Sallie Mae 2007 Annual Report Download - page 108

Managed Basis
Index
(Dollars in billions)
Frequency of
Variable
Resets Assets Funding
(1)
Funding
Gap
3 month Commercial paper ................... daily $120.2 $ 12.1 $ 108.1
3 month Treasury bill ....................... weekly 11.2 9.6 1.6
Prime ................................... annual 1.0 .3 .7
Prime ................................... quarterly 7.0 6.0 1.0
Prime ................................... monthly 21.2 16.3 4.9
PLUS Index .............................. annual 2.6 2.6 —
3-month LIBOR
(2)
......................... daily — 104.4 (104.4)
3-month LIBOR ........................... quarterly .9 2.3 (1.4)
1-month LIBOR
(3)
......................... monthly .1 9.6 (9.5)
Non Discrete reset
(4)
........................ monthly — 2.5 (2.5)
Non Discrete reset
(5)
........................ daily/weekly 16.8 16.0 .8
Fixed Rate
(6)
............................. 11.9 11.2 .7
Total ................................... $192.9 $192.9 $ —
(1)
Funding includes all derivatives that management considers economic hedges of interest rate risk and reflects how we internally
manage our interest rate exposure.
(2)
Funding includes $2.5 billion of auction rate securities.
(3)
Funding includes a portion of Interim ABCP Facility.
(4)
Funding includes auction rate securities.
(5)
Assets include restricted and non-restricted cash equivalents and other overnight type instruments. Funding includes a portion of
Interim ABCP Facility.
(6)
Assets include receivables and other assets (including Retained Interests, goodwill and acquired intangibles). Funding includes
other liabilities and stockholders’ equity (excluding Series B Preferred Stock).
To the extent possible, we generally fund our assets with debt (in combination with derivatives) that has
the same underlying index (index type and index reset frequency). When it is more economical, we also fund
our assets with debt that has a different index and/or reset frequency than the asset, but only in instances
where we believe there is a high degree of correlation between the interest rate movement of the two indices.
For example, we use daily reset 3-month LIBOR to fund a large portion of our daily reset 3-month
commercial paper indexed assets. In addition, we use quarterly reset 3-month LIBOR to fund a portion of our
quarterly reset Prime rate indexed Private Education Loans. We also use our monthly Non Discrete reset and
1-month LIBOR funding (asset-backed commercial paper program and auction rate securities) to fund various
asset types. In using different index types and different index reset frequencies to fund our assets, we are
exposed to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different
indices that may reset at different frequencies will not move in the same direction or at the same magnitude.
While we believe that this risk is low as all of these indices are short-term with rate movements that are highly
correlated over a long period of time, market disruptions can lead to a temporary divergence between indices
as was experienced in the second half of 2007 with the commercial paper and LIBOR indices. We use interest
rate swaps and other derivatives to achieve our risk management objectives.
When compared with the GAAP presentation, the Managed basis presentation includes all of our off-
balance sheet assets and funding, and also includes basis swaps that primarily convert quarterly 3-month
LIBOR to other indices that are more correlated to our asset indices.
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