Sallie Mae Won't Take Immediate Action On FFELP Portfolio
October 20 2010 - 8:42AM
Dow Jones News
SLM Corp. (SLM) won't spin off its portfolio of federally
guaranteed student loans in the near future, despite saying in June
it would bring "significant structural changes," including a
possible spinoff of the portfolio.
Rather, the nation's largest student lender will focus first on
bringing its assets and liabilities into balance before addressing
its $147 billion portfolio of Federal Family Education Loan
Program, or FFELP, loans. The company, commonly known as Sallie
Mae, said it would like to extend the maturity dates of its
unsecured liabilities. It will continue to earn income from the
loans as it faces $13.7 billion in debt maturities between 2011 and
2014.
"You're not going to see any dramatic balance sheet actions from
the company, at least any time soon," Albert Lord, vice chairman
and chief executive, said on a conference call with analysts.
Investors have been waiting for months for Sallie Mae to address
its FFELP portfolio, as the company hinted it could spin it off,
sell the equity interest to a hedge fund or keep the status quo.
The company lost a major revenue source on July 1 when the
government brought originations of federal loans in-house.
Sallie Mae had flirted with converting into a bank holding
company, but the portfolio could have created a capital deficiency
under certain bank holding guidelines. The company also feared its
balance sheet structure could cause trouble in the face of a
proposal that would levy fees on certain financial institutions, as
Sallie Mae doesn't have the deposit base that other banks have.
However, Lord said those regulatory and tax matters "seem less
likely now."
Though Lord said at an investor conference in June he would like
to hold on to the portfolio, "It's really yesterday's business and
we need to move on," he said at the time.
Lord said Wednesday he sees the company's intrinsic value 50% to
70% above current market value, but said even selling the portfolio
may not release that value.
Sallie Mae has been actively growing its FFELP portfolio in
recent months, buying up the portfolios of competitors who aren't
interested in holding federal loans without originating new ones.
Last month, the company bought $28 billion in securitized federal
loans from the nation's second largest federal lender, Student Loan
Corp. (STU). Sallie Mae expects to book a 13 cent per-share gain in
2011 on that deal.
Meanwhile, Lord said Sallie Mae will continue cutting costs,
aiming to hit a run rate below $1 billion per year by the end of
2012.
Sallie Mae expects to report operating expenses of $1.3 billion
for the current year.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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