.16 %
               

 

 

 

 

The following table sets forth the principal charge-off experience for cardholder payments on the credit card accounts in the Master Trust II Portfolio for each of the periods shown. Charge-offs consist of write-offs of principal receivables. If accrued finance charge receivables that have been written off were included in total charge-offs, total charge-offs

 

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would be higher as an absolute number and as a percentage of the average of principal receivables outstanding during the periods indicated. Average principal receivables outstanding is the average of the daily principal receivables balance during the periods indicated. We cannot provide any assurance that the charge-off experience for the receivables in the future will be similar to the historical experience set forth below. Due to an increased number of bankruptcy filings prior to the general effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, there was a significant increase in total charge-offs for the month of December 2005. See “Transaction Parties—MBNA—Impact of Bankruptcy Reform Law” in the prospectus.

 

Principal Charge-Off Experience

Master Trust II Portfolio

(Dollars in Thousands)

 

    Year Ended December 31,

 
    2005

    2004

    2003

 

Average Principal Receivables Outstanding

  $ 68,633,103     $ 72,347,604     $ 70,695,439  

Total Charge-Offs

  $ 4,028,454     $ 3,996,412     $ 4,168,622  

Total Charge-Offs as a percentage of Average Principal Receivables Outstanding

    5.87 %     5.52 %     5.90 %
          Year Ended December 31,

 
          2002

    2001

 

Average Principal Receivables Outstanding

 

  $ 65,393,297     $ 59,261,613  

Total Charge-Offs

 

  $ 3,629,682     $ 3,102,804  

Total Charge-Offs as a percentage of Average
Principal Receivables Outstanding

  

    5.55 %     5.24 %

 

Total charge-offs are total principal charge-offs before recoveries and do not include any charge-offs of finance charge receivables or the amount of any reductions in average daily principal receivables outstanding due to fraud, returned goods, customer disputes or other miscellaneous adjustments. Recoveries are a component of yield and is described below in “—Revenue Experience.

 

Revenue Experience

 

The following table sets forth the revenue experience for the credit card accounts from finance charges, fees paid and interchange in the Master Trust II Portfolio for each of the periods shown.

 

The revenue experience in the following table is calculated on a cash basis. Yield from finance charges and fees and recoveries is the result of dividing finance charges and fees and recoveries by average daily principal receivables outstanding during the periods indicated. Finance charges and fees are comprised of monthly cash collections of periodic finance charges and other credit card fees including interchange.

 

Each month, MBNA allocates amounts recovered between its U.S. credit card and consumer loan portfolios pro rata based on each such portfolio’s charge-offs during the prior

 

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month relative to the combined charge-offs for both portfolios during the prior month. Once recoveries have been so allocated to the U.S. credit card portfolio, the total amount of those recoveries that are allocated to the Master Trust II Portfolio is determined by dividing the average total principal receivables for the Master Trust II Portfolio for the related calendar month by the average total principal receivables for the U.S. credit card portfolio for the same calendar month. Under the master trust II agreement, recoveries allocated to the Master Trust II Portfolio are treated as collections of finance charge receivables.

 

Revenue Experience

Master Trust II Portfolio

(Dollars in Thousands)

 

    Year Ended December 31,

 
    2005

    2004

    2003

 

Finance Charges and Fees

  $ 12,730,706     $ 12,565,091     $ 12,172,680  

Recoveries

  $ 312,462     $ 275,246     $ 252,765  

Yield from Finance Charges and Fees and Recoveries

    19.00 %     17.75 %     17.58 %
          Year Ended December 31,

 
          2002

    2001

 

Finance Charges and Fees

 

  $ 11,538,974     $ 11,476,244  

Recoveries

 

  $ 194,977     $ 10,574  

Yield from Finance Charges and Fees and Recoveries

 

    17.94 %     19.38 %

 

The yield on a cash basis will be affected by numerous factors, including the monthly periodic finance charges on the receivables, the amount of fees, changes in the delinquency rate on the receivables, the percentage of cardholders who pay their balances in full each month and do not incur monthly periodic finance charges, and the percentage of credit card accounts bearing finance charges at promotional rates. See “Risk Factors” in the prospectus.

 

The revenue from periodic finance charges and fees—other than annual fees—depends in part upon the collective preference of cardholders to use their credit cards as revolving debt instruments for purchases and cash advances and to pay account balances over several months—as opposed to convenience use, where cardholders pay off their entire balance each month, thereby avoiding periodic finance charges on their purchases—and upon other credit card related services for which the cardholder pays a fee. Fees for these other services will be treated for purposes of the master trust II agreement as principal receivables rather than finance charge receivables; however, MBNA may specify that it will treat these fees as finance charge receivables. Revenues from periodic finance charges and fees also depend on the types of charges and fees assessed on the credit card accounts. Accordingly, revenue will be affected by future changes in the types of charges and fees assessed on the accounts and on the types of additional accounts added from time to time. These revenues could be adversely affected by future changes in fees and charges assessed by MBNA and other factors. See “MBNA’s Credit Card Activities” in the prospectus.

 

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Interchange

 

MBNA, as seller, will transfer to master trust II a percentage of the interchange attributed to cardholder charges for goods and services in the accounts of master trust II. Interchange will be allocated to each series of master trust II investor certificates based on its pro rata portion as measured by its Investor Interest of cardholder charges for goods and services in the accounts of master trust II relative to the total amount of cardholder charges for goods and services in the MasterCard, Visa and American Express credit card accounts owned by MBNA, as reasonably estimated by the seller.

 

MasterCard, Visa and American Express may from time to time change the amount of interchange reimbursed to banks issuing their credit cards. Interchange will be treated as collections of finance charge receivables. Under the circumstances described herein, interchange will be used to pay a portion of the Investor Servicing Fee required to be paid on each Transfer Date. See “Master Trust II—Servicing Compensation and Payment of Expenses” and “MBNA’s Credit Card Activities—Interchange” in the prospectus.

 

Principal Payment Rates

 

The following table sets forth the highest and lowest cardholder monthly principal payment rates for the Master Trust II Portfolio during any month in the periods shown and the average cardholder monthly principal payment rates for all months during the periods shown, in each case calculated as a percentage of total beginning monthly account principal balances during the periods shown. Principal payment rates shown in the table are based on amounts which are deemed payments of principal receivables with respect to the accounts.

 

Cardholder Monthly Principal Payment Rates

Master Trust II Portfolio

 

     Year Ended December 31,

 
     2005

    2004

    2003

    2002

    2001

 

Lowest Month

   15.31 %   13.95 %   12.73 %   12.93 %   12.28 %

Highest Month

   17.15 %   16.47 %   14.71 %   14.40 %   13.76 %

Monthly Average

   16.30 %   15.05 %   13.84 %   13.63 %   13.03 %

 

Generally, cardholders must make a monthly minimum payment at least equal to the lesser of (i) the sum of all finance charges, bank imposed fees, a stated minimum amount (generally $15) and past due amounts or (ii) 2.25% of the statement balance plus past due amounts, but generally not less than $15. Certain eligible cardholders are given the option periodically to take a payment deferral. We cannot assure you that the cardholder monthly principal payment rates in the future will be similar to the historical experience set forth above. See “MBNA’s Credit Card Portfolio—Billing and Payments” in the prospectus. In addition, the amount of collections of receivables may vary from month to month due to seasonal variations, general economic conditions and payment habits of individual cardholders.

 

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MBNA, as seller, has the right, subject to certain limitations and conditions, to designate certain removed credit card accounts and to require the master trust II trustee to reconvey all receivables in those removed credit card accounts to the seller. Once an account is removed, receivables existing or arising under that credit card account are not transferred to master trust II.

 

Renegotiated Loans and Re-Aged Accounts

 

MBNA may modify the terms of its credit card agreements with cardholders who have experienced financial difficulties by offering them renegotiated loan programs, which include placing them on nonaccrual status, reducing their interest rate, or providing any other concession in terms. In addition, a cardholder’s account may be re-aged to remove existing delinquency. For a detailed description of renegotiated loans and re-aged accounts, see “MBNA’s Credit Card Portfolio—Renegotiated Loans and Re-Aged Accounts” in the prospectus.

 

The Receivables

 

The following tables summarize the Master Trust II Portfolio by various criteria as of the beginning of the day on January 27, 2006. Because the future composition of the Master Trust II Portfolio may change over time, neither these tables nor the information contained in “Class C(2006-1) Summary—Assets” describe the composition of the Master Trust II Portfolio at any future time. If the composition of the Master Trust II Portfolio changes over time, noteholders will not be notified of such change. However, monthly reports containing information on the notes and the collateral securing the notes will be filed with the Securities and Exchange Commission. See “Where You Can Find More Information” in the prospectus for information as to how these reports may be accessed.

 

A-I-6


Composition by Account Balance Master Trust II Portfolio

 

Account Balance Range


   Number of
Accounts


  

Percentage

of Total

Number of

Accounts


    Receivables

   

Percentage

of Total

Receivables


 

Credit Balance

   976,684    2.3 %   $ (84,724,769 )   (0.1 )%

No Balance

   24,161,459    58.0       0     0.0  

$           .01-$  5,000.00

   11,798,749    28.3       15,949,629,947     22.1  

$  5,000.01-$10,000.00

   2,577,830    6.2       18,464,373,536     25.5  

$10,000.01-$15,000.00

   1,071,990    2.6       13,105,312,283     18.1  

$15,000.01-$20,000.00

   504,379    1.2       8,704,443,965     12.0  

$20,000.01-$25,000.00

   277,805    0.7       6,222,197,186     8.6  

$25,000.01 or More

   282,042    0.7       9,953,254,156     13.8  
    
  

 


 

Total

   41,650,938    100.0 %   $ 72,314,486,304     100.0 %
    
  

 


 

 

Composition by Credit Limit

Master Trust II Portfolio

 

Credit Limit Range


   Number of
Accounts


  

Percentage

of Total

Number of

Accounts


    Receivables

  

Percentage

of Total

Receivables


 

Less than or equal to $5,000.00

   7,539,302    18.1 %   $ 4,480,145,783    6.2 %

$  5,000.01-$10,000.00

   9,740,113    23.4       11,973,633,950    16.6  

$10,000.01-$15,000.00

   8,039,007    19.3       12,666,789,641    17.5  

$15,000.01-$20,000.00

   6,388,576    15.3       11,585,613,890    16.0  

$20,000.01-$25,000.00

   4,754,664    11.4       10,956,366,807    15.2  

$25,000.01 or More

   5,189,276    12.5       20,651,936,233    28.5  
    
  

 

  

Total

   41,650,938    100.0 %   $ 72,314,486,304    100.0 %
    
  

 

  

 

Composition by Period of Delinquency

Master Trust II Portfolio

 

Period of Delinquency

(Days Contractually Delinquent)


   Number of
Accounts


  

Percentage
of Total
Number of

Accounts


    Receivables

  

Percentage

of Total

Receivables


 

Not Delinquent

   40,549,432    97.5 %   $ 65,091,112,764    90.0 %

Up to 29 Days

   596,384    1.4       3,774,691,728    5.2  

30 to 59 Days

   172,974    0.4       1,076,751,892    1.5  

60 to 89 Days

   94,497    0.2       625,036,195    0.9  

90 to 119 Days

   74,192    0.2       514,975,395    0.7  

120 to 149 Days

   62,285    0.1       445,869,413    0.6  

150 to 179 Days

   56,022    0.1       420,202,527    0.6  

180 or More Days

   45,152    0.1       365,846,390    0.5  
    
  

 

  

Total

   41,650,938    100.0 %   $ 72,314,486,304    100.0 %
    
  

 

  

 

A-I-7


Composition by Account Age

Master Trust II Portfolio

 

Account Age


   Number of
Accounts


  

Percentage
of Total

Number of

Accounts


    Receivables

  

Percentage
of Total

Receivables


 

Not More than 6 Months

   1,018,458    2.4 %   $ 2,338,219,008    3.2 %

Over 6 Months to 12 Months

   1,150,795    2.8       2,388,428,185    3.3  

Over 12 Months to 24 Months

   3,880,882    9.3       6,325,449,163    8.7  

Over 24 Months to 36 Months

   4,647,443    11.2       6,395,192,997    8.8  

Over 36 Months to 48 Months

   3,782,820    9.1       5,461,263,337    7.6  

Over 48 Months to 60 Months

   3,317,640    8.0       5,068,633,422    7.0  

Over 60 Months to 72 Months

   3,319,895    8.0       5,679,512,877    7.9  

Over 72 Months

   20,533,005    49.2       38,657,787,315    53.5  
    
  

 

  

Total

   41,650,938    100.0 %   $ 72,314,486,304    100.0 %
    
  

 

  

 

Geographic Distribution of Accounts

Master Trust II Portfolio

 

State


   Number of
Accounts


  

Percentage
of Total
Number of

Accounts


    Receivables

   Percentage
of Total
Receivables


 

California

   3,610,965    8.7 %   $ 7,288,931,178    10.1 %

Florida

   3,131,253    7.5       5,164,598,340    7.1  

New York

   2,780,411    6.7       4,803,240,758    6.6  

Pennsylvania

   2,595,845    6.2       3,748,593,184    5.2  

Texas

   2,144,940    5.1       4,587,724,091    6.3  

New Jersey

   1,811,374    4.3       3,178,056,778    4.4  

Illinois

   1,702,656    4.1       2,873,414,518    4.0  

Ohio

   1,663,453    4.0       2,630,220,424    3.6  

Virginia

   1,546,761    3.7       2,501,183,282    3.5  

North Carolina

   1,380,587    3.3       2,550,010,269    3.5  

Other

   19,282,693    46.4       32,988,513,482    45.7  
    
  

 

  

Total

   41,650,938    100.0 %   $ 72,314,486,304    100.0 %
    
  

 

  

 

Since the largest number of cardholders (based on billing address) whose accounts were included in master trust II as of January 27, 2006 were in California, Florida, New York, Pennsylvania and Texas, adverse changes in the economic conditions in these areas could have a direct impact on the timing and amount of payments on the notes.

 

FICO.    The following table sets forth the FICO®* score on each account in the Master Trust II Portfolio, to the extent available, as refreshed during the six month period ended December 31, 2005. Receivables, as presented in the following table, are determined as of December 31, 2005. A FICO score is a measurement determined by Fair, Isaac & Company using

 

A-I-8

 


*FICO® is a federally registered servicemark of Fair, Isaac & Company.


information collected by the major credit bureaus to assess credit risk. FICO scores may change over time, depending on the conduct of the debtor and changes in credit score technology. Because the future composition and product mix of the Master Trust II Portfolio may change over time, this table is not necessarily indicative of the composition of the Master Trust II Portfolio at any specific time in the future.

 

Data from an independent credit reporting agency, such as FICO score, is one of several factors that may be used by MBNA in its credit scoring system to assess the credit risk associated with each applicant. See “MBNA’s Credit Card Activities—Origination, Account Acquisition, Credit Lines and Use of Credit Card Accounts” in the prospectus. At the time of account origination, MBNA may obtain information, including a FICO score, from multiple independent credit bureaus. FICO scores may be different from one bureau to another. FICO scores are not used in all cases and, for some cardholders, FICO scores may be unavailable. FICO scores are based on independent third party information, the accuracy of which cannot be verified.

 

The table below sets forth refreshed FICO scores from a single credit bureau.

 

Composition by FICO Score

Master Trust II Portfolio

 

FICO Score


   Receivables

   Percentage
of Total
Receivables


 

Over 720

   $ 27,270,490,718    37.15 %

661-720

     25,898,132,104    35.29  

601-660

     12,422,064,883    16.92  

Less than or equal to 600

     6,360,458,839    8.67  

Unscored

     1,445,416,271    1.97  
    

  

Total

   $ 73,396,562,816    100.00 %
    

  

 

A FICO score is an Equifax Beacon 96 FICO Score.

 

A “refreshed” FICO score means the FICO score determined by Equifax during the six month period ended December 31, 2005.

 

A credit card account that is “unscored” means that a FICO score was not obtained for such account during the six month period ended December 31, 2005.

 

A-I-9


Annex II

Outstanding Series, Classes and Tranches of Notes

 

The information provided in this Annex II is an integral part of the prospectus supplement, and is incorporated by reference into the prospectus supplement.

 

MBNAseries

Class A Notes

Class A


 

Issuance
Date


 

Nominal

Liquidation Amount


 

Note Interest Rate


 

Expected Principal
Payment Date


 

Legal

Maturity Date


  Class A(2001-1)

    5/31/01   $       1,000,000,000   5.75%   May 2006   October 2008

  Class A(2001-2)

    7/26/01   $ 500,000,000   One Month LIBOR + 0.25%   July 2011   December 2013

  Class A(2001-3)

      8/8/01   $ 1,000,000,000   Three Month LIBOR + 0.11%   July 2006   December 2008

  Class A(2001-Emerald)

    8/15/01     Up to $7,650,000,000      

  Class A(2001-5)

    11/8/01   $ 500,000,000   One Month LIBOR + 0.21%   October 2008   March 2011

  Class A(2002-1)

    1/31/02   $ 1,000,000,000   4.95%   January 2007   June 2009

  Class A(2002-2)

    3/27/02   $ 656,175,000   Not to exceed Three Month LIBOR + 0.35%1   February 17, 2012   July 17, 2014

  Class A(2002-3)

    4/24/02   $ 750,000,000   One Month LIBOR + 0.24%   April 2012   September 2014

  Class A(2002-4)

      5/9/02   $ 1,000,000,000   One Month LIBOR + 0.11%   March 2007   August 2009

  Class A(2002-5)

    5/30/02   $ 750,000,000   One Month LIBOR + 0.18%   May 2009   October 2011

  Class A(2002-7)

    7/25/02   $ 497,250,000   Not to exceed Three Month LIBOR + 0.25%2   July 17, 2009   December 19, 2011

  Class A(2002-8)

    7/31/02   $ 400,000,000   Three Month LIBOR + 0.15%   July 2009   December 2011

  Class A(2002-9)

    7/31/02   $ 700,000,000   Three Month LIBOR + 0.09%   July 2007   December 2009

  Class A(2002-10)

    9/19/02   $ 1,000,000,000   One Month LIBOR + 0.14%   September 2007   February 2010

  Class A(2002-11)

  10/30/02   $ 490,600,000   Not to exceed Three Month LIBOR + 0.35%3   October 19, 2009   March 19, 2012

  Class A(2002-13)

  12/18/02   $ 500,000,000   One Month LIBOR + 0.13%   December 2007   May 2010

  Class A(2003-1)

    2/27/03   $ 500,000,000   3.30%   February 2008   July 2010

  Class A(2003-2)

    3/26/03   $ 1,000,000,000   One Month LIBOR + 0.05%   March 2006   August 2008

  Class A(2003-3)

    4/10/03   $ 750,000,000   One Month LIBOR + 0.12%   March 2008   August 2010

  Class A(2003-4)

    4/24/03   $ 750,000,000   One Month LIBOR + 0.22%   April 2010   September 2012

  Class A(2003-5)

    5/21/03   $ 548,200,000   Not to exceed Three Month LIBOR + 0.35%4   April 19, 2010   September 19, 2012

  Class A(2003-6)

      6/4/03   $ 500,000,000   2.75%   May 2008   October 2010

  Class A(2003-7)

      7/8/03   $ 650,000,000   2.65%   June 2008   November 2010

  Class A(2003-8)

      8/5/03   $ 750,000,000   One Month LIBOR + 0.19%   July 2010   December 2012

  Class A(2003-9)

    9/24/03   $ 1,050,000,000   One Month LIBOR + 0.13%   September 2008   February 2011

  Class A(2003-10)

  10/15/03   $ 500,000,000   One Month LIBOR + 0.26%   October 2013   March 2016

  Class A(2003-11)

    11/6/03   $ 500,000,000   3.65%   October 2008   March 2011

  Class A(2003-12)

  12/18/03   $ 500,000,000   One Month LIBOR + 0.11%   December 2008   May 2011

  Class A(2004-1)

    2/26/04   $ 752,760,000   Not to exceed Three Month LIBOR + 0.30%5   January 17, 2014   June 17, 2016

  Class A(2004-2)

    2/25/04   $ 600,000,000   One Month LIBOR + 0.15%   February 2011   July 2013

  Class A(2004-3)

    3/17/04   $ 700,000,000   One Month LIBOR + 0.26%   March 2019   August 2021

  Class A(2004-4)

    4/15/04   $ 1,350,000,000   2.70%   April 2007   September 2009

  Class A(2004-5)

    5/25/04   $ 1,015,240,000   Not to exceed Three Month LIBOR + 0.25%6   May 18, 2011   October 17, 2013

  Class A(2004-6)

    6/17/04   $ 500,000,000   One Month LIBOR + 0.14%   June 2011   November 2013

  Class A(2004-7)

    7/28/04   $ 900,000,000   One Month LIBOR + 0.10%   July 2009   December 2011

  Class A(2004-8)

    9/14/04   $ 500,000,000   One Month LIBOR + 0.15%   August 2011   January 2014

  Class A(2004-9)

    10/1/04   $ 672,980,000   Not to exceed One Month LIBOR + 0.20%7   September 19, 2011   February 20, 2014

  Class A(2004-10)

  10/27/04   $ 500,000,000   One Month LIBOR + 0.08%   October 2009   March 2012

  Class A(2005-1)

    4/20/05   $ 750,000,000   4.20%   April 2008   September 2010

  Class A(2005-2)

    5/19/05   $ 500,000,000   One Month LIBOR + 0.08%   May 2012   October 2014

  Class A(2005-3)

    6/14/05   $ 600,000,000   4.10%   May 2010   October 2012

  Class A(2005-4)

      7/7/05   $ 800,000,000   One Month LIBOR + 0.04%   June 2010   November 2012

  Class A(2005-5)

    8/11/05   $ 1,500,000,000   One Month LIBOR + 0.00%   July 2008   December 2010

  Class A(2005-6)

    8/25/05   $ 500,000,000   4.50%   August 2010   January 2013

  Class A(2005-7)

    9/29/05   $ 1,000,000,000   4.30%   September 2008   February 2011

  Class A(2005-8)

  10/12/05   $ 850,000,000   One Month LIBOR + 0.02%   September 2009   February 2012

  Class A(2005-9)

  11/17/05   $ 1,000,000,000   One Month LIBOR + 0.04%   November 2010   April 2013

  Class A(2005-10)

  11/29/05   $ 400,000,000   One Month LIBOR + 0.06%   June 2013   November 2015

  Class A(2005-11)

  12/16/05   $ 500,000,000   One Month LIBOR + 0.04%   December 2010   May 2013

*Class A(2006-1)

  2/15/06   $ 1,600,000,000   4.90%   February 2009   July 2011

*Expected issuance.
1 Class A(2002-2) noteholders will receive interest at 5.60% on an outstanding euro principal amount of €750,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2002-2) notes.
2 Class A(2002-7) noteholders will receive interest at Three Month EURIBOR + 0.15% on an outstanding euro principal amount of €500,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2002-7) notes.
3 Class A(2002-11) noteholders will receive interest at Three Month EURIBOR + 0.25% on an outstanding euro principal amount of €500,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2002-11) notes.
4 Class A(2003-5) noteholders will receive interest at 4.15% on an outstanding euro principal amount of €500,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2003-5) notes.
5 Class A(2004-1) noteholders will receive interest at 4.50% on an outstanding euro principal amount of €600,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2004-1) notes.
6 Class A(2004-5) noteholders will receive interest at Three Month EURIBOR + 0.15% on an outstanding euro principal amount of €850,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2004-5) notes.
7 Class A(2004-9) noteholders will receive interest at One Month EURIBOR + 0.11% on an outstanding euro principal amount of €550,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class A(2004-9) notes.

 

A-II-1


MBNAseries

 

Class B Notes

 

Class B


  

Issuance
Date


   Nominal
Liquidation
Amount


  

Note Interest Rate


  

Expected
Principal

Payment Date


  

Legal

Maturity Date


Class B(2001-1)

   5/24/01    $ 250,000,000    One Month LIBOR + 0.375%    May 2006    October 2008

Class B(2001-2)

   9/6/01    $ 250,000,000    One Month LIBOR + 0.36%    August 2006    January 2009

Class B(2001-3)

   12/20/01    $ 150,000,000    Not to exceed One Month LIBOR + 0.50%    January 2007    June 2009

Class B(2002-1)

   2/28/02    $ 250,000,000    5.15%    February 2007    July 2009

Class B(2002-2)

   6/12/02    $ 250,000,000    One Month LIBOR + 0.38%    May 2007    October 2009

Class B(2002-4)

   10/29/02    $ 200,000,000    One Month LIBOR + 0.50%    October 2007    March 2010

Class B(2003-1)

   2/20/03    $ 200,000,000    One Month LIBOR + 0.44%    February 2008    July 2010

Class B(2003-2)

   6/12/03    $ 200,000,000    One Month LIBOR + 0.39%    May 2008    October 2010

Class B(2003-3)

   8/20/03    $ 200,000,000    One Month LIBOR + 0.375%    August 2008    January 2011

Class B(2003-4)

   10/15/03    $ 331,650,000    Not to exceed Three Month LIBOR + 0.85%1    September 18, 2013    February 17, 2016

Class B(2003-5)

   10/2/03    $ 150,000,000    One Month LIBOR + 0.37%    September 2008    February 2011

Class B(2004-1)

   4/1/04    $ 350,000,000    4.45%    March 2014    August 2016

Class B(2004-2)

   8/11/04    $ 150,000,000    One Month LIBOR + 0.39%    July 2011    December 2013

Class B(2005-1)

   6/22/05    $ 125,000,000    One Month LIBOR + 0.29%    June 2012    November 2014

Class B(2005-2)

   8/11/05    $ 200,000,000    One Month LIBOR + 0.18%    July 2010    December 2012

Class B(2005-3)

   11/9/05    $ 150,962,500    Not to exceed One Month LIBOR + 0.40%2    October 19, 2015    March 19, 2018

Class B(2005-4)

   11/2/05    $ 150,000,000    4.90%    October 2008    March 2011

 

 

 


1 Class B(2003-4) noteholders will receive interest at 5.45% on an outstanding sterling principal amount of £200,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class B(2003-4) notes.
2 Class B(2005-3) noteholders will receive interest at Three Month EURIBOR + 0.30% on an outstanding euro principal amount of €125,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class B(2005-3) notes.

 

A-II-2


MBNAseries

 

Class C Notes

 

 

Class C


   Issuance
Date


   Nominal
Liquidation
Amount


  

Note Interest Rate


  

Expected
Principal
Payment Date


  

Legal

Maturity Date


Class C(2001-1)

   5/24/01    $ 250,000,000    One Month LIBOR + 1.05%    May 2006    October 2008

Class C(2001-2)

   7/12/01    $ 100,000,000    Not to exceed One Month LIBOR + 1.15%    July 2008    December 2010

Class C(2001-3)

   7/25/01    $ 400,000,000    6.55%    July 2006    December 2008

Class C(2001-4)

   9/6/01    $ 250,000,000    One Month LIBOR + 1.05%    August 2006    January 2009

Class C(2001-5)

   12/11/01    $ 150,000,000    One Month LIBOR + 1.22%    January 2007    June 2009

Class C(2002-1)

   2/28/02    $ 250,000,000    6.80%    February 2012    July 2014

Class C(2002-2)

   6/12/02    $ 100,000,000    Not to exceed One Month LIBOR + 0.95%    May 2007    October 2009

Class C(2002-3)

   6/12/02    $ 200,000,000    One Month LIBOR + 1.35%    May 2012    October 2014

Class C(2002-4)

   8/29/02    $ 100,000,000    One Month LIBOR + 1.20%    August 2007    January 2010

Class C(2002-6)

   10/29/02    $ 50,000,000    One Month LIBOR + 2.00%    October 2012    March 2015

Class C(2002-7)

   10/29/02    $ 50,000,000    6.70%    October 2012    March 2015

Class C(2003-1)

   2/4/03    $ 200,000,000    One Month LIBOR + 1.70%    January 2010    June 2012

Class C(2003-2)

   2/12/03    $ 100,000,000    One Month LIBOR + 1.60%    January 2008    June 2010

Class C(2003-3)

   5/8/03    $ 175,000,000    One Month LIBOR + 1.35%    May 2008    October 2010

Class C(2003-4)

   6/19/03    $ 327,560,000    Not to exceed Three Month LIBOR + 2.05%1    May 17, 2013    October 19, 2015

Class C(2003-5)

   7/2/03    $ 100,000,000    One Month LIBOR + 1.18%    June 2008    November 2010

Class C(2003-6)

   7/30/03    $ 250,000,000    One Month LIBOR + 1.18%    July 2008    December 2010

Class C(2003-7)

   11/5/03    $ 100,000,000    One Month LIBOR + 1.35%    October 2013    March 2016

Class C(2004-1)

   3/16/04    $ 200,000,000    One Month LIBOR + 0.78%    February 2011    July 2013

Class C(2004-2)

   7/1/04    $ 275,000,000    One Month LIBOR + 0.90%    June 2014    November 2016

Class C(2005-1)

   6/1/05    $ 125,000,000    One Month LIBOR + 0.41%    May 2010    October 2012

Class C(2005-2)

   9/22/05    $ 150,000,000    One Month LIBOR + 0.35%    September 2010    February 2013

Class C(2005-3)

   10/20/05    $ 300,000,000    One Month LIBOR + 0.27%    October 2008    March 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


1 Class C(2003-4) noteholders will receive interest at 6.10% on an outstanding sterling principal amount of £200,000,000, pursuant to the terms of a currency and interest rate swap applicable only to the Class C(2003-4) notes.

 

A-II-3


Annex III

 

Outstanding Master Trust II Series

 

The information provided in this Annex III is an integral part of the prospectus supplement, and is incorporated by reference into the prospectus supplement.

 

 # 

 

Series/Class


 

Issuance

Date


 

Investor

Interest


 

Certificate Rate


 

Scheduled

Payment Date


 

Termination

Date


1   Series 1996-B   3/26/96                
   

Class A

    $435,000,000   One Month LIBOR + .26%   March 2006   August 2008
   

Class B

    $22,500,000   One Month LIBOR + .37%   April 2006   August 2008
   

Collateral Interest

    $42,500,000      
2   Series 1996-G   7/17/96                
   

Class A

    $425,000,000   One Month LIBOR + .18%   July 2006   December 2008
   

Class B

    $37,500,000   One Month LIBOR + .35%   August 2006   December 2008
   

Collateral Interest

    $37,500,000      
3   Series 1996-M   11/26/96                
   

Class A

    $425,000,000   Three Month LIBOR + .13%   November 2006   April 2009
   

Class B

    $37,500,000   Three Month LIBOR + .35%   December 2006   April 2009
   

Collateral Interest

    $37,500,000      
4   Series 1997-B   2/27/97                
   

Class A

    $850,000,000   One Month LIBOR + .16%   March 2012   August 2014
   

Class B

    $75,000,000   One Month LIBOR + .35%   March 2012   August 2014
   

Collateral Interest

    $75,000,000      
5   Series 1997-D   5/22/97                
   

Class A

    $387,948,000   Three Month LIBOR + .05%   May 2007   October 2009
   

Class B

    $34,231,000   Not to Exceed Three Month LIBOR + .50%   May 2007   October 2009
   

Collateral Interest

    $34,231,000      
6   Series 1997-H   8/6/97                
   

Class A

    $507,357,000   Three Month LIBOR + .07%   September 2007   February 2010
   

Class B

    $44,770,000   Not to Exceed Three Month LIBOR + .50%   September 2007   February 2010
   

Collateral Interest

    $44,770,000      
7   Series 1997-O   12/23/97                
   

Class A

    $425,000,000   One Month LIBOR + .17%   December 2007   May 2010
   

Class B

    $37,500,000   One Month LIBOR + .35%   December 2007   May 2010
   

Collateral Interest

    $37,500,000      
8   Series 1998-B   4/14/98                
   

Class A

    $550,000,000   Three Month LIBOR + .09%   April 2008   September 2010
   

Class B

    $48,530,000   Not to Exceed Three Month LIBOR + .50%   April 2008   September 2010
   

Collateral Interest

    $48,530,000      
9   Series 1998-E   8/11/98                
   

Class A

    $750,000,000   Three Month LIBOR + .145%   April 2008   September 2010
   

Class B

    $66,200,000   Three Month LIBOR + .33%   April 2008   September 2010
   

Collateral Interest

    $66,200,000      
10   Series 1998-G   9/10/98                
   

Class A

    $637,500,000   One Month LIBOR + .13%   September 2006   February 2009
   

Class B

    $56,250,000   One Month LIBOR + .40%   September 2006   February 2009
   

Collateral Interest

    $56,250,000      
11   Series 1999-B   3/26/99                
   

Class A

    $637,500,000   5.90%   March 2009   August 2011
   

Class B

    $56,250,000   6.20%   March 2009   August 2011
   

Collateral Interest

    $56,250,000      
12   Series 1999-D   6/3/99                
   

Class A

    $425,000,000   One Month LIBOR + .19%   June 2006   November 2008
   

Class B

    $37,500,000   6.50%   June 2006   November 2008
   

Collateral Interest

    $37,500,000      
13   Series 1999-J   9/23/99                
   

Class A

    $850,000,000   7.00%   September 2009   February 2012
   

Class B

    $75,000,000   7.40%   September 2009   February 2012
   

Collateral Interest

    $75,000,000      
14   Series 1999-L   11/5/99                
   

Class A

    $637,500,000   One Month LIBOR + .25%   October 2006   March 2009
   

Class B

    $56,250,000   One Month LIBOR + .53%   October 2006   March 2009
   

Collateral Interest

    $56,250,000      

 

A-III-1


 # 

 

Series/Class


 

Issuance

Date


 

Investor

Interest


 

Certificate Rate


 

Scheduled

Payment Date


 

Termination

Date


15   Series 2000-D   5/11/00                
   

Class A

    $722,500,000   One Month LIBOR + .20%   April 2007   September 2009
   

Class B

    $63,750,000   One Month LIBOR + .43%   April 2007   September 2009
   

Collateral Interest

    $63,750,000      
16   Series 2000-E   6/1/00                
   

Class A

    $500,000,000   7.80%   May 2010   October 2012
   

Class B

    $45,000,000   8.15%   May 2010   October 2012
   

Collateral Interest

    $45,000,000      
17   Series 2000-H   8/23/00                
   

Class A

    $595,000,000   One Month LIBOR + .25%   August 2010   January 2013
   

Class B

    $52,500,000   One Month LIBOR + .60%   August 2010   January 2013
   

Collateral Interest

    $52,500,000      
18   Series 2000-J   10/12/00                
   

Class A Swiss Francs

    CHF 1,000,000,000   4.125%        
   

Class A

    $568,990,043   Three Month LIBOR + .21%   October 17, 2007   March 17, 2010
   

Class B

    $50,250,000   One Month LIBOR + .44%   October 2007   March 17, 2010
   

Collateral Interest

    $50,250,000      
19   Series 2000-L   12/13/00                
   

Class A

    $425,000,000   6.50%   November 2007   April 2010
   

Class B

    $37,500,000   One Month LIBOR + .50%   November 2007   April 2010
   

Collateral Interest

    $37,500,000      
20   Series 2001-A   2/20/01                
   

Class A

    $1,062,500,000   One Month LIBOR + .15%   February 2006   July 2008
   

Class B

    $93,750,000   One Month LIBOR + .45%   February 2006   July 2008
   

Collateral Interest

    $93,750,000      
21   Series 2001-B   3/8/01                
   

Class A

    $637,500,000   One Month LIBOR + .26%   March 2011   August 2013
   

Class B

    $56,250,000   One Month LIBOR + .60%   March 2011   August 2013
   

Collateral Interest

    $56,250,000      
22   Series 2001-C   4/25/01                
   

Class A

    $675,000,000   Three Month LIBOR - .125%   April 2011   September 2013
   

Class B

    $60,000,000   One Month LIBOR + .62%   April 2011   September 2013
   

Collateral Interest

    $60,000,000      
23   Series 2001-D   5/24/01                
   

Collateral Certificate1

    —        

1 The collateral certificate represents the sole asset of the MBNA Credit Card Master Note Trust. See “Annex II: Outstanding Series, Classes and Tranches of Notes” for a list of outstanding notes issued by the issuing entity.

 

A-III-2


 

Prospectus Dated February 8, 2006

 

LOGO

 

MBNA Credit Card Master Note Trust

Issuing Entity

 

MBNA America Bank, National Association

Sponsor and Depositor

 

The issuing entity—

 

Ÿ may periodically issue notes in one or more series, classes or tranches; and

 

Ÿ will own—

 

    the collateral certificate, Series 2001-D, representing an undivided interest in master trust II, whose assets include the receivables arising in a portfolio of unsecured consumer revolving credit card accounts; and

 

    other property described under “Prospectus Summary—Sources of Funds to Pay the Notes” and “Sources of Funds to Pay the Notes” in this prospectus and “Transaction Parties—MBNA Credit Card Master Note Trust” in this prospectus and the accompanying prospectus supplement.

 

The notes—

 

Ÿ will be secured by the issuing entity’s assets and will be paid only from proceeds of the issuing entity’s assets;

 

Ÿ offered with this prospectus and the related prospectus supplement will be rated in one of the four highest rating categories by at least one nationally recognized rating agency; and

 

Ÿ may be issued as part of a designated series, class or tranche.

 

 
You should consider the discussion under “Risk Factors” beginning on page 30 of this prospectus and
any risk factors in the accompanying prospectus supplement before you purchase any notes.

 

MBNA Credit Card Master Note Trust will be the issuing entity of the notes. The notes will be obligations
of the issuing entity only and are not obligations of MBNA, its affiliates or any other person. Each tranche of
notes will be secured by the assets of the issuing entity. Noteholders will have no recourse to any other assets
of the issuing entity for the payment of the notes.

 

The notes will not be insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality.

 

 

Neither the SEC nor any state securities commission has approved these notes or determined that this prospectus is truthful, accurate or complete. Any representation to the contrary is a criminal offense.


Important Notice about Information Presented in this

Prospectus and the Accompanying Prospectus Supplement

 

We provide information to you about the notes in two separate documents: (a) this prospectus, which provides general information about the MBNAseries notes and each other series of notes, some of which may not apply to your series, class or tranche of notes, and (b) the accompanying prospectus supplement, which will describe the specific terms of your series, class or tranche of notes, including:

 

  Ÿ the timing of interest and principal payments;
  Ÿ financial and other information about the issuing entity’s assets;
  Ÿ information about enhancement for your series, class or tranche;
  Ÿ the ratings for your class or tranche; and
  Ÿ the method for selling the notes.

 

This prospectus may be used to offer and sell any series, class or tranche of notes only if accompanied by the prospectus supplement for that series, class or tranche.

 

If the terms of a particular series, class or tranche of notes vary between this prospectus and the accompanying prospectus supplement, you should rely on the information in the accompanying prospectus supplement.

 

You should rely only on the information provided in this prospectus and the accompanying prospectus supplement including the information incorporated by reference. We have not authorized anyone to provide you with different information. We are not offering the notes in any state where the offer is not permitted. We do not claim the accuracy of the information in this prospectus or the accompanying prospectus supplement as of any date other than the dates stated on their respective covers.

 

Information regarding certain entities that are not affiliates of MBNA America Bank, National Association has been provided in this prospectus. See in particular “Transaction Parties—The Bank of New York” and “—Wilmington Trust Company.” The information contained in those sections of this prospectus was prepared solely by the party described in that section without any input from MBNA.

 

We include cross-references in this prospectus and in the accompanying prospectus supplement to captions in these materials where you can find further related discussions. The Table of Contents in this prospectus and in the accompanying prospectus supplement provide the pages on which these captions are located.

 

Parts of this prospectus use defined terms. You can find a listing of defined terms in the “Glossary of Defined Terms” beginning on page 168.

 

Forward-Looking Statements

 

This prospectus and the accompanying prospectus supplement, including information included or incorporated by reference in this prospectus and the accompanying prospectus

 

2


supplement, may contain forward-looking statements concerning MBNA’s and Master Trust II Portfolio’s future performance. Such statements are subject to risks and uncertainties that may cause MBNA’s and Master Trust II Portfolio’s actual performance to differ materially from that set forth in such forward-looking statements. Words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “could” or similar expressions are intended to identify forward-looking statements but are not the only means to identify these statements. Forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any such statements. Factors which could cause the actual financial and other results to differ materially from those projected by us in forward-looking statements include, but are not limited to, the following:

 

  Ÿ local, regional and national business, political or economic conditions may differ from those expected;

 

  Ÿ the effects and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board, may adversely affect MBNA’s business;

 

  Ÿ the timely development and acceptance of new products and services may be different than anticipated;

 

  Ÿ technological changes instituted by MBNA and by persons who may affect MBNA’s business may be more difficult to accomplish or more expensive than anticipated or may have unforeseen consequences;

 

  Ÿ the ability to increase market share and control expenses may be more difficult than anticipated;

 

  Ÿ competitive pressures among financial services companies may increase significantly;

 

  Ÿ MBNA’s reputation risk arising from negative public opinion;

 

  Ÿ changes in laws and regulations may adversely affect MBNA or its businesses;

 

  Ÿ changes in accounting policies and practices, as may be adopted by regulatory agencies and the Financial Accounting Standards Board, may affect expected financial reporting or business results;

 

  Ÿ the costs, effects and outcomes of litigation may adversely affect MBNA or its businesses; and

 

  Ÿ MBNA may not manage the risks involved in the foregoing as well as anticipated.

 


 

3


Table of Contents

 

     Page

Prospectus Summary

   8

Securities Offered

   8

Risk Factors

   8

Issuing Entity

   8

Master Trust II

   8

MBNA

   9

Indenture Trustee

   10

Owner Trustee

   10

Series, Classes and Tranches of Notes

   12

MBNAseries Notes

   12

Interest Payments

   13

Interest on MBNAseries Notes

   13

Expected Principal Payment Date and Legal Maturity Date

   13

Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount of Notes

   14

Subordination

   15

MBNAseries Credit Enhancement

   16

MBNAseries Required Subordinated Amount

   16

Limit on Repayment of All Notes

   17

Sources of Funds to Pay the Notes

   17

MBNAseries Class C Reserve Account

   18

Flow of Funds and Application of Finance Charge and Principal Collections

   19

Revolving Period

   19

Early Redemption of Notes

   19

Optional Redemption by the Issuing Entity

   20

Events of Default

   21

Events of Default Remedies

   22

Security for the Notes

   22

Limited Recourse to the Issuing Entity

   22

MBNAseries Accumulation Reserve Account

   23

Shared Excess Available Funds

   23
     Page

Registration, Clearance and Settlement

   23

ERISA Eligibility

   24

Tax Status

   24

Denominations

   24

Risk Factors

   30

Transaction Parties

   50

MBNA Credit Card Master Note Trust

   50

MBNA Master Credit Card Trust II

   51

MBNA

   52

Bank of America Corporation/MBNA Corporation Merger

   53

Impact of Bankruptcy Reform Law

   54

Industry Developments

   54

Litigation

   55

The Bank of New York

   55

Wilmington Trust Company

   55

Use of Proceeds

   56

The Notes

   56

General

   56

Interest

   58

Principal

   59

Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount

   60

Stated Principal Amount

   60

Outstanding Dollar Principal Amount

   60

Nominal Liquidation Amount

   61

Final Payment of the Notes

   63

Subordination of Interest and Principal

   64

Required Subordinated Amount

   64

Early Redemption of Notes

   69

Issuances of New Series, Classes and Tranches of Notes

   69

 

4


     Page

Payments on Notes; Paying Agent

   72

Denominations

   72

Record Date

   73

Governing Law

   73

Form, Exchange and Registration and Transfer of Notes

   73

Book-Entry Notes

   73

The Depository Trust Company

   75

Clearstream, Luxembourg

   76

Euroclear System

   76

Distributions on Book-Entry Notes

   77

Global Clearance and Settlement Procedures

   77

Definitive Notes

   78

Replacement of Notes

   79

Sources of Funds to Pay the Notes

   79

The Collateral Certificate

   79

Deposit and Application of Funds

   82

Deposit and Application of Funds for the MBNAseries

   83

MBNAseries Available Funds

   83

Application of MBNAseries Available Funds

   85

Targeted Deposits of MBNAseries Available Funds to the Interest Funding Account

   85

Allocation to Interest Funding Subaccounts

   86

Payments Received from Derivative Counterparties for Interest on Foreign Currency Notes

   87

Deposits of Withdrawals from the Class C Reserve Account to the Interest Funding Account

   87

Allocations of Reductions from Charge-Offs

   87
     Page

Limits on Reallocations of Charge-Offs to a Tranche of Class C Notes from Tranches of Class A and Class B Notes

   87

Limits on Reallocations of Charge-Offs to a Tranche of Class B Notes from Tranches of Class A Notes

   88

Allocations of Reimbursements of Nominal Liquidation Amount Deficits

   88

Application of MBNAseries Available Principal Amounts

   89

Reductions to the Nominal Liquidation Amount of Subordinated Classes from Reallocations of MBNAseries Available Principal Amounts

   91

Limit on Allocations of MBNAseries Available Principal Amounts and MBNAseries Available Funds

   93

Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account

   93

Allocation to Principal Funding Subaccounts

   95

Limit on Deposits to the Principal Funding Subaccount of Subordinated Notes; Limit on Repayments of all Tranches

   96

Payments Received from Derivative Counterparties for Principal

   97

 

5


     Page

Payments Received from Supplemental Credit Enhancement Providers or Supplemental Liquidity Providers for Principal

   97

Deposits of Withdrawals from the Class C Reserve Account to the Principal Funding Account

   98

Withdrawals from Interest Funding Subaccounts

   98

Withdrawals from Principal Funding Account

   99

Targeted Deposits to the Class C Reserve Account

   100

Withdrawals from the Class C Reserve Account

   101

Targeted Deposits to the Accumulation Reserve Account

   101

Withdrawals from the Accumulation Reserve Account

   102

Final Payment of the Notes

   102

Pro Rata Payments Within a Tranche

   103

Shared Excess Available Funds

   103

Issuing Entity Accounts

   104

Derivative Agreements

   105

Supplemental Credit Enhancement Agreements and Supplemental Liquidity Agreements

   105

Sale of Credit Card Receivables

   106

Sale of Credit Card Receivables for MBNAseries Notes

   106

Limited Recourse to the Issuing Entity; Security for the Notes

   108

The Indenture

   109

Indenture Trustee

   109

Owner Trustee

   111

Issuing Entity Covenants

   112

Early Redemption Events

   113
     Page

Events of Default

   114

Events of Default Remedies

   115

Meetings

   117

Voting

   117

Amendments to the Indenture and Indenture Supplements

   118

Tax Opinions for Amendments

   121

Addresses for Notices

   121

Issuing Entity’s Annual Compliance Statement

   121

Indenture Trustee’s Annual Report

   121

List of Noteholders

   122

Reports

   122

MBNA’s Credit Card Activities

   124

General

   124

Origination, Account Acquisition, Credit Lines and Use of Credit Card Accounts

   124

Interchange

   126

MBNA’s Credit Card Portfolio

   126

Billing and Payments

   126

Risk Control and Fraud

   128

Delinquencies and Collection Efforts

   128

Charge-Off Policy

   128

Renegotiated Loans and Re-Aged Accounts

   129

Master Trust II

   130

General

   130

Master Trust II Trustee

   130

The Receivables

   133

Investor Certificates

   134

Transfer and Assignment of Receivables

   134

Addition of Master Trust II Assets

   135

Removal of Accounts

   136

Collection and Other Servicing Procedures

   138

Master Trust II Accounts

   139

Investor Percentage

   139

 

6


     Page

Application of Collections

   139

Defaulted Receivables; Rebates and Fraudulent Charges

   142

Master Trust II Termination

   142

Pay Out Events

   143

Servicing Compensation and Payment of Expenses

   144

New Issuances

   145

Representations and Warranties

   146

Certain Matters Regarding MBNA as Seller and as Servicer

   149

Servicer Default

   150

Evidence as to Compliance

   152

Amendments to the Master Trust II Agreement

   153

Certificateholders Have Limited Control of Actions

   155

Consumer Protection Laws

   155

Federal Income Tax Consequences

   156

General

   156

Description of Opinions

   157

Tax Characterization of the Issuing Entity and the Notes

   158
     Page

Consequences to Holders of the Offered Notes

   159

State and Local Tax Consequences

   162

Benefit Plan Investors

   162

Prohibited Transactions

   163

Potential Prohibited Transactions from Investment in Notes

   163

Prohibited Transactions between the Benefit Plan and a Party in Interest

   163

Prohibited Transactions between the Issuing Entity or Master Trust II and a Party in Interest

   164

Investment by Benefit Plan Investors

   165

Tax Consequences to Benefit Plans

   165

Plan of Distribution

   165

Legal Matters

   166

Where You Can Find More Information

   167

Glossary of Defined Terms

   168

 

7


Prospectus Summary

 

This summary does not contain all the information you may need to make an informed investment decision. You should read this prospectus and the accompanying prospectus supplement in their entirety before you purchase any notes. The accompanying supplement to this prospectus supplements disclosure in this prospectus.

 

Securities Offered

 

The issuing entity will be offering notes. The notes will be issued pursuant to an indenture between the issuing entity and The Bank of New York, as indenture trustee. In addition, each series of notes will be issued pursuant to a supplement to the indenture between the issuing entity and the indenture trustee. The MBNAseries notes will be issued pursuant to the indenture as supplemented by the MBNAseries indenture supplement.

 

Risk Factors

 

Investment in notes involves risks. You should consider carefully the risk factors beginning on page 30 in this prospectus. In the event that an investment in any tranche of notes exhibits additional risks to investors, additional risk factors will be described in the accompanying prospectus supplement. In such an event, you should consider the risk factors in this prospectus and in the accompanying prospectus supplement.

 

Issuing Entity

 

MBNA Credit Card Master Note Trust, a Delaware statutory trust, is the issuing entity of the notes. The address of the issuing entity is MBNA Credit Card Master Note Trust, c/o Wilmington Trust Company, Rodney Square North, 1100 N. Market Street, Wilmington, Delaware 19890-0001. Its telephone number is (302) 651-1284.

 

MBNA is the beneficiary of the issuing entity.

 

Master Trust II

 

The issuing entity’s primary asset will be the collateral certificate issued by MBNA Master Credit Card Trust II, a Delaware trust, which is referred to in this prospectus and in the accompanying prospectus supplement as master trust II. The collateral certificate, an investor certificate issued by master trust II, represents an undivided interest in the assets of master trust II. For a description of the collateral certificate, see “Sources of Funds to Pay the Notes—The Collateral Certificate.” Master trust II’s assets primarily include credit card receivables from certain unsecured consumer revolving credit card accounts that meet the eligibility criteria for inclusion in master trust II. These eligibility criteria are discussed in “Master Trust II—Addition of Master Trust II Assets.”

 

The credit card receivables in master trust II consist primarily of principal receivables and finance charge receivables. Principal receivables include amounts charged by cardholders for merchandise and services and amounts advanced to cardholders as cash advances. Finance charge receivables include periodic finance charges, cash advance fees, late charges and certain other fees billed to cardholders, annual membership fees, and recoveries on receivables in accounts the receivables of which have been written-off.

 

8


In addition, MBNA is permitted to add to master trust II participations representing interests in a pool of assets primarily consisting of receivables arising under consumer revolving credit card accounts owned by MBNA and collections thereon. For a description of master trust II, see “Master Trust II.

 

MBNA may add additional receivables to master trust II at any time without limitation provided the receivables are eligible receivables, MBNA does not expect the addition to cause a Pay Out Event and the rating agencies confirm the ratings on the outstanding investor certificates and notes. Under certain limited circumstances, MBNA may be required to add additional receivables to master trust II if required to maintain the minimum seller interest or to maintain a minimum required amount of principal receivables in master trust II.

 

MBNA may also remove receivables from master trust II provided MBNA does not expect the removal to cause a Pay Out Event and the rating agencies confirm the ratings on the outstanding investor certificates and notes. The amount of any such removal is limited and may only occur once in a calendar month. In addition, except in limited circumstances, the receivables removed from master trust II must be selected randomly. However, if MBNA breaches certain representations or warranties relating to the eligibility of receivables added to master trust II, MBNA may be required to immediately remove those receivables from master trust II.

 

If the composition of master trust II changes over time due to MBNA’s ability to add and remove receivables, noteholders will not be notified of that change. However, monthly reports containing certain information relating to the notes and the collateral securing the notes will be filed with the Securities and Exchange Commission. These reports will not be sent to noteholders. See “Where You Can Find More Information” for information as to how these reports may be accessed.

 

MBNA

 

MBNA America Bank, National Association is a national banking association. The address of MBNA’s principal offices is 1100 North King Street, Wilmington, Delaware 19884. Its telephone number is (800) 362-6255.

 

MBNA created master trust II and has transferred and may continue to transfer credit card receivables arising in accounts originated or acquired by MBNA to master trust II. MBNA is the holder of the seller interest in master trust II. MBNA will be responsible for servicing, managing and making collections on the credit card receivables in master trust II. MBNA Technology, Inc., a wholly owned subsidiary of MBNA, will perform certain data and administrative functions associated with the servicing of credit card accounts owned by MBNA on behalf of MBNA. See “Transaction Parties—MBNA.”

 

MBNA America Bank, National Association is the sponsor and depositor of the issuing entity. In addition, MBNA is the beneficiary of the issuing entity and is primarily responsible for structuring each issuance of notes by the issuing entity. See “Transaction Parties—MBNA.”

 

9


Indenture Trustee

 

The Bank of New York, a New York banking corporation, is the indenture trustee under the indenture for the notes.

 

Under the terms of the indenture, the role of the indenture trustee is limited. See “The Indenture—Indenture Trustee.”

 

See “Transaction Parties—The Bank of New York.

 

Owner Trustee

 

Wilmington Trust Company, a Delaware banking corporation, is the owner trustee of the issuing entity. Under the terms of the trust agreement, the role of the owner trustee is limited. See “Transaction Parties—MBNA Credit Card Master Note Trust.”

 

See “Transaction Parties—Wilmington Trust Company.”

 

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Series, Classes and Tranches of Notes

 

The notes will be issued in series. Each series is secured by a shared security interest in the collateral certificate and the collection account. It is expected that most series will consist of multiple classes. A class designation determines the relative seniority for receipt of cash flows and funding of uncovered defaults on principal receivables in master trust II allocated to the related series of notes. For example, subordinated classes of notes provide credit enhancement for senior classes of notes in the same series.

 

Some series of notes will be multiple tranche series, meaning that they may have classes consisting of multiple tranches. Tranches of notes within a class may be issued on different dates and have different stated principal amounts, rates of interest, interest payment dates, expected principal payment dates, legal maturity dates and other material terms as described in the related prospectus supplement.

 

In a multiple tranche series, the expected principal payment dates and the legal maturity dates of the senior and subordinated classes of such series may be different. As such, certain subordinated tranches of notes may have expected principal payment dates and legal maturity dates earlier than some or all of the senior notes of such series. However, subordinated notes will not be repaid before their legal maturity dates, unless, after payment, the remaining subordinated notes provide the required enhancement for the senior notes. In addition, senior notes will not be issued unless, after issuance, there are enough outstanding subordinated notes to provide the required subordinated amount for the senior notes. See “The Notes—Issuances of New Series, Classes and Tranches of Notes.”

 

MBNAseries Notes

 

The MBNAseries is a multiple tranche series. Each class of notes in the MBNAseries may consist of multiple tranches. Notes of any tranche can be issued on any date so long as there is sufficient credit enhancement on that date, either in the form of outstanding subordinated notes or other forms of credit enhancement. See “The Notes—Issuances of New Series, Classes and Tranches of Notes.” The expected principal payment dates and legal maturity dates of tranches of senior and subordinated classes of the MBNAseries may be different. Therefore, subordinated notes may have expected principal payment dates and legal maturity dates earlier than some or all senior notes of the MBNAseries. Subordinated notes will generally not be paid before their legal maturity date unless, after payment, the remaining outstanding subordinated notes provide the credit enhancement required for the senior notes.

 

In general, the subordinated notes of the MBNAseries serve as credit enhancement for all of the senior notes of the MBNAseries, regardless of whether the subordinated notes are issued before, at the same time as, or after the senior notes of the MBNAseries. However, certain tranches of senior notes may not require subordination from each class of notes subordinated to it. For example, if a tranche of Class A notes requires credit enhancement solely from Class C notes, the Class B notes will not, in that case, provide credit enhancement for that tranche of Class A notes. The amount of credit exposure of any particular tranche of

 

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notes is a function of, among other things, the total amount of notes issued, the required subordinated amount, the amount of usage of the required subordinated amount and the amount on deposit in the senior tranches’ principal funding subaccounts.

 

This prospectus may relate to an offering of MBNAseries notes or the notes of any other series issued by MBNA Credit Card Master Note Trust. Any offering of MBNAseries notes or any other series of notes through this prospectus must be accompanied by a prospectus supplement.

 

Some series may not be multiple tranche series. For these series, there will be only one tranche per class and each class will generally be issued on the same date. The expected principal payment dates and legal maturity dates of the subordinated classes of such a series will either be the same as or later than those of the senior classes of that series.

 

Interest Payments

 

Each tranche of notes, other than discount notes, will bear interest from the date and at the rate set forth or as determined in the related prospectus supplement. Interest on the notes will be paid on the interest payment dates specified in the related prospectus supplement.

 

Interest on MBNAseries Notes

 

The payment of interest on a senior class of MBNAseries notes on any payment date is senior to the payment of interest on subordinated classes of MBNAseries notes on that date. Generally, no payment of interest will be made on any Class B MBNAseries note until the required payment of interest has been made to the Class A MBNAseries notes. Similarly, generally, no payment of interest will be made on any Class C MBNAseries note until the required payment of interest has been made to the Class A and the Class B MBNAseries notes. However, any funds on deposit in the Class C reserve account will be available only to holders of Class C notes to cover shortfalls of interest on any interest payment date.

 

Expected Principal Payment Date and Legal Maturity Date

 

It is expected that the issuing entity will pay the stated principal amount of each note in one payment on that note’s expected principal payment date. The expected principal payment date of a note is generally 29 months before its legal maturity date. The legal maturity date is the date on which a note is legally required to be fully paid in accordance with its terms. The expected principal payment date and legal maturity date for a note will be specified in the related prospectus supplement.

 

The issuing entity will be obligated to pay the stated principal amount of a note on its expected principal payment date, or upon the occurrence of an early redemption event or event of default and acceleration or other optional or mandatory redemption, only to the extent that funds are available for that purpose and only to the extent that payment is permitted by the subordination provisions of the senior notes of the same series. The remedies a noteholder may exercise following an event of default and acceleration or on the legal maturity date are

 

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described in “The Indenture—Events of Default Remedies” and “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables.”

 

Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount of Notes

 

Each note has a stated principal amount, an outstanding dollar principal amount and a nominal liquidation amount.

 

  Stated Principal Amount.    The stated principal amount of a note is the amount that is stated on the face of the note to be payable to the holder. It can be denominated in U.S. dollars or a foreign currency.

 

  Outstanding Dollar Principal Amount.    For U.S. dollar notes (other than discount notes), the outstanding dollar principal amount is the same as the initial dollar principal amount of the notes (as set forth in the applicable supplement to this prospectus), less principal payments to noteholders. For foreign currency notes, the outstanding dollar principal amount is the U.S. dollar equivalent of the initial dollar principal amount of the notes (as set forth in the related prospectus supplement), less dollar payments to derivative counterparties for principal. For discount notes, the outstanding dollar principal amount is an amount stated in, or determined by a formula described in, the related prospectus supplement.

 

In addition, a note may have an Adjusted Outstanding Dollar Principal Amount. The Adjusted Outstanding Dollar Principal Amount is the same as the outstanding dollar principal amount, less any funds on deposit in the principal funding subaccount for that note.

 

  Nominal Liquidation Amount.    The nominal liquidation amount of a note is a U.S. dollar amount based on the outstanding dollar principal amount of the note, but after deducting:

 

—    that note’s share of reallocations of Available Principal Amounts used to pay interest on senior classes of notes or a portion of the master trust II servicing fee allocated to its series;

 

—    that note’s share of charge-offs resulting from uncovered defaults on principal receivables in master trust II;

 

—    amounts on deposit in the principal funding subaccount for that note;

 

and adding back all reimbursements from Excess Available Funds allocated to that note of (i) reallocations of Available Principal Amounts used to pay interest on senior classes of notes or the master trust II servicing fee or (ii) charge-offs resulting from uncovered defaults on principal receivables in master trust II. Excess Available Funds are Available Funds that remain after the payment of interest and other required payments for the notes.

 

The nominal liquidation amount of a note corresponds to the portion of the investor interest of the collateral certificate that is allocated to support that note.

 

The aggregate nominal liquidation amount of all of the notes is equal to the Investor Interest of the collateral certificate. The Investor Interest of the collateral certificate corresponds to the amount of principal receivables in master trust II that is allocated to support the collateral certificate.

 

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Anything that increases or decreases the aggregate nominal liquidation amount of the notes will also increase or decrease the Investor Interest of the collateral certificate.

 

Upon a sale of credit card receivables held by master trust II (i) following the insolvency of MBNA, (ii) following an event of default and acceleration for a note, or (iii) on a note’s legal maturity date, each as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables,” the nominal liquidation amount of a note will be reduced to zero.

 

For a detailed discussion of nominal liquidation amount, see “The Notes—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount—Nominal Liquidation Amount.”

 

Subordination

 

Payment of principal of and interest on subordinated classes of notes will be subordinated to the payment of principal of and interest on senior classes of notes except to the extent provided in this prospectus and the accompanying prospectus supplement.

 

Available Principal Amounts allocable to the notes of a series may be reallocated to pay interest on senior classes of notes in that series or a portion of the master trust II servicing fee allocable to that series. In addition, the nominal liquidation amount of a subordinated class of notes will generally be reduced for charge-offs resulting from uncovered defaults on principal receivables in master trust II prior to any reductions in the nominal liquidation amount of the senior classes of notes of the same series. While in a multiple tranche series charge-offs from uncovered defaults on principal receivables in master trust II allocable to the series will be initially allocated to each tranche pro rata, these charge-offs will then be reallocated from tranches in the senior classes to tranches in the subordinated classes to the extent credit enhancement in the form of subordination is still available to such senior tranches.

 

In addition, Available Principal Amounts are first utilized to fund targeted deposits to the principal funding subaccounts of senior classes before being applied to the principal funding subaccounts of the subordinated classes.

 

In a multiple tranche series, subordinated notes that reach their expected principal payment date, or that have an early redemption event, event of default or other optional or mandatory redemption, will not be paid to the extent that those notes are necessary to provide the required subordination for senior classes of notes of the same series. If a tranche of subordinated notes cannot be paid because of the subordination provisions of its respective indenture supplement, prefunding of the principal funding subaccounts for the senior notes of the same series will begin, as described in the related prospectus supplement. After that time, the subordinated notes will be paid only to the extent that:

 

  the principal funding subaccounts for the senior classes of notes of that series are prefunded in an amount such that the subordinated notes that have reached their expected principal payment date are no longer necessary to provide the required subordination;

 

 

new tranches of subordinated notes of that series are issued so that the subordinated

 

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notes that have reached their expected principal payment date are no longer necessary to provide the required subordination;

 

  enough notes of senior classes of that series are repaid so that the subordinated notes that have reached their expected principal payment date are no longer necessary to provide the required subordination; or

 

  the subordinated notes reach their legal maturity date.

 

On the legal maturity date of a tranche of notes, Available Principal Amounts, if any, allocable to that tranche and proceeds from any sale of receivables will be paid to the noteholders of that tranche, even if payment would reduce the amount of available subordination below the required subordination for the senior classes of that series.

 

MBNAseries Credit Enhancement

 

Credit enhancement for the MBNAseries notes generally will be provided through subordination. If so indicated in the related prospectus supplement, additional credit enhancement for Class C MBNAseries notes will be provided by the Class C reserve account. The amount of subordination available to provide credit enhancement to any tranche of MBNAseries notes is limited to its available subordinated amount. If the available subordinated amount for any tranche of MBNAseries notes has been reduced to zero, losses that would have otherwise been reallocated to subordinated notes will be borne by that tranche of MBNAseries notes. The nominal liquidation amount of those notes will be reduced by the amount of losses allocated to those notes, and it is unlikely that those notes will receive their full payment of principal.

 

Subordinated classes of MBNAseries notes generally will not receive interest payments on any payment date until the senior classes of MBNAseries notes have received their full interest payment on such date. Available principal amounts allocable to the subordinated classes of MBNAseries notes may be applied to make interest payments on the senior classes of MBNAseries notes or to pay a portion of the master trust II servicing fee allocable to the MBNAseries. Available principal amounts remaining on any payment date after any reallocations for interest on the senior classes of notes or for a portion of the master trust II servicing fee allocable to the MBNAseries will be first applied to make targeted deposits to the principal funding subaccounts of senior classes of MBNAseries notes on such date before being applied to make required deposits to the principal funding subaccounts of the subordinated classes of MBNAseries notes on such date.

 

In addition, principal payments on subordinated classes of MBNAseries notes are subject to the principal payment rules described below in “—MBNAseries Required Subordinated Amount.”

 

MBNAseries Required Subordinated Amount

 

In order to issue a senior class of MBNAseries notes, the required subordinated amount of subordinated notes must be outstanding and available on the issuance date. Generally, the required subordinated amount of a subordinated class of MBNAseries notes for any date is an

 

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amount equal to a stated percentage of the Adjusted Outstanding Dollar Principal Amount of the senior tranche of notes for such date. Generally, the required subordinated amount for a tranche of Class A MBNAseries notes is equal to a stated percentage of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class A notes. Similarly, the Class B required subordinated amount of Class C notes for each tranche of Class B MBNAseries notes is equal to a percentage of its Adjusted Outstanding Dollar Principal Amount. However, the Class B required subordinated amount of Class C notes for any tranche of Class B MBNAseries notes may be adjusted to reflect its pro rata share of the portion of the Adjusted Outstanding Dollar Principal Amount of all Class B MBNAseries notes which is not providing credit enhancement to the Class A MBNAseries notes.

 

The required subordinated amount for any tranche of MBNAseries notes will generally be determined as depicted in the chart “MBNAseries Required Subordinated Amounts” below.

 

For a more detailed description of how to calculate the required subordinated amount of any tranche of MBNAseries notes, see “The Notes—Required Subordinated Amount—MBNAseries.”

 

Limit on Repayment of All Notes

 

You may not receive full repayment of your notes if:

 

  the nominal liquidation amount of your notes has been reduced by charge-offs due to uncovered defaults on principal receivables in master trust II or as a result of reallocations of Available Principal Amounts to pay interest on senior classes of notes or a portion of the master trust II servicing fee, and those amounts have not been reimbursed from Available Funds; or

 

  receivables are sold (i) following the insolvency of MBNA, (ii) following an event of default and acceleration or (iii) on the legal maturity date, and the proceeds from the sale of receivables, plus any available amounts on deposit in the applicable subaccounts allocable to your notes are insufficient.

 

Sources of Funds to Pay the Notes

 

The issuing entity will have the following sources of funds to pay principal of and interest on the notes:

 

 

Collateral Certificate.    The collateral certificate is an investor certificate issued as “Series 2001-D” by master trust II to the issuing entity. It represents an undivided interest in the assets of master trust II. Master trust II owns primarily receivables arising in selected MasterCard, Visa and American Express consumer revolving credit card accounts. MBNA has transferred, and may continue to transfer, credit card receivables to master trust II in accordance with the terms of the master trust II agreement. Both collections of principal receivables and finance charge receivables will be allocated among holders of interests in master trust II—including the collateral certificate—based generally on the investment in principal receivables of each interest in master trust II. If collections of receivables allocable to the collateral certificate are less than

 

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expected, payments of principal of and interest on the notes could be delayed or remain unpaid.

 

At the time it was issued, the collateral certificate received an investment grade rating from at least one nationally recognized rating agency.

 

  Derivative Agreements.    Some notes may have the benefit of one or more derivative agreements, including interest rate or currency swaps, or other agreements described in “Sources of Funds to Pay the Notes—Derivative Agreements.” A description of the specific terms of each derivative agreement and each derivative counterparty will be included in the applicable prospectus supplement.

 

  Supplemental Credit Enhancement Agreements and Supplemental Liquidity Agreements.    Some notes may have the benefit of one or more additional forms of credit enhancement, referred to in this prospectus and the applicable prospectus supplement as supplemental credit enhancement agreements, such as letters of credit, cash collateral guarantees or accounts, surety bonds or insurance policies. In addition, some notes may have the benefit of one or more forms of supplemental liquidity agreements, such as a liquidity facility with various liquidity providers. MBNA or an affiliate may be the provider of any supplemental credit enhancement agreement or supplemental liquidity agreement. A description of the specific terms of any supplemental credit enhancement agreement or any supplemental liquidity agreement applicable to a series, class or tranche of notes and a description of the related provider will be included in the applicable prospectus supplement. See “The Notes—General” and “Sources of Funds to Pay the Notes—Supplemental Credit Enhancement Agreements and Supplemental Liquidity Agreements” for a discussion of credit enhancement, supplemental credit enhancement agreements and supplemental liquidity agreements.

 

  The Issuing Entity Accounts.    The issuing entity will establish a collection account for the purpose of receiving collections of finance charge receivables and principal receivables and other related amounts from master trust II payable under the collateral certificate. If so specified in the prospectus supplement, the issuing entity may establish supplemental accounts for any series, class or tranche of notes.

 

Each month, distributions on the collateral certificate will be deposited into the collection account. Those deposits will then be allocated among each series of notes and applied as described in the accompanying prospectus supplement.

 

MBNAseries Class C Reserve Account

 

If indicated in the related prospectus supplement, the issuing entity will establish a Class C reserve subaccount to provide credit enhancement solely for the holders of the related tranche of Class C MBNAseries notes. The applicable Class C reserve subaccount will be funded as described in the related prospectus supplement.

 

Funds on deposit in the Class C reserve subaccount for each tranche of Class C MBNAseries notes will be available to

 

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holders of those notes to cover shortfalls of interest payable on interest payment dates. Funds on deposit in the Class C reserve subaccount for each tranche of Class C MBNAseries notes will also be available to holders of those notes to cover certain shortfalls in principal. Only the holders of the related tranche of Class C MBNAseries notes will have the benefit of the related Class C reserve subaccount. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseriesWithdrawals from the Class C Reserve Account.”

 

Flow of Funds and Application of Finance Charge and Principal Collections

 

For a detailed description of the application of collections, see “Master Trust II—Application of Collections” and “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries.”

 

Finance charge collections and other amounts allocated to the MBNAseries, called MBNAseries Available Funds, will generally be applied each month to make the payments or deposits depicted in the chart “Application of MBNAseries Available Funds” below. See the chart “Application of Collections of Finance Charges and Principal Payments Received by MBNA as Servicer of Master Trust II” below for a depiction of how finance charge collections are allocated by master trust II. For a detailed description of the application of MBNAseries Available Funds, see “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries.”

 

Principal collections and other amounts allocated to the MBNAseries, called MBNAseries Available Principal Amounts, will generally be applied each month to make the payments or deposits depicted in the chart “Application of MBNAseries Available Principal Amounts” below. See the chart “Application of Collections of Finance Charges and Principal Payments Received by MBNA as Servicer of Master Trust II” below for a depiction of how principal collections are allocated by master trust II. For a detailed description of the application of MBNAseries Available Principal Amounts, see “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries.”

 

Revolving Period

 

Until principal amounts are needed to be accumulated to pay any tranche of MBNAseries notes, principal amounts allocable to that tranche notes will be applied to other MBNAseries notes which are accumulating principal or paid to MBNA as holder of the seller interest. This period is commonly referred to as the revolving period. Unless an early redemption event or event of default and acceleration for the related tranche of MBNAseries notes occurs, the revolving period is expected to end twelve calendar months prior to the expected principal payment date. However, if the issuing entity reasonably expects to need less than twelve months to fully accumulate the outstanding dollar principal amount of the related tranche of notes, the end of the revolving period may be delayed.

 

Early Redemption of Notes

 

The issuing entity will be required to redeem any note upon the occurrence of an early redemption event relating to that note, but

 

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only to the extent funds are available for such redemption after giving effect to all allocations and reallocations and, in the case of subordinated notes of a multiple tranche series, only to the extent that payment is permitted by the subordination provisions of the senior notes of the same series.

 

However, if so specified in the accompanying prospectus supplement, subject to certain exceptions, any notes that have the benefit of a derivative agreement will not be redeemed prior to such notes’ expected principal payment date.

 

Early redemption events include the following:

 

  the occurrence of a note’s expected principal payment date;

 

  each of the Pay Out Events applicable to the collateral certificate, as described under “Master Trust II—Pay Out Events”;

 

  the issuing entity becoming an “investment company” within the meaning of the Investment Company Act of 1940, as amended; or

 

  any additional early redemption events specified in the accompanying prospectus supplement.

 

In addition to the early redemption events described above, if for any date the amount of Excess Available Funds for the MBNAseries notes averaged over the three preceding calendar months is less than the Required Excess Available Funds for the MBNAseries for such date, an early redemption event will occur for all tranches of MBNAseries notes.

 

Excess Available Funds for any month equals the Available Funds allocated to the MBNAseries that month after application for targeted deposits to the interest funding account, payment of the master trust II servicing fee allocable to the MBNAseries, application to cover defaults on principal receivables in master trust II allocable to the MBNAseries and reimbursement of any deficits in the nominal liquidation amounts of notes.

 

Required Excess Available Funds for the MBNAseries is an amount equal to zero. This amount may be changed provided the issuing entity (i) receives the consent of the rating agencies and (ii) reasonably believes that the change will not have a material adverse effect on the MBNAseries notes.

 

See “The Notes—Early Redemption of Notes” and “The Indenture—Early Redemption Events.”

 

Upon the occurrence of an early redemption event for any series, class or tranche of notes, those notes will be entitled to receive payments of interest and principal each month, subject to the conditions outlined in “The Notes—Early Redemption of Notes” and “The Indenture—Early Redemption Events.”

 

It is not an event of default if the issuing entity fails to redeem a note because it does not have sufficient funds available or because payment of the note is delayed because it is necessary to provide required subordination for a senior class of notes.

 

Optional Redemption by the Issuing Entity

 

The servicer has the right, but not the obligation, to direct the issuing entity to redeem any tranche of MBNAseries notes in

 

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whole but not in part on any day on or after the day on which its nominal liquidation amount is reduced to less than 5% of its highest outstanding dollar principal amount. This repurchase option is referred to as a clean-up call.

 

The issuing entity will not redeem subordinated MBNAseries notes if those notes are required to provide credit enhancement for senior classes of MBNAseries notes. If the issuing entity is directed to redeem any tranche of MBNAseries notes, it will notify the registered holders at least thirty days prior to the redemption date. The redemption price of a note will equal 100% of the outstanding principal amount of that note, plus accrued but unpaid interest on the note to but excluding the date of redemption.

 

If the issuing entity is unable to pay the redemption price in full on the redemption date, monthly payments on the related tranche of MBNAseries notes will thereafter be made, subject to the principal payment rules described above under “—Subordination,” until either the principal of and accrued interest on that tranche of notes are paid in full or the legal maturity date occurs, whichever is earlier. Any funds in the principal funding subaccount and the interest funding subaccount and, in the case of Class C MBNAseries notes, the Class C reserve subaccount, for the related tranche of MBNAseries notes will be applied to make the principal and interest payments on these notes on the redemption date.

 

Events of Default

 

The documents that govern the terms and conditions of the notes include a list of adverse events known as events of default.

 

Some events of default result in an automatic acceleration of the notes, and others result in the right of the holders of the affected series, class or tranche of notes to demand acceleration after an affirmative vote by holders of more than 50% of the outstanding dollar principal amount of the affected series, class or tranche of notes.

 

Events of default for any series, class or tranche of notes include the following:

 

  for any tranche of notes, the issuing entity’s failure, for a period of 35 days, to pay interest upon such notes when such interest becomes due and payable;

 

  for any tranche of notes, the issuing entity’s failure to pay the principal amount of such notes on the applicable legal maturity date;

 

  the issuing entity’s default in the performance, or breach, of any other of its covenants or warranties in the indenture for a period of 60 days after either the indenture trustee or the holders of 25% of the aggregate outstanding dollar principal amount of the outstanding notes of the affected series, class or tranche has provided written notice requesting remedy of such breach, and, as a result of such default, the interests of the related noteholders are materially and adversely affected and continue to be materially and adversely affected during the 60 day period;

 

  the occurrence of certain events of bankruptcy, insolvency, conservatorship or receivership of the issuing entity; and

 

  for any series, class or tranche of notes, any additional events of default specified in the accompanying prospectus supplement.

 

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An event of default relating to one series, class or tranche of notes will not necessarily be an event of default for any other series, class or tranche of notes.

 

Upon the occurrence of an event of default and acceleration for any series, class or tranche of notes, those notes will be entitled to receive payments of interest and principal each month, subject to the conditions outlined in “The Indenture—Events of Default” and “—Events of Default Remedies.”

 

Events of Default Remedies

 

After an event of default and acceleration of a series, class or tranche of notes, funds on deposit in the applicable issuing entity accounts for the affected notes will be applied to pay principal of and interest on those notes. Then, in each following month, Available Principal Amounts and Available Funds allocated to those notes will be applied to make monthly principal and interest payments on those notes until the earlier of the date those notes are paid in full or the legal maturity date of those notes. However, subordinated notes of a multiple tranche series will receive payment of principal of those notes prior to the legal maturity date of such notes only if and to the extent that funds are available for that payment and, after giving effect to that payment, the required subordination will be maintained for senior notes in that series.

 

If an event of default of a series, class or tranche of notes occurs and that series, class or tranche of notes is accelerated, the indenture trustee may, and at the direction of the majority of the noteholders of the affected series, class or tranche will, direct master trust II to sell credit card receivables. However, this sale of receivables may occur only:

 

  if the conditions specified in “The Indenture—Events of Default Remedies” are satisfied and, for subordinated notes of a multiple tranche series, only to the extent that payment is permitted by the subordination provisions of the senior notes of the same series; or

 

  on the legal maturity date of those notes.

 

The holders of the accelerated notes will be paid their allocable share of the proceeds of a sale of credit card receivables. Upon the sale of the receivables, the nominal liquidation amount of those accelerated notes will be reduced to zero. See “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables.

 

Security for the Notes

 

The notes of all series are secured by a shared security interest in the collateral certificate and the collection account, but each tranche of notes is entitled to the benefits of only that portion of the assets allocated to it under the indenture and the indenture supplement.

 

Each tranche of notes is also secured by:

 

  a security interest in any applicable supplemental account; and

 

  a security interest in any derivative agreement for that tranche.

 

Limited Recourse to the Issuing Entity

 

The sole source of payment for principal of or interest on a tranche of notes is provided by:

 

 

the portion of collections of principal receivables and finance charge

 

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receivables received by the issuing entity under the collateral certificate and available to that tranche of notes after giving effect to all allocations and reallocations;

 

  funds in the applicable issuing entity accounts for that tranche of notes; and

 

  payments received under any applicable derivative agreement for that tranche of notes.

 

Noteholders will have no recourse to any other assets of the issuing entity or any other person or entity for the payment of principal of or interest on the notes.

 

If there is a sale of credit card receivables (i) following the insolvency of MBNA, (ii) following an event of default and acceleration, or (iii) on the applicable legal maturity date, each as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables,” following such sale those noteholders have recourse only to the proceeds of that sale, investment earnings on those proceeds and any funds previously deposited in any applicable issuing entity account for such noteholders.

 

MBNAseries Accumulation Reserve Account

 

The issuing entity will establish an accumulation reserve subaccount for each tranche of MBNAseries notes to cover shortfalls in investment earnings on amounts (other than prefunded amounts) on deposit in the principal funding subaccount for such notes.

 

The amount targeted to be deposited in the accumulation reserve subaccount for each tranche of MBNAseries notes is zero, unless more than one budgeted deposit is required to accumulate and pay the principal of the related tranche of notes on its expected principal payment date, in which case, the amount targeted to be deposited is 0.5% of the outstanding dollar principal amount of the related tranche notes, or such other amount designated by the issuing entity. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits to the Accumulation Reserve Account.”

 

Shared Excess Available Funds

 

The MBNAseries will be included in “Group A.” In addition to the MBNAseries, the issuing entity may issue other series of notes that are included in Group A.

 

To the extent that Available Funds allocated to the MBNAseries are available after all required applications of such amounts as described in “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Application of MBNAseries Available Funds,” these unused Available Funds, called shared excess available funds, will be applied to cover shortfalls in Available Funds for other series of notes in Group A. In addition, the MBNAseries may receive the benefits of shared excess available funds from other series in Group A, to the extent Available Funds for such other series of notes are not needed for such series. See “Sources of Funds to Pay the Notes—The Collateral Certificate,” “—Deposit and Application of Funds” and “—Deposit and Application of Funds for the MBNAseries—Shared Excess Available Funds.”

 

Registration, Clearance and Settlement

 

The notes offered by this prospectus will be registered in the name of The Depository

 

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Trust Company or its nominee, and purchasers of notes will only be entitled to receive a definitive certificate under limited circumstances. Owners of notes may elect to hold their notes through The Depository Trust Company in the United States or through Clearstream, Luxembourg or the Euroclear System in Europe. Transfers will be made in accordance with the rules and operating procedures of those clearing systems. See “The Notes—Book-Entry Notes.”

 

ERISA Eligibility

 

The indenture permits benefit plans to purchase notes of every class offered pursuant to this prospectus and a related prospectus supplement. A fiduciary of a benefit plan should consult its counsel as to whether a purchase of notes by the plan is permitted by ERISA and the Internal Revenue Code. See “Benefit Plan Investors.”

 

Tax Status

 

Subject to important considerations described under “Federal Income Tax Consequences” in this prospectus, Orrick, Herrington & Sutcliffe LLP, as special tax counsel to the issuing entity, is of the opinion that, for United States federal income tax purposes (1) the notes will be treated as indebtedness and (2) the issuing entity will not be an association or a publicly traded partnership taxable as a corporation. In addition, noteholders will agree, by acquiring notes, to treat the notes as debt for federal, state and local income and franchise tax purposes.

 

Denominations

 

The notes offered by this prospectus will be issued in denominations of $5,000 and multiples of $1,000 in excess of that amount.

 

 

 

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Application of Collections of Finance Charges and Principal Payments

Received by MBNA as Servicer of Master Trust II

 

LOGO

 

As of the date of this prospectus, the MBNAseries is the only issued and outstanding series of MBNA Credit Card Master Note Trust.

 

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LOGO

 

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Fees and Expenses Payable from MBNAseries Available Funds and

MBNAseries Available Principal Amounts

 

Fees and Expenses Payable from MBNAseries Available Funds:

 

•  Servicing Fee: 2% of Nominal Liquidation Amount – paid to the servicer

 

For any month, the servicing fee is paid immediately after Class C interest payments or deposits. For a depiction of the application of MBNAseries Available Funds, see the chart entitled “Application of MBNAseries Available Funds” above. The servicing fee compensates the servicer for its expenses in connection with servicing the receivables, including expenses associated with collecting, allocating and distributing collections on the receivables and other expenses payable by the servicer, such as fees and disbursements of the master trust II trustee, the owner trustee and the indenture trustee. See “Master Trust II—Servicing Compensation and Payment of Expenses.”

 

Fees and Expenses Payable from MBNAseries Available Principal Amounts:

 

•  Servicing Fee Shortfalls: any accrued but unpaid servicing fees – paid to the servicer

 

For any month, servicing fee shortfalls, if any, are paid immediately after any Class B interest shortfalls are paid. For a depiction of the application of MBNAseries Available Principal Amounts, see the chart entitled “Application of MBNAseries Available Principal Amounts” above.

 

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MBNAseries Required Subordinated Amounts

 

The chart and the accompanying discussion below present only one example of how required subordinated amounts (each, “RSA”) would be calculated for a hypothetical amount of outstanding MBNAseries notes. This example is illustrative only. The stated percentages used in this example are applicable to the calculation of each RSA for these hypothetical notes only. The dollar amounts used in this example are illustrative only and are not intended to represent any allocation of classes and tranches of MBNAseries notes outstanding at any time (including, but not limited to, the RSA required for any unencumbered tranche of Class B notes). For a detailed description of RSA generally, see “Prospectus Summary—MBNAseries Required Subordinated Amount” and “The Notes—Required Subordinated Amount, and the related prospectus supplement.

 

In addition, the issuing entity may change the RSA for any tranche of notes at any time, without the consent of any noteholders, so long as the issuing entity has met certain conditions described in “The Notes—Required Subordinated Amount.”

 

LOGO

 

Generally, the required subordinated amount of a subordinated class of notes for any date is an amount equal to a stated percentage of the adjusted outstanding dollar principal amount of the senior tranche of notes for such date.

 

In the example above:

 

For the $1,000,000,000 of Class A notes, the RSA of subordinated notes is $176,470,600. Of that amount, the RSA of Class B notes is $88,235,300 (which is 8.82353% of $1,000,000,000) and the RSA of Class C notes is $88,235,300 (which is 8.82353% of $1,000,000,000).

 

 

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Encumbered Class B notes consist of that portion of the Class B notes that provide credit enhancement to the Class A notes (which is equal to the Class A RSA of Class B notes or $88,235,300) and share the same credit enhancement as the Class A notes. Therefore, for the $88,235,300 of encumbered Class B notes, the RSA of Class C notes is $88,235,300 (which is 8.82353% of $1,000,000,000 or 100% of $88,235,300).

 

Unencumbered Class B notes consist of that portion of the Class B notes that do not provide credit enhancement to the Class A notes. This unencumbered amount is equal to the aggregate amount of Class B notes ($100,000,000) minus the encumbered Class B notes ($88,235,300). For the $11,764,700 of unencumbered Class B notes, the RSA of Class C notes is $953,895 (which is 8.10811% of $11,764,700).

 

Encumbered Class C notes consist of that portion of the Class C notes that provide credit enhancement to the Class A or the Class B notes (which is equal to the Class A RSA of Class C notes or $88,235,300, plus the Class B RSA of Class C notes for the unencumbered Class B notes or $953,895).

 

Unencumbered Class C notes consist of that portion of the Class C notes that do not provide credit enhancement to the Class A or Class B notes. This unencumbered amount is equal to the aggregate amount of Class C notes ($100,000,000) minus the encumbered Class C notes ($89,189,195).

 

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Risk Factors

 

        The risk factors disclosed in this section of the prospectus and in the accompanying prospectus supplement describe the principal risk factors of an investment in the notes.

 

Some interests could have priority over the master trust II trustee’s interest in the receivables or the indenture trustee’s interest in the collateral certificate, which could cause delayed or reduced payments to you.

 

Representations and warranties are made that the master trust II trustee has a perfected interest in the receivables and that the indenture trustee has a perfected interest in the collateral certificate. If any of these representations and warranties were found not to be true, however, payments to you could be delayed or reduced.

 

In addition, the transaction documents permit certain tax liens to have priority over the master trust II trustee’s perfected interest in the receivables. If any of these tax liens were to arise, you could suffer a loss on your investment.

 

Furthermore, if a conservator or receiver for MBNA were to argue that any of its administrative expenses relate to the receivables, the collateral certificate, or the transaction documents, those expenses could be paid from collections on the receivables before the master trust II trustee or the indenture trustee receives any payments, which could result in losses on your investment.

 

The master trust II trustee and the indenture trustee may not have a perfected interest in collections commingled by the servicer with its own funds and interchange commingled by the seller with its own funds, which could cause delayed or reduced payments to you.

 

The servicer is obligated to deposit collections into the master trust II collection account no later than the second Business Day after the date of processing for those collections. If certain conditions are met, however, the servicer is permitted to hold all collections received during a monthly period and to make only a single deposit of those collections on the following Transfer Date. In addition, the seller always is permitted to make only a single transfer of all interchange received during a monthly period on the following Transfer Date. See “Master Trust II—

 

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Application of Collections” and “MBNA’s Credit Card Activities—Interchange.”

 

All collections that the servicer is permitted to hold are commingled with its other funds and used for its own benefit. Similarly, all interchange that the seller receives prior to the related Transfer Date is commingled with its other funds and used for its own benefit. The master trust II trustee and the indenture trustee may not have a perfected interest in these amounts, and thus payments to you could be delayed or reduced if the servicer or the seller were to enter conservatorship or receivership or were to become insolvent.

 

The conservatorship, receivership, bankruptcy, or insolvency of MBNA, master trust II, the issuing entity, or any of their affiliates could result in accelerated, delayed, or reduced payments to you.

 

MBNA is a national banking association, and its deposits are insured by the Federal Deposit Insurance Corporation (FDIC). If certain events were to occur relating to MBNA’s financial condition or the propriety of its actions, the FDIC may be appointed as conservator or receiver for MBNA.

 

MBNA treats both its transfer of the receivables to the master trust II trustee and its transfer of the collateral certificate to the issuing entity as sales for accounting purposes. Arguments may be made, however, that any of these transfers constitutes only the grant of a security interest under applicable law.

 

Nevertheless, the FDIC has issued a regulation surrendering certain rights to reclaim, recover, or recharacterize a financial institution’s transfer of financial assets such as the receivables and the collateral certificate if

 

    the transfer involved a securitization of the financial assets and meets specified conditions for treatment as a sale under relevant accounting principles;

 

    the financial institution received adequate consideration for the transfer;

 

    the parties intended that the transfer constitute a sale for accounting purposes; and

 

    the financial assets were not transferred fraudulently, in contemplation of the financial institution’s insolvency, or with the intent to hinder, delay, or defraud the financial institution or its creditors.

 

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The transfers by MBNA of the receivables and the collateral certificate are intended to satisfy all of these conditions.

 

If a condition required under the FDIC’s regulation were found not to have been met, however, the FDIC could seek to reclaim, recover, or recharacterize MBNA’s transfer of the receivables or the collateral certificate. The FDIC may not be subject to an express time limit in deciding whether to take these actions, and a delay by the FDIC in making a decision could result in losses on your investment. If the FDIC were successful in any of these actions, moreover, you may not be entitled under applicable law to the full amount of your damages.

 

Even if the conditions set forth in the regulation were satisfied and the FDIC did not reclaim, recover, or recharacterize MBNA’s transfer of the receivables or the collateral certificate, payments to you could be delayed or reduced if MBNA entered conservatorship or receivership.

 

For instance, the FDIC may request a stay of any action to enforce the transaction documents, the collateral certificate, or the notes. The FDIC also may require that its claims process be followed before payments on the receivables or the collateral certificate are released. The delay caused by any of these actions could result in losses to you.

 

The FDIC, moreover, may have the power to choose whether or not the terms of the transaction documents will continue to apply. Thus, regardless of what the transaction documents provide, the FDIC could

 

    authorize MBNA to stop servicing the receivables or to stop providing administrative services for the issuing entity;

 

    prevent the appointment of a successor servicer or the appointment of a successor administrator for the issuing entity;

 

    alter the terms on which MBNA continues to service the receivables or to provide administrative services for the issuing entity, including the amount or the priority of the fees paid to MBNA;

 

    prevent or limit the commencement of an early redemption of the notes, or instead do the opposite and require that to commence;

 

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    prevent or limit the early liquidation of the receivables or the collateral certificate and the termination of master trust II or the issuing entity, or instead do the opposite and require those to occur; or

 

    prevent or limit the continued transfer of receivables or continued distributions on the collateral certificate, or instead do the opposite and require those to continue.

 

If any of these events were to occur, payments to you could be delayed or reduced. You also may suffer a loss if the FDIC were to argue that any term of the transaction documents violates applicable regulatory requirements.

 

Arguments also may be made that the FDIC’s rights and powers extend to master trust II and the issuing entity and that, as a consequence, the FDIC could repudiate or otherwise directly affect the rights of noteholders under the transaction documents. If the FDIC were to take this position, losses to you could result.

 

In addition, no assurance can be given that the FDIC would not attempt to exercise control over the receivables, the collateral certificate, or the other assets of master trust II or the issuing entity on an interim or a permanent basis. If this were to occur, payments to you could be delayed or reduced.

 

Master trust II and the issuing entity have been established so as to minimize the risk that either of them would become insolvent or enter bankruptcy. Nevertheless, each of them may be eligible to file for bankruptcy, and no assurance can be given that the risk of insolvency or bankruptcy has been eliminated. If master trust II or the issuing entity were to become insolvent or were to enter bankruptcy, you could suffer a loss on your investment. Risks also exist that, if master trust II or the issuing entity were to enter bankruptcy, the other and its assets (including the receivables or the collateral certificate) would be treated as part of the bankruptcy estate.

 

Regardless of any decision made by the FDIC or ruling made by a court, moreover, the mere fact that MBNA, master trust II, the issuing entity, or any of their affiliates has become insolvent or entered conservatorship, receivership, or bankruptcy could have an adverse effect on the value of the receivables and the collateral certificate and on the liquidity and value of the notes.

 

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The conservatorship, receivership, bankruptcy, or insolvency of other parties to the transactions could result in accelerated, delayed, or reduced payments to you.

 

Funds to make payments on the notes may be supplied by derivative counterparties. If any of these counterparties were to enter conservatorship, receivership, or bankruptcy or were to become insolvent, payments to you could be accelerated, delayed, or reduced.

 

Regulatory action could result in losses.

 

MBNA is regulated and supervised by the Office of the Comptroller of the Currency (OCC) and the FDIC. These regulatory authorities, and possibly others, have broad powers of enforcement with respect to MBNA and its affiliates.

 

If any of these regulatory authorities were to conclude that an obligation under the transaction documents were an unsafe or unsound practice or violated any law, regulation, written condition, or agreement applicable to MBNA or its affiliates, that regulatory authority may have the power to order MBNA or the related affiliate to rescind the transaction document, to refuse to perform the obligation, to amend the terms of the obligation, or to take any other action determined by that authority to be appropriate. In addition, MBNA or the related affiliate probably would not be liable to you for contractual damages for complying with such an order, and you likely would have no recourse against the regulatory authority. Therefore, if such an order were issued, payments to you could be delayed or reduced.

 

In one case of which MBNA is aware, the OCC issued a cease and desist order against a national bank that was found to have been servicing credit card receivables on terms that were inconsistent with safe and sound banking practices. That order required the bank to immediately resign as servicer and to cease performing its duties as servicer within approximately 120 days, to immediately withhold and segregate funds from collections for payment of its servicing fee (notwithstanding the priority of payments in the securitization documents and the perfected security interest of the relevant trust in those funds), and to increase its servicing fee percentage above that which was specified in the securitization documents. MBNA has no reason to believe that its servicing arrangements are contrary to safe

 

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and sound banking practices or otherwise violate any applicable law, regulation, written condition, or agreement applicable to MBNA or its affiliates, but if a regulatory authority were to find otherwise, you could suffer a loss on your investment.

 

Changes to consumer protection laws may impede collection efforts or alter timing and amount of collections which may result in an acceleration of or reduction in payments on your notes.

 

Receivables that do not comply with consumer protection laws may not be valid or enforceable under their terms against the obligors of those receivables.

 

Federal and state consumer protection laws regulate the creation and enforcement of consumer loans. Congress and the states could further regulate the credit card and consumer credit industry in ways that make it more difficult for MBNA as servicer of master trust II to collect payments on the receivables or that reduce the finance charges and other fees that MBNA as seller to master trust II can charge on credit card account balances. For example, if MBNA were required to reduce its finance charges and other fees, resulting in a corresponding decrease in the credit card accounts’ effective yield, this could lead to an early redemption event and could result in an acceleration of payment or reduced payments on your notes. See “Consumer Protection Laws” in this prospectus.

 

If a cardholder sought protection under federal or state bankruptcy or debtor relief laws, a court could reduce or discharge completely the cardholder’s obligations to repay amounts due on its account and, as a result, the related receivables would be written off as uncollectible. The noteholders could suffer a loss if no funds are available from credit enhancement or other sources. See “Master Trust II—Defaulted Receivables; Rebates and Fraudulent Charges” in this prospectus.

 

Competition in the credit card and consumer lending industry may result in a decline in ability to generate new receivables. This may result in the payment of principal earlier or later than the expected principal payment date, or in reduced amounts.

 

The credit card industry is highly competitive. As new credit card companies enter the market and companies try to expand their market share, effective advertising, target marketing and

 

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pricing strategies grow in importance. Additionally, the acceptance and use of other consumer loan products, such as mortgage and home equity products, for consumer spending has increased significantly in recent years. MBNA’s ability to compete in this environment will affect its ability to generate new receivables and affect payment patterns on the receivables. If the rate at which MBNA generates new receivables declines significantly, MBNA might be unable to transfer additional receivables or designate additional credit card accounts to master trust II and a Pay Out Event could occur, resulting in payment of principal sooner than expected or in reduced amounts. If the rate at which MBNA generates new receivables decreases significantly at a time when noteholders are scheduled to receive principal, noteholders might receive principal more slowly than planned or in reduced amounts.

 

Payment patterns of cardholders may not be consistent over time and variations in these payment patterns may result in reduced payment of principal, or receipt of payment of principal earlier or later than expected.

 

Collections of principal receivables available to pay your notes on any principal payment date or to make deposits into an issuing entity account will depend on many factors, including:

 

    the rate of repayment of credit card balances by cardholders, which may be slower or faster than expected which may cause payment on the notes to be earlier or later than expected;

 

    the extent of credit card usage by cardholders, and the creation of additional receivables in the accounts designated to master trust II; and

 

    the rate of default by cardholders.

 

Changes in payment patterns and credit card usage result from a variety of economic, competitive, political, social and legal factors. Economic factors include the rate of inflation, unemployment levels and relative interest rates. The availability of incentive or other award programs may also affect cardholders’ actions. Competitive factors include not only attractive terms and conditions offered by other credit card lenders, but also the attractiveness of other consumer lending products, such as mortgages and home equity loans. Social factors include consumer confidence levels and the public’s

 

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attitude about incurring debt and the consequences of personal bankruptcy. In addition, acts of terrorism and natural disasters in the United States and the political and military response to any such events may have an adverse effect on general economic conditions, consumer confidence and general market liquidity.

 

We cannot predict how any of these or other factors will affect repayment patterns or credit card use and, consequently, the timing and amount of payments on your notes. Any reductions in the amount, or delays in the timing, of interest or principal payments will reduce the amount available for distribution on the notes.

 

Allocations of defaulted principal receivables and reallocation of Available Principal Amounts could result in a reduction in payment on your notes.

 

MBNA, as servicer, will write off the principal receivables arising in credit card accounts in the master trust II portfolio if the principal receivables become uncollectible as determined under MBNA’s policies and procedures. Your notes will be allocated a portion of these defaulted principal receivables. In addition, Available Principal Amounts may be reallocated to pay interest on senior classes of notes or to pay a portion of the master trust II servicing fee. You may not receive full repayment of your notes and full payment of interest due if (i) the nominal liquidation amount of your notes has been reduced by charge-offs resulting from uncovered Default Amounts on principal receivables in master trust II or as the result of reallocations of Available Principal Amounts to pay interest and a portion of the master trust II servicing fee, and (ii) those amounts have not been reimbursed from Available Funds. For a discussion of nominal liquidation amount, see “The Notes—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount—Nominal Liquidation Amount.

 

Only some of the assets of the issuing entity are available for payments on any tranche of notes.

 

The sole sources of payment of principal of and interest on your tranche of notes are provided by:

 

   

the portion of the Available Principal Amounts and Available Funds allocated to the MBNAseries and available to your

 

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tranche of notes after giving effect to any reallocations and payments and deposits for senior notes; and

 

    funds in the applicable issuing entity accounts for your tranche of notes.

 

As a result, you must rely only on the particular allocated assets as security for your tranche of notes for repayment of the principal of and interest on your notes. You will not have recourse to any other assets of the issuing entity or any other person for payment of your notes. See “Sources of Funds to Pay the Notes.

 

In addition, if there is a sale of credit card receivables due to the insolvency of MBNA, due to an event of default and acceleration or on the applicable legal maturity date, as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables,” your tranche of notes has recourse only to the proceeds of that sale, any amounts then on deposit in the issuing entity accounts allocated to and held for the benefit of your tranche of notes and any amounts payable under any applicable derivative agreement.

 

Class B notes and Class C notes are subordinated and bear losses before Class A notes.

 

Class B notes of the MBNAseries are subordinated in right of payment of principal and interest to Class A notes, and Class C notes of the MBNAseries are subordinated in right of payment of principal and interest to Class A notes and Class B notes.

 

In the MBNAseries, Available Funds are first used to pay interest due to Class A noteholders, next to pay interest due to Class B noteholders, and lastly to pay interest due to Class C noteholders. If Available Funds are not sufficient to pay interest on all classes of notes, the notes may not receive full payment of interest if, in the case of Class A and Class B notes, reallocated Available Principal Amounts, and in the case of Class C notes, amounts on deposit in the applicable Class C reserve subaccount, are insufficient to cover the shortfall.

 

In the MBNAseries, Available Principal Amounts may be reallocated to pay interest on senior classes of notes of the MBNAseries and to pay a portion of the master trust II servicing fee allocable to the MBNAseries to the extent that Available Funds are insufficient to make such payments. In addition,

 

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charge-offs due to defaulted principal receivables in master trust II allocable to the MBNAseries generally are reallocated from the senior classes to the subordinated classes of the MBNAseries. If these reallocations of Available Principal Amounts and charge-offs are not reimbursed from Available Funds, the full stated principal amount of the subordinated classes of notes will not be repaid. See “The Notes—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount—Nominal Liquidation Amount” and “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Application of MBNAseries Available Principal Amounts.

 

In addition, after application to pay interest on senior classes of notes or to pay a portion of the master trust II servicing fee allocable to the MBNAseries, Available Principal Amounts are first used to pay principal due to Class A noteholders, next to pay principal due to Class B noteholders, and lastly to pay principal due to Class C noteholders.

 

If there is a sale of the credit card receivables owned by master trust II due to an insolvency of MBNA or due to an event of default and acceleration relating to the MBNAseries, the net proceeds of the sale allocable to principal payments for the collateral certificate will generally be used first to pay amounts due to Class A noteholders, next to pay amounts due to Class B noteholders, and lastly, to pay amounts due to Class C noteholders. This could cause a loss to Class A, Class B or Class C noteholders if the amount available to them is not enough to pay the Class A, Class B or Class C notes in full.

 

Payment of Class B notes and Class C notes may be delayed or reduced due to the subordination provisions.

 

For the MBNAseries, subordinated notes, except as noted in the following paragraph, will be paid principal only to the extent that sufficient funds are available and such notes are not needed to provide the required subordination for senior classes of notes of the MBNAseries. In addition, Available Principal Amounts allocated to the MBNAseries will be applied first to pay shortfalls in interest on senior classes of notes, then to pay a portion of the shortfall in the master trust II servicing fee allocable to the MBNAseries and then to make targeted deposits to the principal funding subaccounts of senior classes of notes before being applied to make required deposits to the principal funding subaccounts of the subordinated notes.

 

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If subordinated notes reach their expected principal payment date, or an early redemption event, event of default and acceleration or other optional or mandatory redemption occurs relating to those subordinated notes prior to the legal maturity date, and cannot be paid because of the subordination provisions of the MBNAseries indenture supplement, prefunding of the principal funding subaccounts for the senior notes of the MBNAseries will begin, as described in “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account,” and no Available Principal Amounts will be deposited into the principal funding subaccount of, or used to make principal payments on, the subordinated notes. After that time, the subordinated notes will be paid only if, and to the extent that:

 

    enough senior notes are repaid so that the subordinated notes are no longer necessary to provide the required subordination;

 

    new subordinated notes are issued so that the subordinated notes which are payable are no longer necessary to provide the required subordination;

 

    the principal funding subaccounts for the senior notes are prefunded so that the subordinated notes are no longer necessary to provide the required subordination; or

 

    the subordinated notes reach their legal maturity date.

 

This may result in a delay to, or reduction to or loss of, principal payments to holders of subordinated notes. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds For the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account—Prefunding of the Principal Funding Account for Senior Classes.”

 

Class A and Class B notes of the MBNAseries can lose their subordination under some circumstances resulting in delayed or reduced payments to you.

 

Subordinated notes of the MBNAseries may have expected principal payment dates and legal maturity dates earlier than some or all of the notes of the senior classes.

 

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If notes of a subordinated class reach their expected principal payment date at a time when they are needed to provide the required subordination for the senior classes of the MBNAseries and the issuing entity is unable to issue additional notes of that subordinated class or obtain acceptable alternative forms of credit enhancement, prefunding of the senior classes will begin and such subordinated notes will not be paid on their expected principal payment date. The principal funding subaccounts for the senior classes will be prefunded with Available Principal Amounts allocable to the MBNAseries and available for that purpose in an amount necessary to permit the payment of those subordinated notes while maintaining the required subordination for the senior classes. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account.”

 

There will generally be a 29-month period between the expected principal payment date and the legal maturity date of the subordinated notes to prefund the principal funding subaccounts of the senior classes, if necessary. Notes of a subordinated class which have reached their expected principal payment date will not be paid until the remaining subordinated notes provide the required subordination for the senior notes, which payment may be delayed further as other subordinated notes reach their expected principal payment date. The subordinated notes will be paid on their legal maturity date, to the extent that any funds are available for that purpose from proceeds of the sale of receivables or otherwise, whether or not the senior classes of notes have been fully prefunded.

 

If the rate of repayment of principal receivables in master trust II were to decline during this prefunding period, then the principal funding subaccounts for the senior classes of notes may not be fully prefunded before the legal maturity date of the subordinated notes. In that event and only to the extent not fully prefunded, the senior classes would not have the required subordination beginning on the legal maturity date of those subordinated notes unless additional subordinated notes of that class were issued or a sufficient amount of senior notes have matured so that the remaining outstanding subordinated notes provide the necessary subordination.

 

The table under “Annex I: The Master Trust II Portfolio—Principal Payment Rates” in the accompanying prospectus

 

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supplement sets forth the highest and lowest cardholder monthly principal payment rates for the master trust II portfolio during the periods shown in such table. Principal payment rates may change due to a variety of factors including economic, social and legal factors, changes in the terms of credit card accounts by MBNA or the addition of credit card accounts to master trust II with different characteristics. There can be no assurance that the rate of principal repayment will remain in this range in the future.

 

Yield and payments on the receivables could decrease resulting in the receipt of principal payments earlier than the expected principal payment date.

 

There is no assurance that the stated principal amount of your notes will be paid on its expected principal payment date.

 

A significant decrease in the amount of credit card receivables in master trust II for any reason could result in an early redemption event and in early payment of your notes, as well as decreased protection to you against defaults on the credit card receivables. In addition, the effective yield on the credit card receivables owned by master trust II could decrease due to, among other things, a change in periodic finance charges on the credit card accounts, an increase in the level of delinquencies or increased convenience use of the card whereby cardholders pay their credit card balance in full each month and incur no finance charges. This could reduce the amount of Available Funds. If the amount of Excess Available Funds for any three consecutive calendar months is less than the Required Excess Available Funds for such three months, an early redemption event will occur and could result in an early payment of your notes. See “The Notes—Early Redemption of Notes.”

 

See Competition in the credit card and consumer lending industry may result in a decline in ability to generate new receivables. This may result in the payment of principal earlier or later than the expected principal payment date, or in reduced amounts” and “—Class A and Class B notes of the MBNAseries can lose their subordination under some circumstances resulting in delayed or reduced payments to you” above for a discussion of other circumstances under which you may receive principal payments earlier or later than the expected principal payment date.

 

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The note interest rate and the receivables interest rate may reset at different times or fluctuate differently, resulting in a delay or reduction in payments on your notes.

 

Some credit card accounts may have finance charges set at a variable rate based on a designated index (for example, the prime rate). A series, class or tranche of notes may bear interest either at a fixed rate or at a floating rate based on a different index. If the rate charged on the credit card accounts declines, collections of finance charge receivables allocated to the collateral certificate may be reduced without a corresponding reduction in the amounts payable as interest on the notes and other amounts paid from collections of finance charge receivables. This could result in delayed or reduced principal and interest payments to you.

 

Issuance of additional notes or master trust II investor certificates may affect the timing and amount of payments to you.

 

The issuing entity expects to issue notes from time to time, and master trust II may issue new investor certificates from time to time. New notes and master trust II investor certificates may be issued without notice to existing noteholders, and without their consent, and may have different terms from outstanding notes and investor certificates. For a description of the conditions that must be met before master trust II can issue new investor certificates or the issuing entity can issue new notes, see “Master Trust II—New Issuances” and “The Notes—Issuances of New Series, Classes and Tranches of Notes.”

 

The issuance of new notes or master trust II investor certificates could adversely affect the timing and amount of payments on outstanding notes. For example, if notes in your series issued after your notes have a higher interest rate than your notes, this could result in a reduction in the Available Funds used to pay interest on your notes. Also, when new notes or investor certificates are issued, the voting rights of your notes will be diluted. See “—You may have limited or no ability to control actions under the indenture and the master trust II agreement” below.

 

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Addition of credit card accounts to master trust II and attrition of credit card accounts and receivables from master trust II may decrease the credit quality of the assets securing the repayment of your notes. If this occurs, your receipt of payments of principal and interest may be reduced, delayed or accelerated.

 

The assets of master trust II, and therefore the assets allocable to the collateral certificate held by the issuing entity, change every day. These changes may be the result of cardholder actions and preferences, marketing initiatives by MBNA and other card issuers or other factors, including but not limited to, reductions in card usage, changes in payment patterns for revolving balances, closing of accounts in the master trust II portfolio, and transfers or conversions of accounts in the master trust II portfolio to new card accounts and other products. MBNA may choose, or may be required, to add credit card receivables to master trust II. The credit card accounts from which these receivables arise may have different terms and conditions from the credit card accounts already designated for master trust II. For example, the new credit card accounts may have higher or lower fees or interest rates, or different payment terms.

 

We cannot guarantee that new credit card accounts will be of the same credit quality as the credit card accounts currently or historically designated for master trust II. If the credit quality of the assets in master trust II were to deteriorate, the issuing entity’s ability to make payments on the notes could be adversely affected. See “Master Trust II—Addition of Master Trust II Assets” in this prospectus.

 

MBNA may not be able to generate new receivables or designate new credit card accounts to master trust II when required by the master trust II agreement. This could result in an acceleration of or reduction in payments on your notes.

 

The issuing entity’s ability to make payments on the notes will be impaired if sufficient new credit card receivables are not generated by MBNA. MBNA may be prevented from generating sufficient new receivables or designating new credit card accounts to add to master trust II, due to regulatory restrictions or for other reasons. We do not guarantee that new credit card accounts or receivables will be created, that any credit card account or receivable created will be eligible for inclusion in

 

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master trust II, that they will be added to master trust II, or that credit card receivables will be repaid at a particular time or with a particular pattern.

 

The master trust II agreement provides that MBNA must add additional credit card receivables to master trust II if the total amount of principal receivables in master trust II falls below specified percentages of the total investor interests of investor certificates in master trust II. There is no guarantee that MBNA will have enough receivables to add to master trust II. If MBNA does not make an addition of receivables within five Business Days after the date it is required to do so, a Pay Out Event will occur relating to the collateral certificate. This would constitute an early redemption event and could result in an early payment of your notes. See “Master Trust II—Addition of Master Trust II Assets,” “—Pay Out Events” and “The Indenture—Early Redemption Events.

 

MBNA may change the terms of the credit card accounts in a way that reduces or slows collections. These changes may result in reduced, accelerated or delayed payments to you.

 

MBNA transfers the receivables to master trust II but continues to own the credit card accounts. As owner of the credit card accounts, MBNA retains the right to change various credit card account terms (including finance charges and other fees it charges and the required minimum monthly payment). An early redemption event could occur if MBNA reduced the finance charges and other fees it charges and a corresponding decrease in the collection of finance charges and fees resulted. In addition, changes in the credit card account terms may alter payment patterns. If payment rates decrease significantly at a time when you are scheduled to receive principal, you might receive principal more slowly than planned.

 

MBNA will not reduce the interest rate it charges on the receivables or other fees if that action would cause a master trust II Pay Out Event or cause an early redemption event relating to the notes unless MBNA is required by law or determines it is necessary to maintain its credit card business, based on its good faith assessment of its business competition.

 

MBNA will not change the terms of the credit card accounts or its servicing practices (including changes to the required minimum monthly payment and the calculation of the amount or

 

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the timing of finance charges, other fees and charge-offs) unless MBNA reasonably believes a master trust II Pay Out Event would not occur for any master trust II series of investor certificates and an early redemption event would not occur for any tranche of notes and takes the same action on other substantially similar credit card accounts, to the extent permitted by those credit card accounts.

 

For a discussion of early redemption events, see the accompanying prospectus supplement.

 

MBNA has no restrictions on its ability to change the terms of the credit card accounts except as described above or in the accompanying prospectus supplement. Changes in relevant law, changes in the marketplace or prudent business practices could cause MBNA to change credit card account terms. In addition, the merger of Bank of America Corporation and MBNA Corporation could result in changes to credit card account terms. See “Transaction Parties—MBNA—Bank of America Corporation/MBNA Corporation Merger.”

 

If MBNA breaches representations and warranties relating to the receivables, payments on your notes may be reduced.

 

MBNA, as seller of the receivables, makes representations and warranties relating to the validity and enforceability of the receivables arising under the credit card accounts in the master trust II portfolio, and as to the perfection and priority of the master trust II trustee’s interests in the receivables. However, the master trust II trustee will not make any examination of the receivables or the related assets for the purpose of determining the presence of defects, compliance with the representations and warranties or for any other purpose.

 

If a representation or warranty relating to the receivables is violated, the related obligors may have defenses to payment or offset rights, or creditors of MBNA may claim rights to the master trust II assets. If a representation or warranty is violated, MBNA may have an opportunity to cure the violation. If it is unable to cure the violation, subject to certain conditions described under “Master Trust II—Representations and Warranties” in this prospectus, MBNA must accept reassignment of each receivable affected by the violation. These reassignments are the only remedy for breaches of

 

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representations and warranties, even if your damages exceed your share of the reassignment price. See “Master Trust II—Representations and Warranties” in this prospectus.

 

There is no public market for the notes. As a result you may be unable to sell your notes or the price of the notes may suffer.

 

The underwriters of the notes may assist in resales of the notes but they are not required to do so. A secondary market for any notes may not develop. If a secondary market does develop, it might not continue or it might not be sufficiently liquid to allow you to resell any of your notes.

 

In addition, some notes have a more limited trading market and experience more price volatility. There may be a limited number of buyers when you decide to sell those notes. This may affect the price you receive for the notes or your ability to sell the notes. You should not purchase notes unless you understand and know you can bear the investment risks.

 

You may not be able to reinvest any early redemption proceeds in a comparable security.

 

If your notes are redeemed at a time when prevailing interest rates are relatively low, you may not be able to reinvest the redemption proceeds in a comparable security with an effective interest rate equivalent to that of your notes.

 

If the ratings of the notes are lowered or withdrawn, their market value could decrease.

 

The initial rating of a note addresses the likelihood of the payment of interest on that note when due and the ultimate payment of principal of that note by its legal maturity date. The ratings do not address the likelihood of payment of principal of a note on its expected principal payment date. In addition, the ratings do not address the possibility of early payment or acceleration of a note, which could be caused by an early redemption event or an event of default. See “The Indenture—Early Redemption Events” and “—Events of Default.”

 

The ratings of the notes are not a recommendation to buy, hold or sell the notes. The ratings of the notes may be lowered or withdrawn entirely at any time by the applicable rating agency. The market value of the notes could decrease if the ratings are lowered or withdrawn.

 

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You may have limited or no ability to control actions under the indenture and the master trust II agreement. This may result in, among other things, payment of principal being accelerated when it is in your interest to receive payment of principal on the expected principal payment date, or it may result in payment of principal not being accelerated when it is in your interest to receive early payment of principal.

 

Under the indenture, some actions require the consent of noteholders holding a specified percentage of the aggregate outstanding dollar principal amount of notes of a series, class or tranche or all the notes. These actions include consenting to amendments relating to the collateral certificate. In the case of votes by series or votes by holders of all of the notes, the outstanding dollar principal amount of the senior-most classes of notes will generally be substantially greater than the outstanding dollar principal amount of the subordinated classes of notes. Consequently, the noteholders of the senior-most class of notes will generally have the ability to determine whether and what actions should be taken. The subordinated noteholders will generally need the concurrence of the senior-most noteholders to cause actions to be taken.

 

The collateral certificate is an investor certificate under the master trust II agreement, and noteholders have indirect consent rights under the master trust II agreement. See “The Indenture—Voting.” Under the master trust II agreement, some actions require the vote of a specified percentage of the aggregate principal amount of all of the investor certificates. These actions include consenting to amendments to the master trust II agreement. While the outstanding principal amount of the collateral certificate is currently larger than the outstanding principal amount of the other series of investor certificates issued by master trust II, noteholders may need the concurrence of the holders of the other investor certificates to cause actions to be taken. Additionally, other series of investor certificates may be issued by master trust II in the future without the consent of any noteholders. See “Transaction Parties—MBNA Master Credit Card Trust II.” If new series of investor certificates are issued, the holders of investor certificates—other than the collateral certificate—may have the ability to determine generally whether and to what extent actions are taken regarding master trust II. As a result, the noteholders, in exercising their voting powers under the collateral certificate, will generally need the concurrence of the holders of the other investor certificates to cause actions to be taken.

 

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If an event of default occurs, your remedy options may be limited and you may not receive full payment of principal and accrued interest.

 

Your remedies may be limited if an event of default under your series, class or tranche of notes occurs. After an event of default affecting your series, class or tranche of notes and an acceleration of your notes, any funds in an issuing entity account for that series, class or tranche of notes will be applied to pay principal of and interest on those notes. Then, in each following month, Available Principal Amounts and Available Funds will be deposited into the applicable issuing entity account, and applied to make monthly principal and interest payments on those notes until the legal maturity date of those notes.

 

However, if your notes are subordinated notes of a multiple tranche series, you generally will receive payment of principal of those notes only if and to the extent that, after giving effect to that payment, the required subordination will be maintained for the senior classes of notes in that series.

 

Following an event of default and acceleration, holders of the affected notes will have the ability to direct a sale of credit card receivables held by master trust II only under the limited circumstances as described in “The Indenture—Events of Default” and “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables.

 

However, following an event of default and acceleration relating to subordinated notes of a multiple tranche series, if the indenture trustee or a majority of the noteholders of the affected class or tranche directs master trust II to sell credit card receivables, the sale will occur only if, after giving effect to that payment, the required subordination will be maintained for the senior notes in that series by the remaining notes or if such sale occurs on the legal maturity date. However, if principal of or interest on a tranche of notes has not been paid in full on its legal maturity date, the sale will automatically take place on that date regardless of the subordination requirements of any senior classes of notes.

 

Even if a sale of receivables is permitted, we can give no assurance that the proceeds of the sale will be enough to pay unpaid principal of and interest on the accelerated notes.

 

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Transaction Parties

 

MBNA Credit Card Master Note Trust

 

The notes will be issued by MBNA Credit Card Master Note Trust (referred to as the issuing entity). The issuing entity’s principal offices are located at Rodney Square North, 1100 N. Market Street, Wilmington, Delaware 19890-0001, in care of Wilmington Trust Company, as owner trustee. Its telephone number is (302) 651-1284.

 

The issuing entity’s activities will be limited to:

 

    acquiring and holding the collateral certificate, and other certificates of beneficial interest in master trust II, and the other assets of the issuing entity and the proceeds from these assets and granting a security interest in these assets;

 

    issuing notes;

 

    making payments on the notes; and

 

    engaging in other activities that are necessary or incidental to accomplish these limited purposes, which are not contrary to maintaining the status of the issuing entity as a “qualifying special purpose entity” under applicable accounting literature.

 

The assets of the issuing entity will consist primarily of:

 

    the collateral certificate;

 

    derivative agreements that the issuing entity will enter into from time to time to manage interest rate or currency risk relating to certain series, classes or tranches of notes;

 

    supplemental credit enhancement agreements or supplemental liquidity agreements that the issuing entity will enter into from time to time for certain series, classes or tranches of notes; and

 

    funds on deposit in the issuing entity accounts.

 

See “Sources of Funds to Pay the Notes” in this prospectus for greater detail regarding the assets of the issuing entity.

 

The issuing entity was initially capitalized by a $1 contribution from the beneficiary. It is not expected that the issuing entity will have any other significant assets or means of capitalization. The fiscal year for the issuing entity will end on June 30 of each year.

 

UCC financing statements have been filed to perfect the ownership or security interests of the issuing entity and the indenture trustee described herein. See “Risk Factors” for a discussion of risks associated with the issuing entity and the assets of the issuing entity, and see “The Indenture—Issuing Entity Covenants” and “Master Trust II—Representations and Warranties” for a discussion of covenants regarding the perfection of security interests.

 

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The issuing entity will operate pursuant to a trust agreement between MBNA and Wilmington Trust Company, a Delaware banking corporation, the owner trustee. The issuing entity does not have any officers or directors. Currently, its sole beneficiary is MBNA. The powers and duties of the owner trustee are ministerial only. Accordingly, the beneficiary will direct the owner trustee in the management of the issuing entity and its assets.

 

MBNA and the owner trustee may amend the trust agreement without the consent of the noteholders or the indenture trustee so long as the amendment will not (i) adversely affect in any material respect the interests of the noteholders or (ii) significantly change the purpose and powers of the issuing entity, as set forth in the trust agreement. Accordingly, neither the indenture trustee nor any holder of any note will be entitled to vote on any such amendment.

 

In addition, if holders of not less than (a) in the case of a significant change in the purpose and powers of the issuing entity which is not reasonably expected to have a material adverse effect on the noteholders, a majority of the aggregate outstanding dollar principal amount of the notes affected by an amendment consent, and (b) in all other cases, 66 2/3%of the aggregate outstanding dollar principal amount of the notes affected by an amendment consent, the trust agreement may also be amended for the purpose of (i) adding, changing or eliminating any provisions of the trust agreement or of modifying the rights of those noteholders or (ii) significantly changing the purposes and powers of the issuing entity.

 

In addition, a noteholder will not have any right to consent to any amendment to the trust agreement providing for a change in the beneficiary or other related amendments in connection with replacing MBNA, as seller under the master trust II agreement, with a bankruptcy-remote special purpose entity.

 

See “The Indenture—Tax Opinions for Amendments” for additional conditions to amending the trust agreement.

 

MBNA Master Credit Card Trust II

 

MBNA Master Credit Card Trust II (referred to as master trust II) issued the collateral certificate. See “Master Trust II.” The collateral certificate is the issuing entity’s primary source of funds for the payment of principal of and interest on the notes. The collateral certificate is an investor certificate which represents an undivided interest in the assets of master trust II. Master trust II’s assets primarily include credit card receivables from selected MasterCard, Visa and American Express unsecured revolving credit card accounts that meet the eligibility criteria for inclusion in master trust II. These eligibility criteria are discussed in this prospectus under “Master Trust II—Addition of Master Trust II Assets.”

 

The credit card receivables in master trust II consist primarily of principal receivables and finance charge receivables. Principal receivables include amounts charged by cardholders for merchandise and services and amounts advanced to cardholders as cash advances. Finance charge receivables include periodic finance charges, cash advance fees, late charges and certain other fees billed to cardholders, annual membership fees, and recoveries on receivables in defaulted accounts.

 

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MBNA will be required to transfer to master trust II a percentage of the interchange attributed to cardholder charges for goods and services in the related accounts. Interchange arising under the related accounts will be treated as collections of finance charge receivables and to pay a portion of the servicing fee paid to the servicer. See “MBNA’s Credit Card Activities—Interchange” for a discussion of interchange.

 

Member banks participating in the Visa, MasterCard and American Express associations receive certain fees called interchange from Visa, MasterCard and American Express as partial compensation for taking credit risk, absorbing fraud losses and funding receivables for a limited period prior to initial billing. Under the Visa, MasterCard and American Express systems, a portion of this interchange in connection with cardholder charges for goods and services is passed from banks which clear the transactions for merchants to credit card issuing banks. Interchange fees are set annually by Visa, MasterCard and American Express and are based on the number of credit card transactions and the amount charged per transaction.

 

In addition, MBNA is permitted to add to master trust II participations representing interests in a pool of assets primarily consisting of receivables arising under consumer revolving credit card accounts owned by MBNA and collections thereon.

 

For detailed financial information on the receivables and the accounts, see the accompanying prospectus supplement.

 

The collateral certificate is the certificate comprising the Series 2001-D certificates issued by master trust II. Other series of certificates may be issued by master trust II in the future without the consent of any noteholders or certificateholders. See the accompanying prospectus supplement for information on the other outstanding series issued by master trust II.

 

MBNA

 

MBNA America Bank, National Association (referred to as MBNA), a national banking association located in Wilmington, Delaware, created master trust II and has transferred and may continue to transfer credit card receivables to master trust II. MBNA is the holder of the Seller Interest in master trust II and the beneficiary of the issuing entity. See “MBNA’s Credit Card Activities.” MBNA is the sponsor, the depositor and the servicer of the issuing entity. MBNA is also the beneficiary of the issuing entity. The issuing entity is a Delaware statutory trust. See “—MBNA Credit Card Master Note Trust” above.

 

MBNA will be responsible for servicing, managing and making collections on the credit card receivables in master trust II. See “Master Trust II—Collection and Other Servicing Procedures.” Certain data processing and administrative functions will be performed on behalf of MBNA by MBNA Technology, Inc., a Delaware corporation and wholly owned subsidiary of MBNA. MBNA Technology, Inc. was incorporated on April 1, 1991 and has been providing data processing and administrative functions since that time. Credit card processing services performed by MBNA Technology, Inc. on behalf of MBNA include information and data processing, payment processing, statement rendering, card production,

 

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fulfillment operations and network services. MBNA Technology, Inc.’s data network provides an interface to MasterCard, Visa and American Express for performing authorizations and settlement funds transfers. Most data processing and network functions are performed at MBNA Technology, Inc.’s facilities in Dallas, Texas and Newark, Delaware.

 

MBNA conducts nationwide consumer lending programs, principally comprised of credit card related activities. MBNA has two wholly-owned non-U.S. bank subsidiaries, MBNA Europe Bank Limited, with its headquarters in the United Kingdom, and MBNA Canada Bank, located in Canada. In addition to its consumer lending activities, MBNA engages in the offering of money market deposit accounts and certificates of deposit.

 

MBNA conducts all direct customer contact processes relating to the cardholder. This involves a 24 hour, 365 day per year Customer Service telephone staff, credit decisions, correspondence resolution, security and collection operations.

 

MBNA is a wholly-owned subsidiary of Bank of America Corporation.

 

The receivables conveyed or to be conveyed to master trust II by MBNA pursuant to the master trust II agreement have been or will be generated from transactions made by holders of selected MasterCard, Visa and American Express credit card accounts from the portfolio of MasterCard, Visa and American Express accounts owned by MBNA called the Bank Portfolio. MBNA currently services the Bank Portfolio in the manner described in “MBNA’s Credit Card Activities.”

 

In addition, see “MBNA’s Credit Card Portfolio” for a description of MBNA’s general policies and procedures for its credit card portfolio.

 

Bank of America Corporation/MBNA Corporation Merger

 

On June 30, 2005, Bank of America Corporation and MBNA Corporation announced they had entered into an agreement and plan of merger. On January 1, 2006, pursuant to the terms of the merger agreement, Bank of America Corporation and MBNA Corporation merged. Bank of America Corporation is the surviving corporation. Until the merger was effectuated, MBNA was a principal wholly-owned subsidiary of MBNA Corporation. After the merger, MBNA became a wholly-owned subsidiary of Bank of America Corporation.

 

Bank of America Corporation and MBNA Corporation operated independently prior to the completion of the merger. Now that the merger is completed, MBNA’s business may be adversely impacted by difficulties or delays in integrating the businesses of Bank of America Corporation and MBNA Corporation. MBNA’s existing businesses and/or practices also may be changed, replaced, reorganized or adversely impacted as a result of the merger, including, but not limited to, servicing, technology systems, marketing, credit card origination and underwriting. Additionally, certain credit card accounts originated, underwritten or owned by

 

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Bank of America Corporation or its affiliates may become eligible for inclusion in the Master Trust II Portfolio in the future. As a result, we cannot predict if or how any of these or other factors in connection with the merger will adversely affect master trust II and, consequently, the timing and amount of payments on your notes.

 

Impact of Bankruptcy Reform Law

 

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “Act”), which amends the Bankruptcy Code, was signed into law in April 2005. This law generally went into effect on October 17, 2005. It is anticipated that, under this law, a greater number of debtors may be required to file for bankruptcy under Chapter 13 (which places individuals on a repayment plan for up to five years) instead of Chapter 7 (which discharges debt without requiring a repayment plan). Additionally, the new law contains other more restrictive provisions to obligors.

 

In the period leading up to the general effective date there was a significant increase in the number of bankruptcy filings as obligors accelerated filings of Chapter 7 bankruptcy proceedings to avoid the adverse provisions of the Act. This accelerated rate of filings significantly increased MBNA’s net credit losses for the month of December 2005 because accounts filing for bankruptcy are charged off by the end of the second calendar month following receipt of notification of the filing from the applicable court. See “MBNA’s Credit Card Portfolio—Delinquencies and Collection Efforts” in this prospectus for a discussion of how delinquent bankrupt accounts are charged off by MBNA. However, to the extent that the Act has accelerated bankruptcy filings in the short-term and to the extent that the Act’s provisions are more restrictive than the predecessor law, this increase in credit losses could be offset in periods following December 2005 if the reduction in filings by debtors after the effective date of the Act continues. MBNA’s future credit losses are uncertain, and changes in economic conditions or regulatory policies, seasonal variations in payment patterns, changes in payment habits of individual cardholders and other factors may also impact those losses.

 

Industry Developments

 

MBNA issues credit cards on MasterCard’s and Visa’s networks. MasterCard and Visa are facing significant litigation and increased competition. In 2003, MasterCard and Visa settled a suit by Wal-Mart and other merchants who claimed that MasterCard and Visa unlawfully tied acceptance of debit cards to acceptance of credit cards. Under the settlement MasterCard and Visa are required to, among other things, allow merchants to accept MasterCard or Visa branded credit cards without accepting their debit cards (and vice versa), reduce the prices charged to merchants for off-line signature debit transactions for a period of time, and pay over ten years amounts totaling $3.05 billion into a settlement fund. MasterCard and Visa are also parties to suits in various state courts mirroring the allegations brought by Wal-Mart and the other merchants.

 

In October 2004, the United States Supreme Court let stand a federal court decision in a suit brought by the U.S. Department of Justice, in which MasterCard and Visa rules

 

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prohibiting banks that issue cards on MasterCard and Visa networks from issuing cards on other networks (the “association rules”) were found to have violated federal antitrust laws. This decision effectively permits banks that issue cards on Visa’s or MasterCard’s networks, such as MBNA and Bank of America Corporation’s other banking subsidiaries, to issue cards on competitor networks. Discover and American Express have initiated separate civil lawsuits against MasterCard and Visa claiming substantial damages stemming from the association rules. MasterCard and Visa are also parties to suits alleging that MasterCard’s and Visa’s currency conversion practices are unlawful.

 

The costs associated with these and other matters could cause MasterCard and Visa to invest less in their networks and marketing efforts and could adversely affect the interchange paid to their member banks, including MBNA.

 

Litigation

 

In June, August, September and November 2005, certain retail merchants filed numerous purported class action lawsuits in federal courts, alleging that MasterCard and Visa and their member banks, including MBNA, conspired to charge retailers excessive interchange in violation of federal antitrust laws. In October 2005, certain of the lawsuits were consolidated in In Re: Payment Card Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York. The plaintiffs seek unspecified treble damages, injunctive relief, attorney fees and costs.

 

The Bank of New York

 

The Bank of New York, a New York banking corporation, is the indenture trustee under the indenture for the notes and the trustee under the master trust II agreement for the master trust II investor certificates. Its principal corporate trust office is located at 101 Barclay Street, Floor 8 West, Attention: Corporate Trust AdministrationAsset Backed Securities, New York, New York 10286. See “The Indenture—Indenture Trustee” for a description of the limited powers and duties of the indenture trustee and “Master Trust II—Master Trust II Trustee” for a description of the limited powers and duties of the master trust II trustee.

 

The Bank of New York has and currently is serving as indenture trustee and trustee for numerous securitization transactions and programs involving pools of credit card receivables.

 

MBNA, the servicer, the issuing entity and their respective affiliates may from time to time enter into normal banking and trustee relationships with The Bank of New York and its affiliates.

 

Wilmington Trust Company

 

Wilmington Trust Company, a Delaware banking corporation, is the owner trustee of the issuing entity. Under the terms of the Trust Agreement, the powers and duties of the owner trustee are ministerial only. See “—MBNA Credit Card Master Note Trust” above.

 

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Wilmington Trust Company is a Delaware banking corporation with trust powers incorporated in 1903. Since 1998, Wilmington Trust Company has served as owner trustee in numerous asset-backed securities transactions involving credit card receivables.

 

Wilmington Trust Company is subject to various legal proceedings that arise from time to time in the ordinary course of business. Wilmington Trust Company does not believe that the ultimate resolution of any of these proceedings will have a materially adverse effect on its services as owner trustee.

 

MBNA, the servicer, the issuing entity and their respective affiliates may from time to time enter into normal banking and trustee relationships with Wilmington Trust Company and its affiliates.

 

Use of Proceeds

 

The net proceeds from the sale of each series, class and tranche of notes offered hereby will be paid to MBNA. MBNA will use such proceeds for its general corporate purposes.

 

The Notes

 

The notes will be issued pursuant to the indenture and a related indenture supplement. The following discussion and the discussions under “The Indenture” in this prospectus and certain sections in the related prospectus supplement summarize the material terms of the notes, the indenture and the indenture supplements. These summaries do not purport to be complete and are qualified in their entirety by reference to the provisions of the indenture and the indenture supplements. The indenture does not limit the aggregate stated principal amount of notes that may be issued.

 

The notes will be issued in series. Each series of notes will represent a contractual debt obligation of the issuing entity which shall be in addition to the debt obligations of the issuing entity represented by any other series of notes. Each series will be issued pursuant to the indenture and an indenture supplement, copies of the forms of which are filed as exhibits to the registration statement of which this prospectus is a part. Each prospectus supplement will describe the provisions specific to the related series, class or tranche of notes.

 

The following summaries describe certain provisions common to each series of notes.

 

General

 

Each series of notes is expected to consist of multiple classes of notes. Some series, if so specified in the accompanying prospectus supplement, may be multiple tranche series, meaning they have classes consisting of multiple tranches. Whenever a “class” of notes is referred to in this prospectus or any prospectus supplement, it also includes all tranches of that class, unless the context otherwise requires.

 

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The issuing entity may issue different tranches of notes of a multiple tranche series at the same time or at different times, but no senior tranche of notes of a series may be issued unless a sufficient amount of subordinated notes (or other form of credit enhancement) of that series will be issued on that date or has previously been issued and is outstanding and available as subordination (or other credit enhancement) for such senior tranche of notes. See “—Required Subordinated Amount.

 

If so specified in the related prospectus supplement, the notes of a series may be included in a group of series for purposes of sharing Available Principal Amounts and Available Funds.

 

The issuing entity may offer notes denominated in U.S. dollars or any foreign currency. We will describe the specific terms of any note denominated in a foreign currency in the related prospectus supplement.

 

If so specified in the related prospectus supplement, the noteholders of a particular series, class or tranche may have the benefit of a derivative agreement, as described in this prospectus under “Sources of Funds to Pay the Notes—Derivative Agreements.” The specific terms of each derivative agreement and a description of each counterparty will be included in the related prospectus supplement. In addition, if so specified in the related prospectus supplement, the noteholders of a particular series, class or tranche may have the benefit of a supplemental credit enhancement agreement or supplemental liquidity agreement, as described in this prospectus under “Sources of Funds to Pay the Notes—Supplemental Credit Enhancement Agreements and Supplemental Liquidity Agreements.” The specific terms of each such agreement and a description of any provider of enhancement or liquidity will be included in the related prospectus supplement.

 

The issuing entity will pay principal of and interest on a series, class or tranche of notes solely from the portion of Available Funds and Available Principal Amounts which are allocable to that series, class or tranche of notes after giving effect to all allocations and reallocations, amounts in any issuing entity accounts relating to that series, class or tranche of notes, and amounts received under any derivative agreement relating to that series, class or tranche of notes. If those sources are not sufficient to pay the notes, those noteholders will have no recourse to any other assets of the issuing entity or any other person or entity for the payment of principal of or interest on those notes.

 

Holders of notes of any outstanding series, class or tranche will not have the right to prior review of, or consent to, any subsequent issuance of notes.

 

The MBNAseries

 

The MBNAseries notes will be issued pursuant to the indenture and an indenture supplement. The MBNAseries will be included in Excess Available Funds Group A for the purpose of sharing excess available funds.

 

The MBNAseries notes will be issued in classes. Each class of notes will have multiple tranches which may be issued at different times and have different terms. No senior class of the MBNAseries may be issued unless a sufficient amount of subordinated notes or other

 

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acceptable credit enhancement has previously been issued and is outstanding. See “—Required Subordinated Amount—MBNAseries” and “—Issuances of New Series, Classes and Tranches of Notes—New Issuances of MBNAseries Notes” below.

 

The issuing entity will pay principal of and interest on a tranche of MBNAseries notes solely from the portion of MBNAseries Available Funds and MBNAseries Available Principal Amounts and from other amounts which are available under the indenture and the MBNAseries indenture supplement after giving effect to all allocations and reallocations. If those sources are not sufficient to pay that tranche of MBNAseries notes, the noteholders of that tranche of MBNAseries notes will have no recourse to any other assets of the issuing entity or any other person or entity for the payment of principal of or interest on those notes.

 

Interest

 

Interest will accrue on the notes, except on discount notes, from the relevant issuance date at the applicable note rate, which may be a fixed, floating or other type of rate as specified in the accompanying prospectus supplement. Interest will be distributed or deposited for noteholders on the dates described in the related prospectus supplement. Interest payments or deposits will be funded from Available Funds allocated to the notes during the preceding month or months, from any applicable credit enhancement, if necessary, and from certain other amounts specified in the accompanying prospectus supplement.

 

For each issuance of fixed rate notes, we will designate in the related prospectus supplement the fixed rate of interest at which interest will accrue on those notes. For each issuance of floating rate notes, we will designate in the related prospectus supplement the interest rate index or other formula on which the interest is based. A discount note will be issued at a price lower than the stated principal amount payable on the expected principal payment date of that note. Until the expected principal payment date for a discount note, accreted principal will be capitalized as part of the principal of the note and reinvested in the collateral certificate, so long as an early redemption event or an event of default and acceleration has not occurred. If applicable, the related prospectus supplement will specify the interest rate to be borne by a discount note after an event of default or after its expected principal payment date.

 

Each payment of interest on a note will include all interest accrued from the preceding interest payment date—or, for the first interest period, from the issuance date—through the day preceding the current interest payment date, or any other period as may be specified in the related prospectus supplement. We refer to each period during which interest accrues as an “interest period.” Interest on a note will be due and payable on each interest payment date.

 

If interest on a note is not paid within 35 days after such interest is due, an event of default will occur relating to that note. See “The Indenture—Events of Default.

 

MBNAseries

 

In connection with the MBNAseries, interest payments on Class B notes and Class C notes of the MBNAseries are subordinated to interest payments on Class A notes of the MBNAseries. Subordination of Class B notes and Class C notes of the MBNAseries provides credit enhancement for Class A notes of the MBNAseries.

 

 

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Interest payments on Class C notes of the MBNAseries are subordinated to interest payments on Class A notes and Class B notes of the MBNAseries. Subordination of Class C notes of the MBNAseries provides credit enhancement for Class A notes and Class B notes of the MBNAseries.

 

Principal

 

The timing of payment of principal of a note will be specified in the related prospectus supplement.

 

Principal of a note may be paid later than its expected principal payment date if sufficient funds are not allocated from master trust II to the collateral certificate or are not allocable to the series, class or tranche of the note to be paid. It is not an event of default if the principal of a note is not paid on its expected principal payment date. However, if the principal amount of a note is not paid in full by its legal maturity date, an event of default will occur relating to that note. See “The Indenture—Events of Default.

 

Principal of a note may be paid earlier than its expected principal payment date if an early redemption event or an event of default and acceleration occurs. See “The Indenture—Early Redemption Events” and “—Events of Default.”

 

See “Risk Factors” in this prospectus and the accompanying prospectus supplement for a discussion of factors that may affect the timing of principal payments on the notes.

 

MBNAseries

 

In connection with the MBNAseries, principal payments on Class B notes and Class C notes of the MBNAseries are subordinated to payments on Class A notes of the MBNAseries. Subordination of Class B notes and Class C notes of the MBNAseries provides credit enhancement for Class A notes of the MBNAseries.

 

Principal payments on Class C notes of the MBNAseries are subordinated to payments on Class A notes and Class B notes of the MBNAseries. Subordination of Class C notes of the MBNAseries provides credit enhancement for Class A notes and Class B notes of the MBNAseries.

 

In addition, in the case of a discount MBNAseries note, the accreted principal of that note corresponding to capitalized interest will be senior or subordinated to the same extent that principal is senior or subordinated.

 

MBNAseries Available Principal Amounts may be reallocated to pay interest on senior classes of notes or to pay a portion of the master trust II servicing fee allocable to the MBNAseries, subject to certain limitations. In addition, charge-offs due to uncovered defaults on principal receivables in master trust II allocable to the MBNAseries generally are reallocated from the senior classes to the subordinated classes of the MBNAseries. See “—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount—Nominal Liquidation Amount” and “Master Trust II—Defaulted Receivables; Rebates and Fraudulent Charges.”

 

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In the MBNAseries, payment of principal may be made on a subordinated class of notes before payment in full of each senior class of notes only under the following circumstances:

 

    If after giving effect to the proposed principal payment there is still a sufficient amount of subordinated notes to support the outstanding senior notes. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account” and “—Allocation to Principal Funding Subaccounts.” For example, if a tranche of Class A notes has been repaid, this generally means that, unless other Class A notes are issued, at least some Class B notes and Class C notes may be repaid when such Class B notes and Class C notes are required to be repaid even if other tranches of Class A notes are outstanding.

 

    If the principal funding subaccounts for the senior classes of notes have been sufficiently prefunded as described in “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account—Prefunding of the Principal Funding Account for Senior Classes.”

 

    If new tranches of subordinated notes are issued so that the subordinated notes that have reached their expected principal payment date are no longer necessary to provide the required subordination.

 

    If the subordinated tranche of notes reaches its legal maturity date and there is a sale of credit card receivables as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables.”

 

MBNAseries Available Principal Amounts remaining after any reallocations for interest on the senior notes or for a portion of the master trust II servicing fee allocable to the MBNAseries will be applied to make targeted deposits to the principal funding subaccounts of senior notes before being applied to make targeted deposits to the principal funding subaccounts of the subordinated notes if such remaining amounts are not sufficient to make all required targeted deposits.

 

Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount

 

Each note has a stated principal amount, an outstanding dollar principal amount and a nominal liquidation amount.

 

Stated Principal Amount

 

The stated principal amount of a note is the amount that is stated on the face of the notes to be payable to the holder. It can be denominated in U.S. dollars or in a foreign currency.

 

Outstanding Dollar Principal Amount

 

For dollar notes, the outstanding dollar principal amount is the initial dollar principal amount (as set forth in the applicable supplement to this prospectus) of the notes, less

 

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principal payments to the noteholders. For foreign currency notes, the outstanding dollar principal amount is the dollar equivalent of the initial dollar principal amount (as set forth in the applicable supplement to this prospectus) of the notes, less dollar payments to derivative counterparties or, in the event the derivative agreement is non-performing, less dollar payments converted to make payments to noteholders, each relating to principal. For discount notes, the outstanding dollar principal amount is an amount stated in, or determined by a formula described in, the related prospectus supplement. The outstanding dollar principal amount of a discount note will increase over time as principal accretes. The outstanding dollar principal amount of any note will decrease as a result of each payment of principal of the note.

 

In addition, a note may have an Adjusted Outstanding Dollar Principal Amount. The Adjusted Outstanding Dollar Principal Amount of a note is the outstanding dollar principal amount, less any funds on deposit in the principal funding subaccount for that note. The Adjusted Outstanding Dollar Principal Amount of any note will decrease as a result of each deposit into the principal funding subaccount for such note.

 

Nominal Liquidation Amount

 

The nominal liquidation amount of a note is a dollar amount based on the initial outstanding dollar principal amount of that note, but with some reductions—including reductions from reallocations of Available Principal Amounts, allocations of charge-offs for uncovered defaults allocable to the collateral certificate and deposits in a principal funding subaccount for such note—and increases described below. The aggregate nominal liquidation amount of all of the notes will always be equal to the Investor Interest of the collateral certificate, and the nominal liquidation amount of any particular note corresponds to the portion of the Investor Interest of the collateral certificate that would be allocated to that note if master trust II were liquidated.

 

The nominal liquidation amount of a note may be reduced as follows:

 

    If Available Funds allocable to a series of notes are insufficient to fund the portion of defaults on principal receivables in master trust II allocable to such series of notes (which will be allocated to each series of notes pro rata based on the Weighted Average Available Funds Allocation Amount of all notes in such series) such uncovered defaults will result in a reduction of the nominal liquidation amount of such series. Within each series, subordinated classes of notes will bear the risk of reduction in their nominal liquidation amount due to charge-offs resulting from uncovered defaults before senior classes of notes.

 

In a multiple tranche series, while these reductions will be initially allocated pro rata to each tranche of notes, they will then be reallocated to the subordinated classes of notes in that series in succession, beginning with the most subordinated classes. However, these reallocations will be made from senior notes to subordinated notes only to the extent that such senior notes have not used all of their required subordinated amount. For any tranche, the required subordinated amount will be specified in the related prospectus supplement. For multiple tranche series, these reductions will generally be allocated within each class pro rata to each outstanding

 

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tranche of the related class based on the Weighted Average Available Funds Allocation Amount of such tranche. Reductions that cannot be reallocated to a subordinated tranche will reduce the nominal liquidation amount of the tranche to which the reductions were initially allocated.

 

    If Available Principal Amounts are reallocated from subordinated notes of a series to pay interest on senior notes, any shortfall in the payment of the master trust II servicing fee or any other shortfall of Available Funds which Available Principal Amounts are reallocated to cover, the nominal liquidation amount of those subordinated notes will be reduced by the amount of the reallocations. The amount of the reallocation of Available Principal Amounts will be applied to reduce the nominal liquidation amount of the subordinated classes of notes in that series in succession, to the extent of such senior tranches’ required subordinated amount of the related subordinated notes, beginning with the most subordinated classes. No Available Principal Amounts will be reallocated to pay interest on a senior class of notes or any portion of the master trust II servicing fee if such reallocation would result in the reduction of the nominal liquidation amount of such senior class of notes. For a multiple tranche series, these reductions will generally be allocated within each class pro rata to each outstanding tranche of the related class based on the Weighted Average Available Funds Allocation Amount of such tranche.

 

    The nominal liquidation amount of a note will be reduced by the amount on deposit in its respective principal funding subaccount.

 

    The nominal liquidation amount of a note will be reduced by the amount of all payments of principal of that note.

 

    Upon a sale of credit card receivables after the insolvency of MBNA, an event of default and acceleration or on the legal maturity date of a note, the nominal liquidation amount of such note will be automatically reduced to zero. See “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables.

 

The nominal liquidation amount of a note can be increased in two ways.

 

    For discount notes, the nominal liquidation amount will increase over time as principal accretes, to the extent that Available Funds are allocated for that purpose.

 

    If Available Funds are available, they will be applied to reimburse earlier reductions in the nominal liquidation amount from charge-offs for uncovered defaults on principal receivables in master trust II, or from reallocations of Available Principal Amounts from subordinated classes to pay shortfalls of Available Funds. Within each series, the increases will be allocated first to the senior-most class with a deficiency in its nominal liquidation amount and then, in succession, to the subordinated classes with a deficiency in the nominal liquidation amount. In a multiple tranche series, the increases will be further allocated to each tranche of a class pro rata based on the deficiency in the nominal liquidation amount in each tranche.

 

In most circumstances, the nominal liquidation amount of a note, together with any accumulated Available Principal Amounts held in a principal funding subaccount, will be

 

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equal to the outstanding dollar principal amount of that note. However, if there are reductions in the nominal liquidation amount as a result of reallocations of Available Principal Amounts from that note to pay interest on senior classes or the master trust II servicing fee, or as a result of charge-offs for uncovered defaults on principal receivables in master trust II allocable to the collateral certificate, there will be a deficit in the nominal liquidation amount of that note. Unless that deficiency is reimbursed through the reinvestment of Available Funds in the collateral certificate, the stated principal amount of that note will not be paid in full.

 

A subordinated note’s nominal liquidation amount represents the maximum amount of Available Principal Amounts that may be reallocated from such note to pay interest on senior notes or the master trust II servicing fee of the same series and the maximum amount of charge-offs for uncovered defaults on the principal receivables in master trust II that may be allocated to such note. The nominal liquidation amount is also used to calculate the amount of Available Principal Amounts that can be allocated for payment of principal of a class or tranche of notes, or paid to the counterparty to a derivative agreement, if applicable. This means that if the nominal liquidation amount of a class or tranche of notes has been reduced by charge-offs for uncovered defaults on principal receivables in master trust II or by reallocations of Available Principal Amounts to pay interest on senior notes or the master trust II servicing fee, the holders of notes with the reduced nominal liquidation amount will receive less than the full stated principal amount of their notes, either because the amount of dollars allocated to pay them is less than the outstanding dollar principal amount of the notes, or because the amount of dollars allocated to pay the counterparty to a derivative agreement is less than the amount necessary to obtain enough of the applicable foreign currency for payment of their notes in full.

 

The nominal liquidation amount of a note may not be reduced below zero, and may not be increased above the outstanding dollar principal amount of that note, less any amounts on deposit in the applicable principal funding subaccount.

 

If a note held by MBNA, the issuing entity or any of their affiliates is canceled, the nominal liquidation amount of that note is automatically reduced to zero, with a corresponding automatic reduction in the Investor Interest of the collateral certificate.

 

The cumulative amount of reductions of the nominal liquidation amount of any class or tranche of notes due to the reallocation of Available Principal Amounts to pay Available Funds shortfalls will be limited as described in the related prospectus supplement.

 

Allocations of charge-offs for uncovered defaults on principal receivables in master trust II and reallocations of Available Principal Amounts to cover Available Funds shortfalls reduce the nominal liquidation amount of outstanding notes only and do not affect notes that are issued after that time.

 

Final Payment of the Notes

 

Noteholders will not receive payment of principal in excess of the highest outstanding dollar principal amount of that series, class or tranche, or in the case of foreign currency notes, any amount received by the issuing entity under a derivative agreement for principal.

 

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Following the insolvency of MBNA, following an event of default and acceleration or on the legal maturity date of a series, class or tranche of notes, credit card receivables in an aggregate amount not to exceed the nominal liquidation amount, plus any past due, accrued and additional interest, of the related series, class or tranche will be sold by master trust II. The proceeds of such sale will be applied to the extent available to pay the outstanding principal amount of, plus any accrued, past due and additional interest on, those notes on the date of the sale.

 

A series, class or tranche of notes will be considered to be paid in full, the holders of those notes will have no further right or claim, and the issuing entity will have no further obligation or liability for principal or interest, on the earliest to occur of:

 

    the date of the payment in full of the stated principal amount of and all accrued, past due and additional interest on those notes;

 

    the date on which the outstanding dollar principal amount of the notes is reduced to zero and all accrued, past due and additional interest on those notes is paid in full; or

 

    the legal maturity date of those notes, after giving effect to all deposits, allocations, reallocations, sale of credit card receivables and payments to be made on that date.

 

Subordination of Interest and Principal

 

Interest and principal payments on subordinated classes of notes of a series may be subordinated as described in the related prospectus supplement.

 

Available Principal Amounts may be reallocated to pay interest on senior classes of notes of, or a portion of the master trust II servicing fee allocated to, that series. In addition, subordinated classes of notes bear the risk of reduction in their nominal liquidation amount due to charge-offs for uncovered defaults on principal receivables in master trust II before senior classes of notes. In a multiple tranche series, charge-offs from uncovered defaults on principal receivables in master trust II are generally allocated first to each class of a series and then reallocated to the subordinated classes of such series, reducing the nominal liquidation amount of such subordinated classes to the extent credit enhancement in the form of subordination is still available for the senior classes. See “—Stated Principal Amount, Outstanding Dollar Principal Amount and Nominal Liquidation Amount—Nominal Liquidation Amount” above.

 

Required Subordinated Amount

 

The required subordinated amount of a senior class or tranche of notes is the amount of a subordinated class that is required to be outstanding and available to provide subordination for that senior class or tranche on the date when the senior class or tranche of notes is issued. Such amount will be specified in the applicable prospectus supplement. No notes of a series may be issued unless the required subordinated amount for that class or tranche of notes is available at the time of its issuance, as described in the related prospectus supplement. The required subordinated amount is also used, in conjunction with usage, to determine whether a subordinated class or tranche of a multiple tranche series may be repaid before its legal maturity date while senior notes of that series are outstanding.

 

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The issuing entity may change the required subordinated amount for any tranche of notes at any time, without the consent of any noteholders, so long as the issuing entity has (i) received confirmation from the rating agencies that have rated any outstanding notes of the related series that the change in the required subordinated amount will not result in the reduction, qualification or withdrawal of the ratings of any outstanding notes in that series and (ii) delivered to the indenture trustee and the rating agencies a master trust II tax opinion and issuing entity tax opinion, as described under “The Indenture—Tax Opinions for Amendments.”

 

MBNAseries

 

In order to issue notes of a senior class of the MBNAseries, the required subordinated amount of subordinated notes for those senior notes must be outstanding and available on the issuance date.

 

The required subordinated amount of a tranche of a senior class of notes of the MBNAseries is the aggregate nominal liquidation amount of a subordinated class that is required to be outstanding and available on the date when a tranche of a senior class of notes is issued. Generally, the required subordinated amount of subordinated notes for each tranche of Class A MBNAseries notes is equal to a stated percentage of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class A notes. The required subordinated amount of Class B notes for each tranche of Class A MBNAseries notes is equal to 8.82353% of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class A notes, and the required subordinated amount of Class C notes is equal to 8.82353% of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class A notes.

 

Similarly, the required subordinated amount of Class C notes for each tranche of Class B MBNAseries notes is generally equal to a stated percentage of its Adjusted Outstanding Dollar Principal Amount. However, the required subordinated amount of Class C notes for any tranche of Class B MBNAseries notes may be adjusted to reflect its pro rata share of the portion of the Adjusted Outstanding Dollar Principal Amount of all Class B MBNAseries notes which is not providing credit enhancement to the Class A notes. The required subordinated amount of Class C notes for each tranche of Class B MBNAseries notes, at any time, is generally equal to the sum of:

 

  (i) an amount equal to 8.10811% (referred to as the unencumbered percentage) of that tranche’s pro rata share of the excess, if any, of the aggregate Adjusted Outstanding Dollar Principal Amount of all Class B MBNAseries notes over the required subordinated amount of Class B notes for all Class A MBNAseries notes; and

 

  (ii) an amount equal to 100% (referred to as the encumbered percentage) of the remainder of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class B notes.

 

Therefore, for any tranche of Class B notes, the percentage used to calculate the required subordinated amount will increase (but will never exceed 100%) if the share of that tranche of Class B notes that is providing credit enhancement to Class A MBNAseries notes increases;

 

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and decrease (but will never be less than 8.10811%) if the share of that tranche of Class B notes that is providing credit enhancement to Class A MBNAseries notes decreases.

 

For example, if the Adjusted Outstanding Dollar Principal Amount of all Class B MBNAseries notes is equal to the required subordinated amount of Class B notes for all Class A MBNAseries notes, then the required subordinated amount of Class C notes for any tranche of Class B MBNAseries notes will be equal to 100% of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class B notes. Similarly, if the required subordinated amount of Class B notes for all Class A MBNAseries notes is equal to zero, then the required subordinated amount of Class C notes for any tranche of Class B MBNAseries notes will be equal to 8.10811% of the Adjusted Outstanding Dollar Principal Amount of that tranche of Class B notes.

 

Reductions in the Adjusted Outstanding Dollar Principal Amount of a tranche of senior notes of the MBNAseries will generally result in a reduction in the required subordinated amount for that tranche. Additionally, a reduction in the required subordinated amount of Class C notes for a tranche of Class B MBNAseries notes may occur due to:

 

  a decrease in the aggregate Adjusted Outstanding Dollar Principal Amount of Class A MBNAseries notes,

 

  a decrease in the Class A required subordinated amount of Class B notes for outstanding tranches of Class A MBNAseries notes, or

 

  the issuance of additional Class B MBNAseries notes;

 

any of which would reduce the amount of credit enhancement provided by an individual tranche of Class B MBNAseries notes to the Class A MBNAseries notes. However, if an early redemption event or event of default and acceleration for any tranche of Class B MBNAseries notes occurs, or if on any day its usage of the required subordinated amount of Class C notes exceeds zero, the required subordinated amount of Class C notes for that tranche of Class B notes will not decrease after that early redemption event or event of default and acceleration or after the date on which its usage of the required subordinated amount of Class C notes exceeds zero.

 

The issuing entity may change the required subordinated amount for any tranche of notes of the MBNAseries, or the method of computing the required subordinated amount, at any time without the consent of any noteholders so long as the issuing entity has:

 

  received confirmation from each rating agency that has rated any outstanding notes that the change will not result in the reduction, qualification or withdrawal of its then-current rating of any outstanding notes in the MBNAseries;

 

 

delivered an opinion of counsel that for federal income tax purposes (1) the change will not adversely affect the tax characterization as debt of any outstanding series or class of investor certificates issued by master trust II that were characterized as debt at the time of their issuance, (2) following the change, master trust II will not be treated as an association, or a publicly traded partnership, taxable as a corporation,

 

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and (3) such change will not cause or constitute an event in which gain or loss would be recognized by any holder of an investor certificate issued by master trust II; and

 

  delivered an opinion of counsel that for federal income tax purposes (1) the change will not adversely affect the tax characterization as debt of any outstanding series, class or tranche of notes of the issuing entity that were characterized as debt at the time of their issuance, (2) following the change, the issuing entity will not be treated as an association, or publicly traded partnership, taxable as a corporation, and (3) such change will not cause or constitute an event in which gain or loss would be recognized by any holder of such notes.

 

In addition, the percentages used in, or the method of calculating, the required subordinated amount of subordinated notes of any tranche of MBNAseries notes (including other tranches in the same class) may be different than the percentages used in, or the method of calculating, the required subordinated amounts for any tranche of a senior class of MBNAseries notes. In addition, if the rating agencies consent and without the consent of any noteholders, the issuing entity may utilize forms of credit enhancement other than subordinated notes in order to provide senior classes of notes with the required credit enhancement.

 

In order to issue Class A notes, the issuing entity must calculate the available amount of Class B notes and Class C notes. The issuing entity will first calculate the amount of Class B notes available for such new tranche of Class A notes. This is done by computing the following:

 

  the aggregate nominal liquidation amount of all tranches of outstanding Class B notes on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for Class B notes to be made on that date; minus

 

  the aggregate amount of the Class A required subordinated amount of Class B notes for all other Class A notes which are outstanding on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for Class A notes to be made on that date.

 

The calculation in the prior paragraph will also be made in the same manner for calculating the amount of Class C notes available for Class A notes.

 

Additionally, in order to issue Class A notes, the issuing entity must calculate the amount of Class C notes available for Class B notes. This is done by computing the following:

 

  the aggregate nominal liquidation amount of all tranches of outstanding Class C notes on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for Class C notes to be made on that date; minus

 

  the aggregate amount of the Class A required subordinated amount of Class C notes for all tranches of Class A notes for which the Class A required subordinated amount of Class B notes is equal to zero which are outstanding on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for Class A notes to be made on that date.

 

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In order to issue Class B notes, the issuing entity must calculate the available amount of Class C notes. This is done by computing the following:

 

  the aggregate nominal liquidation amount of all tranches of Class C notes which are outstanding on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for Class C notes to be made on that date; minus

 

  the sum of:

 

  the aggregate amount of the Class B required subordinated amount of Class C notes for all other tranches of Class B notes which are outstanding on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for any MBNAseries notes to be made on that date; plus

 

  the aggregate amount of the Class A required subordinated amount of Class C notes for all tranches of Class A notes for which the Class A required subordinated amount of Class B notes is equal to zero which are outstanding on that date, after giving effect to any issuances, deposits, allocations, reallocations or payments for those Class A notes to be made on that date.

 

No payment of principal will be made on any Class B MBNAseries note unless, following the payment, the remaining available subordinated amount of Class B MBNAseries notes is at least equal to the required subordinated amount of Class B notes for the outstanding Class A MBNAseries notes less any usage of the required subordinated amount of Class B notes for the outstanding Class A MBNAseries notes. Similarly, no payment of principal will be made on any Class C MBNAseries note unless, following the payment, the remaining available subordinated amount of Class C MBNAseries notes is at least equal to the required subordinated amount of Class C notes for the outstanding Class A and Class B MBNAseries notes less any usage of the required subordinated amount of Class C notes for the outstanding Class A and Class B MBNAseries notes.

 

However, there are some exceptions to this rule. In the MBNAseries, payment of principal may be made on a subordinated class of notes before payment in full of each senior class of notes only under the following circumstances:

 

  If after giving effect to the proposed principal payment there is still a sufficient amount of subordinated notes to support the outstanding senior notes. See “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account” and “—Allocation to Principal Funding Subaccounts.” For example, if a tranche of Class A notes has been repaid, this generally means that, unless other Class A notes are issued, at least some Class B notes and Class C notes may be repaid when they are expected to be repaid even if other tranches of Class A notes are outstanding.

 

 

If the principal funding subaccounts for the senior classes of notes have been sufficiently prefunded as described in “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits of MBNAseries

 

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Available Principal Amounts to the Principal Funding Account—Prefunding of the Principal Funding Account for Senior Classes.”

 

  If new tranches of subordinated notes are issued so that the subordinated notes that have reached their expected principal payment date are no longer necessary to provide the required subordination.

 

  If the subordinated tranche of notes reaches its legal maturity date and there is a sale of credit card receivables as described in “Sources of Funds to Pay the Notes—Sale of Credit Card Receivables.”

 

Early Redemption of Notes

 

Each series, class and tranche of notes will be subject to mandatory redemption on its expected principal payment date, which will generally be 29 months before its legal maturity date. In addition, if any other early redemption event occurs, the issuing entity will be required to redeem each series, class or tranche of the affected notes before the expected principal payment date of that series, class or tranche of notes; however, for any such affected notes with the benefit of a derivative agreement, subject to certain exceptions, such redemption will not occur earlier than such notes’ expected principal payment date if so specified in the accompanying prospectus supplement. The issuing entity will give notice to holders of the affected notes before an early redemption date. See “The Indenture—Early Redemption Events” for a description of the early redemption events and their consequences to noteholders.

 

Whenever the issuing entity redeems a series, class or tranche of notes, it will do so only to the extent of Available Funds and Available Principal Amounts allocated to that series, class or tranche of notes, and only to the extent that the notes to be redeemed are not required to provide required subordination for senior notes. A noteholder will have no claim against the issuing entity if the issuing entity fails to make a required redemption of notes before the legal maturity date because no funds are available for that purpose or because the notes to be redeemed are required to provide subordination for senior notes. The failure to redeem before the legal maturity date under these circumstances will not be an event of default.

 

If so specified in the accompanying prospectus supplement, the servicer may direct the issuing entity to redeem the notes of any series, class or tranche before its expected principal payment date. The accompanying prospectus supplement will indicate at what times and under what conditions the issuing entity may exercise that right of redemption and if the redemption may be made in whole or in part, as well as other terms of the redemption. The issuing entity will give notice to holders of the affected notes before any optional redemption date.

 

Issuances of New Series, Classes and Tranches of Notes

 

The issuing entity may issue new notes of any series, class or tranche only if the conditions of issuance are met (or waived as described below). These conditions include:

 

  first, on or before the third Business Day before a new issuance of notes, the issuing entity gives the indenture trustee and the rating agencies written notice of the issuance;

 

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  second, on or prior to the date that the new issuance is to occur, the issuing entity delivers to the indenture trustee and each rating agency a certificate to the effect that:

 

  the issuing entity reasonably believes that the new issuance will not at the time of its occurrence or at a future date (i) cause an early redemption event or event of default, (ii) adversely affect the amount of funds available to be distributed to noteholders of any series, class or tranche of notes or the timing of such distributions or (iii) adversely affect the security interest of the indenture trustee in the collateral securing the outstanding notes;

 

  all instruments furnished to the indenture trustee conform to the requirements of the indenture and constitute sufficient authority under the indenture for the indenture trustee to authenticate and deliver the notes;

 

  the form and terms of the notes have been established in conformity with the provisions of the indenture;

 

  all laws and requirements relating to the execution and delivery by the issuing entity of the notes have been complied with, the issuing entity has the power and authority to issue the notes, and the notes have been duly authorized and delivered by the issuing entity, and, assuming due authentication and delivery by the indenture trustee, constitute legal, valid and binding obligations of the issuing entity enforceable in accordance with their terms (subject to certain limitations and conditions), and are entitled to the benefits of the indenture equally and ratably with all other notes, if any, of such series, class or tranche outstanding subject to the terms of the indenture, each indenture supplement and each terms document; and

 

  —the issuing entity shall have satisfied such other matters as the indenture trustee may reasonably request;

 

  third, the issuing entity delivers to the indenture trustee and the rating agencies an opinion of counsel that for federal income tax purposes (i) the new issuance will not adversely affect the tax characterization as debt of any outstanding series or class of investor certificates issued by master trust II that were characterized as debt at the time of their issuance, (ii) following the new issuance, master trust II will not be treated as an association, or a publicly traded partnership, taxable as a corporation, and (iii) the new issuance will not cause or constitute an event in which gain or loss would be recognized by any holder of an investor certificate issued by master trust II;

 

 

fourth, the issuing entity delivers to the indenture trustee and the rating agencies an opinion of counsel that for federal income tax purposes (i) the new issuance will not adversely affect the tax characterization as debt of any outstanding series, class or tranche of notes that were characterized as debt at the time of their issuance, (ii) following the new issuance, the issuing entity will not be treated as an association, or publicly traded partnership, taxable as a corporation, (iii) such issuance will not cause or constitute an event in which gain or loss would be

 

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recognized by any holder of such outstanding notes and (iv) except as provided in the related indenture supplement, following the new issuance of a series, class or tranche of notes, the newly issued series, class or tranche of notes will be properly characterized as debt;

 

  fifth, the issuing entity delivers to the indenture trustee an indenture supplement and terms document relating to the applicable series, class or tranche of notes;

 

  sixth, no Pay Out Event with respect to the collateral certificate has occurred or is continuing as of the date of the new issuance;

 

  seventh, in the case of foreign currency notes, the issuing entity appoints one or more paying agents in the appropriate countries;

 

  eighth, each rating agency that has rated any outstanding notes has provided confirmation that the new issuance of notes will not cause a reduction, qualification or withdrawal of the ratings of any outstanding notes rated by that rating agency;

 

  ninth, the provisions governing required subordinated amounts are satisfied; and

 

  tenth, any other conditions in the accompanying prospectus supplement are satisfied.

 

If the issuing entity obtains confirmation from each rating agency that has rated any outstanding notes that the issuance of a new series, class or tranche of notes will not cause a reduction, qualification or withdrawal of the ratings of any outstanding notes rated by that rating agency, then any of the conditions described above (other than the third, fourth and fifth conditions) may be waived.

 

The issuing entity and the indenture trustee are not required to obtain the consent of any noteholder of any series, class or tranche to issue any additional notes of any series, class or tranche.

 

There are no restrictions on the timing or amount of any additional issuance of notes of an outstanding tranche of a multiple tranche series, so long as the conditions described above are met or waived. As of the date of any additional issuance of an outstanding tranche of notes, the stated principal amount, outstanding dollar principal amount and nominal liquidation amount of that tranche will be increased to reflect the principal amount of the additional notes. If the additional notes are a tranche of notes that has the benefit of a derivative agreement, the issuing entity will enter into a derivative agreement for the benefit of the additional notes. The targeted deposits, if any, to the principal funding subaccount will be increased proportionately to reflect the principal amount of the additional notes.

 

When issued, the additional notes of a tranche will be equally and ratably entitled to the benefits of the indenture and the related indenture supplement applicable to such notes as the other outstanding notes of that tranche without preference, priority or distinction.

 

New Issuances of MBNAseries Notes

 

The issuing entity may issue new classes and tranches of MBNAseries notes (including additional notes of an outstanding tranche or class), so long as:

 

  the conditions to issuance listed above are satisfied;

 

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  any increase in the targeted deposit amount of any Class C reserve subaccount caused by such issuance will have been funded on or prior to such issuance date; and

 

  in the case of Class A or Class B MBNAseries notes, the required subordinated amount is available at the time of its issuance.

 

See “—Required Subordinated Amount” above and “Sources of Funds to Pay the Notes—Deposit and Application of Funds for the MBNAseries—Targeted Deposits to the Class C Reserve Account.”

 

The issuing entity and the indenture trustee are not required to obtain the consent of any noteholder of any series, class or tranche to issue any additional MBNAseries notes.

 

Payments on Notes; Paying Agent

 

The notes offered by this prospectus and the accompanying prospectus supplement will be delivered in book-entry form and payments of principal of and interest on the notes will be made in U.S. dollars as described under “—Book-Entry Notes” below unless the stated principal amount of the notes is denominated in a foreign currency.

 

The issuing entity, the indenture trustee and any agent of the issuing entity or the indenture trustee will treat the registered holder of any note as the absolute owner of that note, whether or not the note is overdue and notwithstanding any notice to the contrary, for the purpose of making payment and for all other purposes.

 

The issuing entity will make payments on a note to the registered holder of the note at the close of business on the record date established for the related payment date.

 

The issuing entity will designate the corporate trust office of The Bank of New York in New York City as its paying agent for the notes of each series. The issuing entity will identify any other entities appointed to serve as paying agents on notes of a series, class or tranche in a supplement to this prospectus. The issuing entity may at any time designate additional paying agents or rescind the designation of any paying agent or approve a change in the office through which any paying agent acts. However, the issuing entity will be required to maintain an office, agency or paying agent in each place of payment for a series, class or tranche of notes.

 

After notice by publication, all funds paid to a paying agent for the payment of the principal of or interest on any note of any series which remains unclaimed at the end of two years after the principal or interest becomes due and payable will be paid to the issuing entity. After funds are paid to the issuing entity, the holder of that note may look only to the issuing entity for payment of that principal or interest.

 

Denominations

 

The notes offered by this prospectus will be issued in denominations of $5,000 and multiples of $1,000 in excess of that amount.

 

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Record Date

 

The record date for payment of the notes will be the last day of the month before the related payment date.

 

Governing Law

 

The laws of the State of Delaware will govern the notes and the indenture.

 

Form, Exchange and Registration and Transfer of Notes

 

The notes offered by this prospectus will be issued in registered form. The notes will be represented by one or more global notes registered in the name of The Depository Trust Company, as depository, or its nominee. We refer to each beneficial interest in a global note as a “book-entry note.” For a description of the special provisions that apply to book-entry notes, see “—Book-Entry Notes” below.

 

A holder of notes may exchange those notes for other notes of the same class or tranche of any authorized denominations and of the same aggregate stated principal amount, expected principal payment date and legal maturity date, and of like terms.

 

Any holder of a note may present that note for registration of transfer, with the form of transfer properly executed, at the office of the note registrar or at the office of any transfer agent that the issuing entity designates. Unless otherwise provided in the note to be transferred or exchanged, holders of notes will not be charged any service charge for the exchange or transfer of their notes. Holders of notes that are to be transferred or exchanged will be liable for the payment of any taxes and other governmental charges described in the indenture before the transfer or exchange will be completed. The note registrar or transfer agent, as the case may be, will effect a transfer or exchange when it is satisfied with the documents of title and identity of the person making the request.

 

The issuing entity will appoint The Bank of New York as the registrar for the notes. The issuing entity also may at any time designate additional transfer agents for any series, class or tranche of notes. The issuing entity may at any time rescind the designation of any transfer agent or approve a change in the location through which any transfer agent acts. However, the issuing entity will be required to maintain a transfer agent in each place of payment for a series, class or tranche of notes.

 

Book-Entry Notes

 

The notes offered by this prospectus will be delivered in book-entry form. This means that, except under the limited circumstances described below under “—Definitive Notes,” purchasers of notes will not be entitled to have the notes registered in their names and will not be entitled to receive physical delivery of the notes in definitive paper form. Instead, upon issuance, all the notes of a class will be represented by one or more fully registered permanent global notes, without interest coupons.

 

Each global note will be deposited with a securities depository named The Depository Trust Company and will be registered in the name of its nominee, Cede & Co. No global note

 

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representing book-entry notes may be transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC to another nominee of DTC. Thus, DTC or its nominee will be the only registered holder of the notes and will be considered the sole representative of the beneficial owners of notes for purposes of the indenture.

 

The registration of the global notes in the name of Cede & Co. will not affect beneficial ownership and is performed merely to facilitate subsequent transfers. The book-entry system, which is also the system through which most publicly traded common stock is held, is used because it eliminates the need for physical movement of securities. The laws of some jurisdictions, however, may require some purchasers to take physical delivery of their notes in definitive form. These laws may impair the ability to own or transfer book-entry notes.

 

Purchasers of notes in the United States may hold interests in the global notes through DTC, either directly, if they are participants in that system—such as a bank, brokerage house or other institution that maintains securities accounts for customers with DTC or its nominee—or otherwise indirectly through a participant in DTC. Purchasers of notes in Europe may hold interests in the global notes through Clearstream, Luxembourg, or through Euroclear Bank S.A./N.V., as operator of the Euroclear system.

 

Because DTC will be the only registered owner of the global notes, Clearstream, Luxembourg and Euroclear will hold positions through their respective U.S. depositories, which in turn will hold positions on the books of DTC.

 

As long as the notes are in book-entry form, they will be evidenced solely by entries on the books of DTC, its participants and any indirect participants. DTC will maintain records showing:

 

  the ownership interests of its participants, including the U.S. depositories; and

 

  all transfers of ownership interests between its participants.

 

The participants and indirect participants, in turn, will maintain records showing:

 

  the ownership interests of their customers, including indirect participants, that hold the notes through those participants; and

 

  all transfers between these persons.

 

Thus, each beneficial owner of a book-entry note will hold its note indirectly through a hierarchy of intermediaries, with DTC at the “top” and the beneficial owner’s own securities intermediary at the “bottom.”

 

The issuing entity, the indenture trustee and their agents will not be liable for the accuracy of, and are not responsible for maintaining, supervising or reviewing DTC’s records or any participant’s records relating to book-entry notes. The issuing entity, the indenture trustee and their agents also will not be responsible or liable for payments made on account of the book-entry notes.

 

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Until Definitive Notes are issued to the beneficial owners as described below under “—Definitive Notes,” all references to “holders” of notes means DTC. The issuing entity, the indenture trustee and any paying agent, transfer agent or securities registrar may treat DTC as the absolute owner of the notes for all purposes.

 

Beneficial owners of book-entry notes should realize that the issuing entity will make all distributions of principal and interest on their notes to DTC and will send all required reports and notices solely to DTC as long as DTC is the registered holder of the notes. DTC and the participants are generally required by law to receive and transmit all distributions, notices and directions from the indenture trustee to the beneficial owners through the chain of intermediaries.

 

Similarly, the indenture trustee will accept notices and directions solely from DTC. Therefore, in order to exercise any rights of a holder of notes under the indenture, each person owning a beneficial interest in the notes must rely on the procedures of DTC and, in some cases, Clearstream, Luxembourg or Euroclear. If the beneficial owner is not a participant in that system, then it must rely on the procedures of the participant through which that person owns its interest. DTC has advised the issuing entity that it will take actions under the indenture only at the direction of its participants, which in turn will act only at the direction of the beneficial owners. Some of these actions, however, may conflict with actions it takes at the direction of other participants and beneficial owners.

 

Notices and other communications by DTC to participants, by participants to indirect participants, and by participants and indirect participants to beneficial owners will be governed by arrangements among them.

 

Beneficial owners of book-entry notes should also realize that book-entry notes may be more difficult to pledge because of the lack of a physical note. Beneficial owners may also experience delays in receiving distributions on their notes since distributions will initially be made to DTC and must be transferred through the chain of intermediaries to the beneficial owner’s account.

 

The Depository Trust Company

 

DTC is a limited-purpose trust company organized under the New York Banking Law and is a “banking institution” within the meaning of the New York Banking Law. DTC is also a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered under Section 17A of the Securities Exchange Act of 1934. DTC was created to hold securities deposited by its participants and to facilitate the clearance and settlement of securities transactions among its participants through electronic book-entry changes in accounts of the participants, thus eliminating the need for physical movement of securities. DTC is indirectly owned by a number of its participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. The rules applicable to DTC and its participants are on file with the Securities and Exchange Commission.

 

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Clearstream, Luxembourg

 

Clearstream, Luxembourg is registered as a bank in Luxembourg and is regulated by the Banque Centrale du Luxembourg, the Luxembourg Central Bank, which supervises Luxembourg banks. Clearstream, Luxembourg holds securities for its customers and facilitates the clearance and settlement of securities transactions by electronic book-entry transfers between their accounts. Clearstream, Luxembourg provides various services, including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream, Luxembourg also deals with domestic securities markets in over 30 countries through established depository and custodial relationships. Clearstream, Luxembourg has established an electronic bridge with Euroclear in Brussels to facilitate settlement of trades between Clearstream, Luxembourg and Euroclear. Clearstream, Luxembourg currently accepts over 110,000 securities issues on its books.

 

Clearstream, Luxembourg’s customers are worldwide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Clearstream, Luxembourg’s U.S. customers are limited to securities brokers and dealers and banks. Currently, Clearstream, Luxembourg has approximately 2,000 customers located in over 80 countries, including all major European countries, Canada, and the United States. Indirect access to Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream, Luxembourg.

 

Euroclear System

 

Euroclear was created in 1968 to hold securities for participants of Euroclear and to clear and settle transactions between Euroclear participants through simultaneous electronic book- entry delivery against payment. This system eliminates the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries. The Euroclear operator is Euroclear Bank S.A./N.V. The Euroclear operator conducts all operations. All Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear operator. The Euroclear operator establishes policy for Euroclear on behalf of Euroclear participants. Euroclear participants include banks, including central banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.

 

Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law. These Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments for securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. The Euroclear operator acts under the Terms and Conditions only on behalf of Euroclear participants, and has no record of or relationship with persons holding through Euroclear participants.

 

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This information about DTC, Clearstream, Luxembourg and Euroclear has been provided by each of them for informational purposes only and is not intended to serve as a representation, warranty or contract modification of any kind.

 

Distributions on Book-Entry Notes

 

The issuing entity will make distributions of principal of and interest on book-entry notes to DTC. These payments will be made in immediately available funds by the issuing entity’s paying agent, The Bank of New York, at the office of the paying agent in New York City that the issuing entity designates for that purpose.

 

In the case of principal payments, the global notes must be presented to the paying agent in time for the paying agent to make those payments in immediately available funds in accordance with its normal payment procedures.

 

Upon receipt of any payment of principal of or interest on a global note, DTC will immediately credit the accounts of its participants on its book-entry registration and transfer system. DTC will credit those accounts with payments in amounts proportionate to the participants’ respective beneficial interests in the stated principal amount of the global note as shown on the records of DTC. Payments by participants to beneficial owners of book-entry notes will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of those participants.

 

Distributions on book-entry notes held beneficially through Clearstream, Luxembourg will be credited to cash accounts of Clearstream, Luxembourg participants in accordance with its rules and procedures, to the extent received by its U.S. depository.

 

Distributions on book-entry notes held beneficially through Euroclear will be credited to the cash accounts of Euroclear participants in accordance with the Terms and Conditions, to the extent received by its U.S. depository.

 

In the event Definitive Notes are issued, distributions of principal and interest on Definitive Notes will be made directly to the holders of the Definitive Notes in whose names the Definitive Notes were registered at the close of business on the related record date.

 

Global Clearance and Settlement Procedures

 

Initial settlement for the notes will be made in immediately available funds. Secondary market trading between DTC participants will occur in the ordinary way in accordance with DTC’s rules and will be settled in immediately available funds using DTC’s Same-Day Funds Settlement System. Secondary market trading between Clearstream, Luxembourg participants and/or Euroclear participants will occur in the ordinary way in accordance with the applicable rules and operating procedures of Clearstream, Luxembourg and Euroclear and will be settled using the procedures applicable to conventional eurobonds in immediately available funds.

 

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Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream, Luxembourg or Euroclear participants, on the other, will be effected in DTC in accordance with DTC’s rules on behalf of the relevant European international clearing system by the U.S. depositories. However, cross-market transactions of this type will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its U.S. depository to take action to effect final settlement on its behalf by delivering or receiving notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream, Luxembourg participants and Euroclear participants may not deliver instructions directly to DTC.

 

Because of time-zone differences, credits to notes received in Clearstream, Luxembourg or Euroclear as a result of a transaction with a DTC participant will be made during subsequent securities settlement processing and will be credited the business day following a DTC settlement date. The credits to or any transactions in the notes settled during processing will be reported to the relevant Euroclear or Clearstream, Luxembourg participants on that business day. Cash received in Clearstream, Luxembourg or Euroclear as a result of sales of notes by or through a Clearstream, Luxembourg participant or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date, but will be available in the relevant Clearstream, Luxembourg or Euroclear cash account only as of the business day following settlement in DTC.

 

Although DTC, Clearstream, Luxembourg and Euroclear have agreed to these procedures in order to facilitate transfers of notes among participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to perform or continue to perform these procedures and these procedures may be discontinued at any time.

 

Definitive Notes

 

Beneficial owners of book-entry notes may exchange those notes for Definitive Notes registered in their name only if:

 

    DTC is unwilling or unable to continue as depository for the global notes or ceases to be a registered “clearing agency” and the issuing entity is unable to find a qualified replacement for DTC;

 

    the issuing entity, in its sole discretion, elects to terminate the book-entry system through DTC; or

 

    any event of default has occurred relating to those book-entry notes and beneficial owners evidencing not less than 50% of the unpaid outstanding dollar principal amount of the notes of that class advise the indenture trustee and DTC that the continuation of a book-entry system is no longer in the best interests of those beneficial owners.

 

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If any of these three events occurs, DTC is required to notify the beneficial owners through the chain of intermediaries that the Definitive Notes are available. The appropriate global note will then be exchangeable in whole for Definitive Notes in registered form of like tenor and of an equal aggregate stated principal amount, in specified denominations. Definitive Notes will be registered in the name or names of the person or persons specified by DTC in a written instruction to the registrar of the notes. DTC may base its written instruction upon directions it receives from its participants. Thereafter, the holders of the Definitive Notes will be recognized as the “holders” of the notes under the indenture.

 

Replacement of Notes

 

The issuing entity will replace at the expense of the holder any mutilated note upon surrender of that note to the indenture trustee. The issuing entity will replace at the expense of the holder any notes that are destroyed, lost or stolen upon delivery to the indenture trustee of evidence of the destruction, loss or theft of those notes satisfactory to the issuing entity and the indenture trustee. In the case of a destroyed, lost or stolen note, the issuing entity and the indenture trustee may require the holder of the note to provide an indemnity satisfactory to the indenture trustee and the issuing entity before a replacement note will be issued, and the issuing entity may require the payment of a sum sufficient to cover any tax or other governmental charge, and any other expenses (including the fees and expenses of the indenture trustee) in connection with the issuance of a replacement note.

 

Sources of Funds to Pay the Notes

 

The Collateral Certificate

 

The primary source of funds for the payment of principal of and interest on the notes will be the collateral certificate issued by master trust II to the issuing entity. The following discussion and certain discussions in the related prospectus supplement summarize the material terms of the collateral certificate. These summaries do not purport to be complete and are qualified in their entirety by reference to the provisions of the master trust II agreement and the collateral certificate. For a description of master trust II and its assets, see “Master Trust II.” The collateral certificate is the only master trust II investor certificate issued pursuant to Series 2001-D.

 

The collateral certificate represents an undivided interest in the assets of master trust II. The assets of master trust II consist primarily of credit card receivables arising in selected MasterCard, Visa and American Express revolving credit card accounts that have been transferred by MBNA. The amount of credit card receivables in master trust II will fluctuate from day to day as new receivables are generated or added to or removed from master trust II and as other receivables are collected, charged off as uncollectible, or otherwise adjusted.

 

The collateral certificate has no specified interest rate. The issuing entity, as holder of the collateral certificate, is entitled to receive its allocable share of defaults and of collections of finance charge receivables and principal receivables payable by master trust II.

 

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Finance charge receivables are all periodic finance charges, cash advance fees and late charges on amounts charged for merchandise and services and some other fees designated by MBNA, annual membership fees, and recoveries on receivables in Defaulted Accounts. Principal receivables are all amounts charged by cardholders for merchandise and services, amounts advanced to cardholders as cash advances and all other fees billed to cardholders on the credit card accounts. Interchange, which represents fees received by MBNA from MasterCard, Visa and American Express as partial compensation for taking credit risk, absorbing fraud losses and funding receivables for a limited period before initial billing, is treated as collections of finance charge receivables. Interchange varies from approximately 1% to 2% of the transaction amount, but these amounts may be changed by MasterCard, Visa or American Express.

 

Each month, master trust II will allocate collections of finance charge receivables and principal receivables and defaults to the investor certificates outstanding under master trust II, including the collateral certificate.

 

Allocations of defaults and collections of finance charge receivables are made pro rata among each series of investor certificates issued by master trust II, including the collateral certificate, based on its respective Investor Interest, and the seller, based on the Seller Interest. In general, the Investor Interest of each series of investor certificates (including the collateral certificate) issued by master trust II will equal the stated dollar amount of the investor certificates (including the collateral certificate) issued to investors in that series, less unreimbursed charge-offs for uncovered defaults on principal receivables in master trust II allocated to those investors, reallocations of collections of principal receivables to cover certain shortfalls in collections of finance charge receivables and principal payments deposited to a master trust II principal funding account or made to those investors.

 

The collateral certificate has a fluctuating Investor Interest, representing the investment of that certificate in principal receivables. The Investor Interest of the collateral certificate will equal the total nominal liquidation amount of the outstanding notes secured by the collateral certificate. For a discussion of Investor Interest, see the definition of Investor Interest in the glossary. The Seller Interest, which is owned by MBNA, represents the interest in the principal receivables in master trust II not represented by any master trust II series of investor certificates. For example, if the total principal receivables in master trust II at the end of the month is 500, the Investor Interest of the collateral certificate is 100, the Investor Interests of the other investor certificates are 200 and the Seller Interest is 200, the collateral certificate is entitled, in general, to 1/5—or 100/500—of the defaults and collections of finance charge receivables for the applicable month.

 

Collections of principal receivables are allocated similarly to the allocation of collections of finance charge receivables when no principal amounts are needed for deposit into a principal funding account or needed to pay principal to investors. However, collections of principal receivables are allocated differently when principal amounts need to be deposited into master trust II principal funding accounts or paid to master trust II investors. When the principal amount of a master trust II investor certificate other than the collateral certificate

 

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begins to accumulate or amortize, collections of principal receivables continue to be allocated to the series as if the Investor Interest of that series had not been reduced by principal collections deposited to a master trust II principal funding account or paid to master trust II investors. During this time, allocations of collections of principal receivables to the investors in a series of certificates issued by master trust II, other than the collateral certificate, is based on the Investor Interest of the series “fixed” at the time immediately before the first deposit of principal collections into a principal funding account or the time immediately before the first payment of principal collections to investors.

 

The collateral certificate is allocated collections of principal receivables at all times based on an Investor Interest calculation which is an aggregate of the nominal liquidation amounts for each individual class or tranche of notes. For classes and tranches of notes which do not require principal amounts to be deposited into a principal funding account or paid to noteholders, the nominal liquidation amount calculation will be “floating,” i.e. calculated as of the end of the prior month. For classes or tranches of notes which require principal amounts to be deposited into a principal funding account or paid to noteholders, the nominal liquidation amount will be “fixed” immediately before the issuing entity begins to allocate Available Principal Amounts to the principal funding subaccount for that class or tranche, i.e. calculated as of the end of the month prior to any reductions for deposits or payments of principal.

 

For a detailed description of the percentage used in allocating finance charge collections and defaults to the collateral certificate, see the definition of “Floating Investor Percentage” in the glossary. For a detailed description of the percentage used in allocating principal collections to the collateral certificate, see the definition of “Principal Investor Percentage” in the glossary.

 

If collections of principal receivables allocated to the collateral certificate are needed for reallocation to cover certain shortfalls in Available Funds, to pay the notes or to make a deposit into the issuing entity accounts within a month, they will be deposited into the issuing entity’s collection account. Otherwise, collections of principal receivables allocated to the collateral certificate will be reallocated to other series of master trust II investor certificates which have principal collection shortfalls—which does not reduce the Investor Interest of the collateral certificate—or reinvested in master trust II to maintain the Investor Interest of the collateral certificate. If the collateral certificate has a shortfall in collections of principal receivables, but other series of investor certificates issued by master trust II have excess collections of principal receivables, a portion of the excess collections of principal receivables allocated to other series of investor certificates issued by master trust II will be reallocated to the collateral certificate and any other master trust II investor certificate which may have a shortfall in collections of principal receivables and the collateral certificate’s share of the excess collections of principal receivables from the other series will be paid to the issuing entity and treated as Available Principal Amounts.

 

The collateral certificate will also be allocated a portion of the net investment earnings, if any, on amounts in the master trust II finance charge account and the master trust II principal account, as more specifically described below in “—Deposit and Application of Funds.” Such net investment earnings will be treated as Available Funds.

 

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Upon a sale of credit card receivables, or interests therein, following an insolvency of MBNA, following an event of default and acceleration, or on the applicable legal maturity date for a series, class or tranche of notes, as described in the accompanying prospectus supplement, the portion of the nominal liquidation amount, and thereby the portion of the Investor Interest, related to that series, class or tranche will be reduced to zero and that series, class or tranche will no longer receive any allocations of collections of finance charge receivables or principal receivables from master trust II and any allocations of Available Funds or Available Principal Amounts from the issuing entity.

 

Following a Pay Out Event with respect to the collateral certificate, which is an early redemption event for the notes, all collections of principal receivables for any month allocated to the Investor Interest of the collateral certificate will be used to cover principal payments to the issuing entity as holder of the collateral certificate.

 

For a detailed description of the application of collections and allocation of defaults by master trust II, see “Master Trust II—Application of Collections” and “—Defaulted Receivables; Rebates and Fraudulent Charges” in this prospectus.

 

Deposit and Application of Funds

 

Collections of finance charge receivables allocated and paid to the issuing entity, as holder of the collateral certificate, as described in “—The Collateral Certificate” above and “Master Trust II—Application of Collections” in this prospectus, will be treated as Available Funds. Those Available Funds will be allocated pro rata to each series of notes in an amount equal to the sum of:

 

    the sum of the Daily Available Funds Amounts for each day during such month for that series of notes,

 

    that series’s pro rata portion of the net investment earnings, if any, in the master trust II finance charge account that are allocated to the collateral certificate with respect to the related Transfer Date, based on the ratio of the aggregate amount on deposit in the master trust II finance charge account for that series of notes to the aggregate amount on deposit in the master trust II finance charge account for all series of notes, and

 

    that series’s pro rata portion of the net investment earnings, if any, in the master trust II principal account that are allocated to the collateral certificate with respect to the related Transfer Date, based on the ratio of the aggregate amount on deposit in the master trust II principal account for that series of notes to the aggregate amount on deposit in the master trust II principal account for all series of notes.

 

Collections of principal receivables allocated and paid to the issuing entity, as holder of the collateral certificate, as described in “—The Collateral Certificate” above and “Master Trust II—Application of Collections” in this prospectus, will be treated as Available Principal Amounts. Such Available Principal Amounts, after any reallocations of Available Principal Amounts, will be allocated to each series of notes with a monthly principal payment for such month in an amount equal to:

 

    such series’s monthly principal payment; or

 

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    in the event that Available Principal Amounts for any month are less than the aggregate monthly principal payments for all series of notes, Available Principal Amounts will be allocated to each series of notes with a monthly principal payment for such month to the extent needed by each such series to cover its monthly principal payment in an amount equal to the lesser of (a) the sum of the Daily Principal Amounts for each day during such month for such series of notes and (b) the monthly principal payment for such series of notes for such month.

 

If Available Principal Amounts for any month are less than the aggregate monthly principal payments for all series of notes, and any series of notes has excess Available Principal Amounts remaining after its application of its allocation described above, then any such excess will be applied to each series of notes to the extent such series still needs to cover a monthly principal payment pro rata based on the ratio of the Weighted Average Principal Allocation Amount for the related series of notes for such month to the Weighted Average Principal Allocation Amount for all series of notes with an unpaid monthly principal payment for such month.

 

In the case of a series of notes having more than one class or tranche, Available Principal Amounts and Available Funds allocated to that series will be further allocated and applied to each class or tranche in the manner and order of priority described in the accompanying prospectus supplement.

 

Deposit and Application of Funds for the MBNAseries

 

The indenture specifies how Available Funds (primarily consisting of collections of finance charge receivables allocated and paid to the collateral certificateholder) and Available Principal Amounts (primarily consisting of collections of principal receivables allocated and paid to the collateral certificateholder) will be allocated among the multiple series of notes secured by the collateral certificate. The MBNAseries indenture supplement specifies how MBNAseries Available Funds (which are the MBNAseries’s share of Available Funds plus other amounts treated as MBNAseries Available Funds) and MBNAseries Available Principal Amounts (which are the MBNAseries’s share of Available Principal Amounts plus other amounts treated as MBNAseries Available Principal Amounts) will be deposited into the issuing entity accounts established for the MBNAseries to provide for the payment of interest on and principal of MBNAseries notes as payments become due. In addition, the MBNAseries indenture supplement specifies how defaults on principal receivables in master trust II and the master trust II servicing fee will be allocated to the collateral certificate and the MBNAseries. The following sections summarize those provisions.

 

MBNAseries Available Funds

 

MBNAseries Available Funds will consist of the following amounts:

 

    The MBNAseries’s share of collections of finance charge receivables allocated and paid to the collateral certificateholder and investment earnings on funds held in the collection account. See “—Deposit and Application of Funds” above.

 

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    Withdrawals from the accumulation reserve subaccount. If the number of months targeted to accumulate budgeted deposits of MBNAseries Available Principal Amounts for the payment of principal on a tranche of notes is greater than one month, then the issuing entity will begin to fund an accumulation reserve subaccount for such tranche. See “—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account” below. The amount targeted to be deposited in the accumulation reserve account for each month, beginning with the third month prior to the first Transfer Date on which MBNAseries Available Principal Amounts are to be accumulated for such tranche, will be an amount equal to 0.5% of the outstanding dollar principal amount of such tranche of notes.

 

On each Transfer Date, the issuing entity will calculate the targeted amount of principal funding subaccount earnings for each tranche of notes, which will be equal to the amount that the funds (other than prefunded amounts) on deposit in each principal funding subaccount would earn at the interest rate payable by the issuing entity—taking into account payments due under applicable derivative agreements—on the related tranche of notes. As a general rule, if the amount actually earned on such funds on deposit is less than the targeted amount of earnings, then the amount of such shortfall will be withdrawn from the applicable accumulation reserve subaccount and treated as MBNAseries Available Funds for such month.

 

    Additional finance charge collections allocable to the MBNAseries. The issuing entity will notify the servicer from time to time of the aggregate prefunded amount on deposit in the principal funding account. Whenever there are any prefunded amounts on deposit in any principal funding subaccount, master trust II will designate an amount of the Seller Interest equal to such prefunded amounts. On each Transfer Date, the issuing entity will calculate the targeted amount of principal funding subaccount prefunded amount earnings for each tranche of notes, which will be equal to the amount that the prefunded amounts on deposit in each principal funding subaccount would earn at the interest rate payable by the issuing entity—taking into account payments due under applicable derivative agreements—on the related tranche of notes. As a general rule, if the amount actually earned on such funds on deposit is less than the targeted amount of earnings, collections of finance charge receivables allocable to such designated portion of the Seller Interest up to the amount of the shortfall will be treated as MBNAseries Available Funds. See “Master Trust II—Application of Collections” in the prospectus.

 

    Investment earnings on amounts on deposit in the principal funding account, interest funding account and accumulation reserve account for the MBNAseries.

 

    Any shared excess available funds allocable to the MBNAseries.

 

See “—Shared Excess Available Funds” below.

 

    Amounts received from derivative counterparties. Payments received under derivative agreements for interest on notes of the MBNAseries payable in U.S. dollars will be treated as MBNAseries Available Funds.

 

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Application of MBNAseries Available Funds

 

On each Transfer Date, the indenture trustee will apply MBNAseries Available Funds as follows:

 

    first, to make the targeted deposits to the interest funding account to fund the payment of interest on the notes and certain payments due to derivative counterparties;

 

    second, to pay the MBNAseries’s share of the master trust II servicing fee, plus any previously due and unpaid master trust II servicing fee allocable to the MBNAseries, to the servicer;

 

    third, to be treated as MBNAseries Available Principal Amounts in an amount equal to the amount of defaults on principal receivables in master trust II allocated to the MBNAseries for the preceding month;

 

    fourth, to be treated as MBNAseries Available Principal Amounts in an amount equal to the Nominal Liquidation Amount Deficits, if any, of MBNAseries notes;

 

    fifth, to make the targeted deposit to the accumulation reserve account, if any;

 

    sixth, to make the targeted deposit to the Class C reserve account, if any;

 

    seventh, to make any other payment or deposit required by any class or tranche of MBNAseries notes;

 

    eighth, to be treated as shared excess available funds; and

 

    ninth, to the issuing entity.

 

See the chart titled “Application of MBNAseries Available Funds” after the “Prospectus Summary” for a depiction of the application of MBNAseries Available Funds.

 

Targeted Deposits of MBNAseries Available Funds to the Interest Funding Account

 

The aggregate deposit targeted to be made each month to the interest funding account will be equal to the sum of the interest funding account deposits targeted to be made for each tranche of notes set forth below. The deposit targeted for any month will also include any shortfall in the targeted deposit from any prior month which has not been previously deposited.

 

    Interest Payments.    The deposit targeted for any tranche of outstanding interest-bearing notes on each Transfer Date will be equal to the amount of interest accrued on the outstanding dollar principal amount of that tranche during the period from and including the first Monthly Interest Accrual Date in the prior month to but excluding the first Monthly Interest Accrual Date for the current month.

 

    Amounts Owed to Derivative Counterparties.    If a tranche of notes has a Performing or non-Performing derivative agreement for interest that provides for payments to the applicable derivative counterparty, in addition to any applicable stated interest as determined under the item above, the deposit targeted for that tranche of notes on each Transfer Date for any payment to the derivative counterparty will be specified in the MBNAseries indenture supplement.

 

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    Discount Notes.    The deposit targeted for a tranche of discount notes on each Transfer Date is the amount of accretion of principal of that tranche of notes from and including the prior Monthly Principal Accrual Date—or in the case of the first Monthly Principal Accrual Date, from and including the date of issuance of that tranche—to but excluding the first Monthly Principal Accrual Date for the next month.

 

    Specified Deposits.    If any tranche of notes provides for deposits in addition to or different from the deposits described above to be made to the interest funding subaccount for that tranche, the deposits targeted for that tranche each month are the specified amounts.

 

    Additional Interest.    The deposit targeted for any tranche of notes that has previously due and unpaid interest for any month will include the interest accrued on that overdue interest during the period from and including the first Monthly Interest Accrual Date in the prior month to but excluding the first Monthly Interest Accrual Date for the current month.

 

Each deposit to the interest funding account for each month will be made on the Transfer Date in such month. A tranche of notes may be entitled to more than one of the preceding deposits.

 

A class or tranche of notes for which credit card receivables have been sold by master trust II as described below in “—Sale of Credit Card Receivables” will not be entitled to receive any of the preceding deposits to be made from MBNAseries Available Funds after the sale has occurred.

 

Allocation to Interest Funding Subaccounts

 

The aggregate amount to be deposited in the interest funding account will be allocated, and a portion deposited in the interest funding subaccount established for each tranche of notes, as follows:

 

    MBNAseries Available Funds are at least equal to targeted amounts.    If MBNAseries Available Funds are at least equal to the sum of the deposits targeted by each tranche of notes as described above, then that targeted amount will be deposited in the interest funding subaccount established for each tranche.

 

    MBNAseries Available Funds are less than targeted amounts.    If MBNAseries Available Funds are less than the sum of the deposits targeted by each tranche of notes as described above, then MBNAseries Available Funds will be allocated to each tranche of notes as follows:

 

  first, to cover the deposits for the Class A notes (including any applicable derivative counterparty payments),

 

  second, to cover the deposits for the Class B notes (including any applicable derivative counterparty payments), and

 

  third, to cover the deposits for the Class C notes (including any applicable derivative counterparty payments).

 

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In each case, MBNAseries Available Funds allocated to a class will be allocated to each tranche of notes within such class pro rata based on the ratio of:

 

  the aggregate amount of the deposits targeted for that tranche of notes, to

 

  the aggregate amount of the deposits targeted for all tranches of notes in such class.

 

Payments Received from Derivative Counterparties for Interest on Foreign Currency Notes

 

Payments received under derivative agreements for interest on foreign currency notes in the MBNAseries will be applied as specified in the MBNAseries indenture supplement.

 

Deposits of Withdrawals from the Class C Reserve Account to the Interest Funding Account

 

Withdrawals made from any Class C reserve subaccount will be deposited into the applicable interest funding subaccount to the extent described below under “—Withdrawals from the Class C Reserve Account.”

 

Allocations of Reductions from Charge-Offs

 

On each Transfer Date when there is a charge-off for uncovered defaults on principal receivables in master trust II allocable to the MBNAseries for the prior month, that reduction will be allocated (and reallocated) on that date to each tranche of notes as set forth below:

 

Initially, the amount of such charge-off will be allocated to each tranche of outstanding notes pro rata based on the ratio of the Weighted Average Available Funds Allocation Amount for such tranche for the prior month to the Weighted Average Available Funds Allocation Amount for the MBNAseries for the prior month.

 

Immediately afterwards, the amount of charge-offs allocated to the Class A notes and Class B notes will be reallocated to the Class C notes as set forth below, and the amount of charge-offs allocated to the Class A notes and not reallocated to the Class C notes because of the limits set forth below will be reallocated to the Class B notes as set forth below. In addition, charge-offs initially allocated to Class A notes which are reallocated to Class B notes because of Class C usage limitations can be reallocated to Class C notes if permitted as described below. Any amount of charge-offs which cannot be reallocated to a subordinated class as a result of the limits set forth below will reduce the nominal liquidation amount of the tranche of notes to which it was initially allocated.

 

Limits on Reallocations of Charge-Offs to a Tranche of Class C Notes from Tranches of Class A and Class B Notes

 

No reallocations of charge-offs from a tranche of Class A notes to Class C notes may cause that tranche’s Class A Usage of Class C Required Subordinated Amount to exceed that tranche’s Class A required subordinated amount of Class C notes.

 

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No reallocations of charge-offs from a tranche of Class B notes to Class C notes may cause that tranche’s Class B Usage of Class C Required Subordinated Amount to exceed that tranche’s Class B required subordinated amount of Class C notes.

 

The amount of charge-offs permitted to be reallocated to tranches of Class C notes will be applied to each tranche of Class C notes pro rata based on the ratio of the Weighted Average Available Funds Allocation Amount of such tranche of Class C notes for the prior month to the Weighted Average Available Funds Allocation Amount of all Class C notes in the MBNAseries for the prior month.

 

No such reallocation of charge-offs will reduce the nominal liquidation amount of any tranche of Class C notes below zero.

 

Limits on Reallocations of Charge-Offs to a Tranche of Class B Notes from Tranches of Class A Notes

 

No reallocations of charge-offs from a tranche of Class A notes to Class B notes may cause that tranche’s Class A Usage of Class B Required Subordinated Amount to exceed that tranche’s Class A required subordinated amount of Class B notes.

 

The amount of charge-offs permitted to be reallocated to tranches of Class B notes will be applied to each tranche of Class B notes pro rata based on the ratio of the Weighted Average Available Funds Allocation Amount for that tranche of Class B notes for the prior month to the Weighted Average Available Funds Allocation Amount for all Class B notes in the MBNAseries for the prior month.

 

No such reallocation of charge-offs will reduce the nominal liquidation amount of any tranche of Class B notes below zero.

 

For each tranche of notes, the nominal liquidation amount of that tranche will be reduced by an amount equal to the charge-offs which are allocated or reallocated to that tranche of notes less the amount of charge-offs that are reallocated from that tranche of notes to a subordinated class of notes.

 

Allocations of Reimbursements of Nominal Liquidation Amount Deficits

 

If there are MBNAseries Available Funds available to reimburse any Nominal Liquidation Amount Deficits on any Transfer Date, such funds will be allocated to each tranche of notes as follows:

 

    first, to each tranche of Class A notes,

 

    second, to each tranche of Class B notes, and

 

    third, to each tranche of Class C notes.

 

In each case, MBNAseries Available Funds allocated to a class will be allocated to each tranche of notes within such class pro rata based on the ratio of:

 

  the Nominal Liquidation Amount Deficit of such tranche of notes, to

 

  the aggregate Nominal Liquidation Amount Deficits of all tranches of such class.

 

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In no event will the nominal liquidation amount of a tranche of notes be increased above the Adjusted Outstanding Dollar Principal Amount of such tranche.

 

Application of MBNAseries Available Principal Amounts

 

On each Transfer Date, the indenture trustee will apply MBNAseries Available Principal Amounts as follows:

 

    first, for each month, if MBNAseries Available Funds are insufficient to make the full targeted deposit into the interest funding subaccount for any tranche of Class A notes, then MBNAseries Available Principal Amounts (in an amount not to exceed the sum of the investor percentage of collections of principal receivables allocated to the Class B notes and the Class C notes for each day during such month) will be allocated to the interest funding subaccount of each such tranche of Class A notes pro rata based on, in the case of each such tranche of Class A notes, the lesser of:

 

  the amount of the deficiency of the targeted amount to be deposited into the interest funding subaccount of such tranche of Class A notes, and

 

  an amount equal to the sum of the Class A Unused Subordinated Amount of Class C notes plus the Class A Unused Subordinated Amount of Class B notes for such tranche of Class A notes (determined after giving effect to the allocation of charge-offs for uncovered defaults on principal receivables in master trust II);

 

    second, for each month, if MBNAseries Available Funds are insufficient to make the full targeted deposit into the interest funding subaccount for any tranche of Class B notes, then MBNAseries Available Principal Amounts (in an amount not to exceed the sum of the investor percentage of collections of principal receivables allocated to the Class B notes and the Class C notes for each day during such month minus the aggregate amount of MBNAseries Available Principal Amounts reallocated as described in the first clause above) will be allocated to the interest funding subaccount of each such tranche of Class B notes pro rata based on, in the case of each such tranche of Class B notes, the lesser of:

 

  the amount of the deficiency of the targeted amount to be deposited into the interest funding subaccount of such tranche of Class B notes, and

 

  an amount equal to the Class B Unused Subordinated Amount of Class C notes for such tranche of Class B notes (determined after giving effect to the allocation of charge-offs for uncovered defaults on principal receivables in master trust II and the reallocation of MBNAseries Available Principal Amounts as described in the first clause above);

 

   

third, for each month, if MBNAseries Available Funds are insufficient to pay the portion of the master trust II servicing fee allocable to the MBNAseries, then MBNAseries Available Principal Amounts (in an amount not to exceed the sum of the investor percentage of collections of principal receivables allocated to the Class B notes and the Class C notes for each day during such month minus the aggregate amount of MBNAseries Available Principal Amounts reallocated as described in the

 

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first and second clauses above) will be paid to the servicer in an amount equal to, and allocated to each such tranche of Class A notes pro rata based on, in the case of each tranche of Class A notes, the lesser of:

 

  the amount of the deficiency times the ratio of the Weighted Average Available Funds Allocation Amount for such tranche for such month to the Weighted Average Available Funds Allocation Amount for the MBNAseries for such month, and

 

  an amount equal to the Class A Unused Subordinated Amount of Class C notes plus the Class A Unused Subordinated Amount of Class B notes for such tranche of Class A notes (determined after giving effect to the allocation of charge-offs for uncovered defaults on principal receivables in master trust II and the reallocation of MBNAseries Available Principal Amounts as described in the first and second clauses above);

 

    fourth, for each month, if MBNAseries Available Funds are insufficient to pay the portion of the master trust II servicing fee allocable to the MBNAseries, then MBNAseries Available Principal Amounts (in an amount not to exceed the sum of the investor percentage of collections of principal receivables allocated to the Class B notes and the Class C notes for each day during such month minus the aggregate amount of MBNAseries Available Principal Amounts reallocated as described in the first, second and third clauses above) will be paid to the servicer in an amount equal to, and allocated to each tranche of Class B notes pro rata based on, in the case of each such tranche of Class B notes, the lesser of:

 

  the amount of the deficiency times the ratio of the Weighted Average Available Funds Allocation Amount for such tranche for such month to the Weighted Average Available Funds Allocation Amount for the MBNAseries for such month, and

 

  an amount equal to the Class B Unused Subordinated Amount of Class C notes for such tranche of Class B notes (determined after giving effect to the allocation of charge-offs for uncovered defaults on principal receivables in master trust II and the reallocation of MBNAseries Available Principal Amounts as described in the preceding clauses);

 

    fifth, to make the targeted deposits to the principal funding account as described below under “—Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account;” and

 

    sixth, to the issuing entity for reinvestment in the Investor Interest of the collateral certificate.

 

See the chart titled “Application of MBNAseries Available Principal Amounts” after the “Prospectus Summary” for a depiction of the application of MBNAseries Available Principal Amounts.

 

A tranche of notes for which credit card receivables have been sold by master trust II as described in “—Sale of Credit Card Receivables” will not be entitled to receive any further allocations of MBNAseries Available Funds or MBNAseries Available Principal Amounts.

 

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The Investor Interest of the collateral certificate is the sum of the nominal liquidation amounts of each tranche of notes issued by the issuing entity and outstanding and, therefore, will be reduced by the amount of MBNAseries Available Principal Amounts used to make deposits into the interest funding account, payments to the servicer and deposits into the principal funding account. If the Investor Interest of the collateral certificate is reduced because MBNAseries Available Principal Amounts have been used to make deposits into the interest funding account or payments to the servicer or because of charge-offs due to uncovered defaults on principal receivables in master trust II, the amount of Available Funds and Available Principal Amounts allocated to the collateral certificate and the amount of MBNAseries Available Funds and MBNAseries Available Principal Amounts will be reduced unless the reduction in the Investor Interest is reimbursed from amounts described above in the fourth item in “—Application of MBNAseries Available Funds.”

 

Reductions to the Nominal Liquidation Amount of Subordinated Classes from Reallocations of MBNAseries Available Principal Amounts

 

Each reallocation of MBNAseries Available Principal Amounts deposited to the interest funding subaccount of a tranche of Class A notes as described in the first clause of “—Application of MBNAseries Available Principal Amounts” will reduce the nominal liquidation amount of the Class C notes. However, the amount of such reduction for each such tranche of Class A notes will not exceed the Class A Unused Subordinated Amount of Class C notes for such tranche of Class A notes.

 

Each reallocation of MBNAseries Available Principal Amounts deposited to the interest funding subaccount of a tranche of Class A notes as described in the first clause of “—Application of MBNAseries Available Principal Amounts” which does not reduce the nominal liquidation amount of Class C notes pursuant to the preceding paragraph will reduce the nominal liquidation amount of the Class B notes. However, the amount of such reduction for each such tranche of Class A notes will not exceed the Class A Unused Subordinated Amount of Class B notes for such tranche of Class A notes, and such reductions in the nominal liquidation amount of the Class B notes may be reallocated to the Class C notes if permitted as described below.

 

Each reallocation of MBNAseries Available Principal Amounts deposited to the interest funding subaccount of a tranche of Class B notes as described in the second clause of “—Application of MBNAseries Available Principal Amounts” will reduce the nominal liquidation amount (determined after giving effect to the preceding paragraphs) of the Class C notes.

 

Each reallocation of MBNAseries Available Principal Amounts paid to the servicer as described in the third clause of “—Application of MBNAseries Available Principal Amounts” will reduce the nominal liquidation amount (determined after giving effect to the preceding paragraphs) of the Class C notes. However, the amount of such reduction for each such tranche of Class A notes will not exceed the Class A Unused Subordinated Amount of Class C notes for such tranche of Class A notes (after giving effect to the preceding paragraphs).

 

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Each reallocation of MBNAseries Available Principal Amounts paid to the servicer as described in the third clause of “—Application of MBNAseries Available Principal Amounts” which does not reduce the nominal liquidation amount of Class C notes as described above will reduce the nominal liquidation amount (determined after giving effect to the preceding paragraphs) of the Class B notes. However, the amount of such reduction for each such tranche of Class A notes will not exceed the Class A Unused Subordinated Amount of Class B notes for such tranche of Class A notes (after giving effect to the preceding paragraphs), and such reductions in the nominal liquidation amount of the Class B notes may be reallocated to the Class C notes if permitted as described below.

 

Each reallocation of MBNAseries Available Principal Amounts paid to the servicer as described in the fourth clause of “—Application of MBNAseries Available Principal Amounts” will reduce the nominal liquidation amount (determined after giving effect to the preceding paragraphs) of the Class C notes.

 

Subject to the following paragraph, each reallocation of MBNAseries Available Principal Amounts which reduces the nominal liquidation amount of Class B notes as described above will reduce the nominal liquidation amount of each tranche of the Class B notes pro rata based on the ratio of the Weighted Average Available Funds Allocation Amount for such tranche of Class B notes for the related month to the Weighted Average Available Funds Allocation Amount for all Class B notes for the related month. However, any allocation of any such reduction that would otherwise have reduced the nominal liquidation amount of a tranche of Class B notes below zero will be reallocated to the remaining tranches of Class B notes in the manner set forth in this paragraph.

 

Each reallocation of MBNAseries Available Principal Amounts which reduces the nominal liquidation amount of Class B notes as described in the preceding paragraph may be reallocated to the Class C notes and such reallocation will reduce the nominal liquidation amount of the Class C notes. However, the amount of such reallocation from each tranche of Class B notes will not exceed the Class B Unused Subordinated Amount of Class C notes for such tranche of Class B notes.

 

Each reallocation of MBNAseries Available Principal Amounts which reduces the nominal liquidation amount of Class C notes as described above will reduce the nominal liquidation amount of each tranche of the Class C notes pro rata based on the ratio of the Weighted Average Available Funds Allocation Amount for such tranche of Class C notes for the related month to the Weighted Average Available Funds Allocation Amount for all Class C notes for the related month. However, any allocation of any such reduction that would otherwise have reduced the nominal liquidation amount of a tranche of Class C notes below zero will be reallocated to the remaining tranches of Class C notes in the manner set forth in this paragraph.

 

None of such reallocations will reduce the nominal liquidation amount of any tranche of Class B or Class C notes below zero.

 

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For each tranche of notes, the nominal liquidation amount of that tranche will be reduced by the amount of reductions which are allocated or reallocated to that tranche less the amount of reductions which are reallocated from that tranche to notes of a subordinated class.

 

Limit on Allocations of MBNAseries Available Principal Amounts and MBNAseries Available Funds

 

Each tranche of notes will be allocated MBNAseries Available Principal Amounts and MBNAseries Available Funds solely to the extent of its nominal liquidation amount. Therefore, if the nominal liquidation amount of any tranche of notes has been reduced due to reallocations of MBNAseries Available Principal Amounts to cover payments of interest or the master trust II servicing fee or due to charge-offs for uncovered defaults on principal receivables in master trust II, such tranche of notes will not be allocated MBNAseries Available Principal Amounts or MBNAseries Available Funds to the extent of such reductions. However, any funds in the applicable principal funding subaccount, any funds in the applicable interest funding subaccount, any amounts payable from any applicable derivative agreement, any funds in the applicable accumulation reserve subaccount, and in the case of Class C notes, any funds in the applicable Class C reserve subaccount, will still be available to pay principal of and interest on that tranche of notes. If the nominal liquidation amount of a tranche of notes has been reduced due to reallocation of MBNAseries Available Principal Amounts to pay interest on senior classes of notes or the master trust II servicing fee, or due to charge-offs for uncovered defaults on principal receivables in master trust II, it is possible for that tranche’s nominal liquidation amount to be increased by allocations of MBNAseries Available Funds. However, there are no assurances that there will be any MBNAseries Available Funds for such allocations.

 

Targeted Deposits of MBNAseries Available Principal Amounts to the Principal Funding Account

 

The amount targeted to be deposited into the principal funding account in any month will be the highest of the following amounts. However, no amount will be deposited into the principal funding subaccount for any subordinated note unless following such deposit the remaining available subordinated amount is equal to the aggregate unused subordinated amount for all outstanding senior notes.

 

    Principal Payment Date.    For the month before any principal payment date of a tranche of notes, the deposit targeted for that tranche of notes for that month is equal to the nominal liquidation amount of that tranche of notes as of the close of business on the last day of such month, determined after giving effect to any charge-offs for uncovered defaults on principal receivables in master trust II and any reallocations, payments or deposits of MBNAseries Available Principal Amounts occurring on the following Transfer Date.

 

   

Budgeted Deposits.    Each month beginning with the twelfth month before the expected principal payment date of a tranche of notes, the deposit targeted to be made into the principal funding subaccount for a tranche of notes will be one-twelfth of the

 

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expected outstanding dollar principal amount of that tranche of notes as of its expected principal payment date.

 

The issuing entity may postpone the date of the targeted deposits under the previous sentence. If the issuing entity determines that less than twelve months would be required to accumulate MBNAseries Available Principal Amounts necessary to pay a tranche of notes on its expected principal payment date, using conservative historical information about payment rates of principal receivables under master trust II and after taking into account all of the other expected payments of principal of master trust II investor certificates and notes to be made in the next twelve months, then the start of the targeted deposits may be postponed each month by one month, with proportionately larger targeted deposits for each month of postponement.

 

    Prefunding of the Principal Funding Account for Senior Classes.    If the issuing entity determines that any date on which principal is payable or to be deposited into a principal funding subaccount for any tranche of Class C notes will occur at a time when the payment or deposit of all or part of that tranche of Class C notes would be prohibited because it would cause a deficiency in the remaining available subordination for the Class A notes or Class B notes, the targeted deposit amount for the Class A notes and Class B notes will be an amount equal to the portion of the Adjusted Outstanding Dollar Principal Amount of the Class A notes and Class B notes that would have to cease to be outstanding in order to permit the payment of or deposit for that tranche of Class C notes.

 

       If the issuing entity determines that any date on which principal is payable or to be deposited into a principal funding subaccount for any Class B notes will occur at a time when the payment or deposit of all or part of that tranche of Class B notes would be prohibited because it would cause a deficiency in the remaining available subordination for the Class A notes, the targeted deposit amount for the Class A notes will be an amount equal to the portion of the Adjusted Outstanding Dollar Principal Amount of the Class A notes that would have to cease to be outstanding in order to permit the payment of or deposit for that tranche of Class B notes.

 

Prefunding of the principal funding subaccount for the senior tranches of the MBNAseries will continue until:

 

  enough senior notes are repaid so that the subordinated notes that are payable are no longer necessary to provide the required subordination for the outstanding senior notes;

 

  new subordinated notes are issued so that the subordinated notes that are payable are no longer necessary to provide the required subordination for the outstanding senior notes; or

 

  the principal funding subaccounts for the senior notes are prefunded so that the subordinated notes that are payable are no longer necessary to provide the required subordination for the outstanding senior notes.

 

    

For purposes of calculating the prefunding requirements, the required subordinated amount of a tranche of a senior class of notes of the MBNAseries will be calculated as

 

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described under “The Notes—Required Subordinated Amount” based on its Adjusted Outstanding Dollar Principal Amount on such date. However, if any early redemption event has occurred relating to the subordinated notes or if the usage of the subordinated notes relating to such senior notes is greater than zero, the required subordinated amount will be calculated based on the Adjusted Outstanding Dollar Principal Amount of such tranche as of the close of business on the day immediately preceding the occurrence of such early redemption event or the date on which the usage of the subordinated notes exceeds zero.

 

     When the prefunded amounts are no longer necessary, they will be withdrawn from the principal funding account and applied in accordance with the description under “—Withdrawals from Principal Funding Account—Withdrawals of Prefunded Amounts.” The nominal liquidation amount of the prefunded tranches will be increased by the amount removed from the principal funding account.

 

     If any tranche of senior notes becomes payable as a result of an early redemption event, event of default or other optional or mandatory redemption, or upon reaching its expected principal payment date, any prefunded amounts on deposit in its principal funding subaccount will be paid to noteholders of that tranche and deposits to pay the notes will continue as necessary to pay that tranche.

 

    Event of Default, Early Redemption Event or Other Optional or Mandatory Redemption.    If any tranche of notes has been accelerated after the occurrence of an event of default during that month, or an early redemption event or other optional or mandatory redemption has occurred relating to any tranche of notes, the deposit targeted for that tranche of notes for that month and each following month will equal the nominal liquidation amount of that tranche of notes as of the close of business on the last day of the preceding month, determined after giving effect to reallocations, payments or deposits occurring on the Transfer Date for that month.

 

    Amounts Owed to Derivative Counterparties.    If a tranche of U.S. dollar notes or foreign currency notes that has a Performing or non-Performing derivative agreement for principal that provides for a payment to the applicable derivative counterparty, the deposit targeted for that tranche of notes on each Transfer Date for any payment to the derivative counterparty will be specified in the MBNAseries indenture supplement.

 

Allocation to Principal Funding Subaccounts

 

MBNAseries Available Principal Amounts, after any reallocation to cover MBNAseries Available Funds shortfalls, if any, will be allocated each month, and a portion deposited in the principal funding subaccount established for each tranche of notes, as follows:

 

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