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Net assets acquired. The Company acquired net assets (including $155 million of cash) with an aggregate fair value of
$563 million in exchange for cash consideration of $556 million, resulting in the recognition of a bargain purchase gain of
approximately $7 million. The bargain purchase gain primarily resulted from Citibank’s adjustment of the cash consideration to
be paid by the Company in exchange for the Company’s consent to permit SLC to commute, immediately prior to the
acquisition, certain student loan insurance policies covering loans in one of the three trusts. The bargain purchase gain is
recorded in other income on the Company’s consolidated statement of income. During the fourth quarter of 2011, the Company
finalized its purchase accounting, which resulted in a decrease of $27 million in the indemnification asset and a $19 million
increase in student loan receivables. In addition, there were immaterial changes made to the other assets purchased and
liabilities assumed. These adjustments reflect the Company's finalized cash flow projections related to the student loans
acquired. The offset to these adjustments resulted in a $9 million reduction in the originally estimated bargain purchase gain of
$16 million.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the SLC
acquisition (dollars in thousands):
Student loan receivables
Cash
Indemnification asset
Student relationships intangible
Trade name intangible
Total intangible assets
Other assets
Total assets acquired
Securitized debt
Other liabilities
Total liabilities assumed
Net assets acquired
December 31,
2010
$ 3,070,042
155,347
74,571
2,400
3,800
6,200
217,441
3,523,601
2,921,372
38,889
2,960,261
$ 563,340
The Company acquired $6.2 million in identifiable intangible assets. These intangible assets consist of student
relationships and trade name intangibles. Acquired student relationships consist of those relationships in existence between
SLC and the numerous students that carry student loan balances. This intangible asset is deemed to have a finite useful life of
five years and will be amortized over this period. Trade name intangibles relate to trademarks, trade names and internet
domains and content. This intangible asset is deemed to have an indefinite useful life and therefore is not subject to
amortization.
The Company also recorded a $75 million indemnification asset. This asset reflects the discounted present value of
payments expected to be received under Citibank’s indemnification of student loan credit losses that would have been
recoverable under certain student loan insurance policies which, as noted above, were commuted pursuant to an agreement
entered into by SLC with the Company’s consent immediately prior to the acquisition. The indemnification pertains only to
loans in one of the three SLC securitization trusts that the Company acquired, namely the SLC Private Student Loan Trust
2010-A (“SLC 2010-A”). The SLC 2010-A trust included loans with an aggregate outstanding principal balance of $1.2 billion
at the time of acquisition; outstanding loans in that trust totaled $1.1 billion as of November 30, 2011. The initial value of the
indemnification asset was based on the amount of projected credit losses expected to be reimbursed by Citibank. Under the
terms of the indemnification agreement with Citibank, indemnification payments related to student loan credit losses are
subject to an overall cap of $166.8 million, consistent with the terms of the insurance policies which the indemnification serves
to replace.
The subsequent accounting for the indemnification asset will generally reflect the manner in which the indemnified loans
are subsequently measured. The value of the indemnification asset will increase or decrease as expected credit losses on the
indemnified PCI student loans increase or decrease, respectively. An increase in expected losses on PCI student loans that
results in the immediate recognition of an allowance for loan losses will result in an immediate increase in the indemnification
asset. A decrease in expected losses that results in an immediate reversal of a previously recognized loan loss allowance will
result in the immediate reduction of the indemnification asset. Recognition of an allowance for loan losses on PCI student
loans is discussed in more detail within Note 6: Loan Receivables under “Purchased Credit-Impaired Loans.” To the extent that
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