Sallie Mae 2006 Annual Report Download - page 25

We may face limited availability of financing, variation in our funding costs and uncertainty in our securiti-
zation financing.
In general, the amount, type and cost of our funding, including securitization and unsecured financing
from the capital markets and borrowings from financial institutions, have a direct impact on our operating
expenses and financial results and can limit our ability to grow our assets.
A number of factors could make such securitization and unsecured financing more difficult, more
expensive or unavailable on any terms both domestically and internationally (where funding transactions may
be on terms more or less favorable than in the United States), including, but not limited to, financial results
and losses, changes within our organization, specific events that have an adverse impact on our reputation,
changes in the activities of our business partners, disruptions in the capital markets, specific events that have
an adverse impact on the financial services industry, counter-party availability, changes affecting our assets,
our corporate and regulatory structure, interest rate fluctuations, ratings agencies’ actions, general economic
conditions and the legal, regulatory, accounting and tax environments governing our funding transactions. In
addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies,
and may become increasingly difficult due to economic and other factors. Finally, we compete for funding
with other industry participants, some of which are publicly traded. Competition from these institutions may
increase our cost of funds.
We are dependent on the securitization markets for the long-term financing of student loans, which we
expect to provide approximately 75 percent of our funding needs in 2007. If this market were to experience
difficulties, if our asset quality were to deteriorate or if our debt ratings were to be downgraded, we may be
unable to securitize our student loans or to do so on favorable terms, including pricing. If we were unable to
continue to securitize our student loans at current levels or on favorable terms, we would use alternative
funding sources to fund increases in student loans and meet our other liquidity needs. If we were unable to
find cost-effective and stable funding alternatives, our funding capabilities and liquidity would be negatively
impacted and our cost of funds could increase, adversely affecting our results of operations, and our ability to
grow would be limited.
In addition, the occurrence of certain events such as consolidations and reconsolidations may cause the
securitization transactions to amortize earlier than scheduled, which could accelerate the need for additional
funding to the extent that we effected the refinancing.
The rating agencies could downgrade the ratings on our senior unsecured debt, which could increase our
cost of funds.
Securitizations are the primary source of our long-term financing and liquidity. Our ability to access the
securitization market and the ratings on our asset-backed securities are not directly or fully dependent upon
the Company’s general corporate credit ratings. However, the Company also utilizes senior unsecured long-
term and short-term debt, which is dependent upon rating agency scoring. Our senior unsecured long-term debt
is currently rated A2, A and A+ and senior unsecured short-term debt is currently rated P-1, A-1 and F1+ by
Moody’s Investors Service, Inc., Standard and Poor’s Ratings Services, a division of The McGraw-Hill
Companies, Inc., and Fitch Ratings, respectively. If any or all of these ratings were downgraded of if they
were put on watch with negative implications for any reason, our overall cost of funds could increase.
GENERAL
Our business is subject to a number of risks, uncertainties and conditions, some of which are not within
our control, including general economic conditions, increased competition, adverse changes in the laws and
regulations that govern our businesses and failure to successfully identify, consummate and integrate strate-
gic acquisitions.
Our business is subject to a number of risks, uncertainties and conditions, some of which we cannot
control. For example, if the U.S. economy were to sustain a prolonged economic downturn a number of our
businesses — including our fastest growing businesses, Private Education Loan business and Debt Management
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