Sallie Mae 2008 Annual Report Download - page 200

17. Commitments, Contingencies and Guarantees
The Company offers a line of credit to certain financial institutions and other institutions in the higher
education community for the purpose of originating student loans. In connection with these agreements, the
Company also enters into a participation agreement with the institution to participate in the loans as they are
originated. In the event that a line of credit is drawn upon, the loan is collateralized by underlying student
loans and is usually participated in on the same day. The contractual amount of these financial instruments
represents the maximum possible credit risk should the counterparty draw down the commitment, the
Company not participate in the loan and the counterparty subsequently fail to perform according to the terms
of its contract with the Company.
Commitments outstanding are summarized below:
2008 2007
December 31,
Lines of credit ............................................ $1,021,398 $2,035,638
The following schedule summarizes expirations of commitments to the earlier of call date or maturity
date outstanding at December 31, 2008.
Lines of
Credit
2009 .............................................................. $ 221,398
2010 .............................................................. 800,000
Total .............................................................. $1,021,398
In addition, the Company maintains forward contracts to purchase loans from its lending partners at
contractual prices. These contracts typically have a maximum amount the Company is committed to buy, but
lack a fixed or determinable amount as it ultimately is based on the lending partner’s origination activity. FFELP
forward purchase contracts typically contain language relieving the Company of most of its responsibilities under
the contract due to, among other things, changes in student loan legislation. These commitments are not
accounted for as derivatives under SFAS No. 133 as they do not meet the definition of a derivative due to the
lack of a fixed and determinable purchase amount. At December 31, 2008, there were $2.3 billion of originated
loans (FFELP and Private Education Loans) in the pipeline that the Company is committed to purchase.
Investor Litigation
On January 31, 2008, a putative class action lawsuit was filed against the Company and certain officers
in U. S. District Court for the Southern District of New York. This case and other actions arising out the same
circumstances and alleged acts have been consolidated and are now identified as In Re SLM Corporation
Securities Litigation. The case purports to be brought on behalf of those who acquired common stock of the
Company between January 18, 2007 and January 23, 2008 (the “Securities Class Period”). The complaint
alleges that the Company and certain officers violated federal securities laws by issuing a series of materially
false and misleading statements and that the statements had the effect of artificially inflating the market price
for the Company’s securities. The complaint alleges that defendants caused the Company’s results for year-end
2006 and for the first quarter of 2007 to be materially misstated because the Company failed to adequately
provide for loan losses, which overstated the Company’s net income, and that the Company failed to
adequately disclose allegedly known trends and uncertainties with respect to its non-traditional loan portfolio.
On July 23, 2008, the court appointed Westchester Capital Management (“Westchester”) Lead Plaintiff. On
December 8, 2008, Lead Plaintiff filed a consolidated amended complaint. In addition to the prior allegations,
the consolidated amended complaint alleges that the Company understated loan delinquencies and loan loss
F-80
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)