Sallie Mae 2009 Annual Report Download - page 108

• Life of loan default rate assumptions for Private Education Loans were increased as a result of the
continued weakening of the U.S. economy. This resulted in a $79 million unrealized mark-to-market
loss.
• Cost of funds assumptions related to the underlying auction rate securities bonds ($2.3 billion face
amount of bonds) within FFELP loan ($1.7 billion face amount of bonds) and Private Education Loan
($0.6 billion face amount of bonds) trusts were increased to take into account the expectations these
auction rate securities would continue to reset at higher rates for an extended period of time. This
resulted in a $116 million unrealized mark-to-market loss.
• The discount rate assumption related to the Private Education Loan and FFELP Residual Interests was
increased. The Company assessed the appropriateness of the current risk premium, which was added to
the risk free rate for the purpose of arriving at a discount rate, in light of the current economic and
credit uncertainty that existed in the market as of December 31, 2008. This discount rate was applied to
the projected cash flows to arrive at a fair value representative of the then current economic conditions.
The Company increased the risk premium by 1,550 basis points and 390 basis points for Private
Education and FFELP, respectively, to take into account the then current level of cash flow uncertainty
and lack of liquidity that existed with the Residual Interests. This resulted in a $904 million unrealized
mark-to-market loss.
The Company recorded net unrealized mark-to-market losses related to the Residual Interests of
$425 million during the year ended December 31, 2008. The mark-to-market losses were primarily related to
the increase in the discount rate assumptions discussed above which resulted in a $904 million mark-to-market
loss. This was partially offset by an unrealized mark-to-market gain of $555 million related to the Floor
Income component of the Residual Interest primarily due to the significant decrease in interest rates from
December 31, 2007 to December 31, 2008.
The Company recorded impairments to the Retained Interests of $254 million for the year ended
December 31, 2007. The impairment charges were the result of FFELP loans prepaying faster than projected
through loan consolidations ($110 million), impairment to the Floor Income component of the Company’s
Retained Interest due to increases in interest rates during the period ($24 million), and increases in
prepayments, defaults, and the discount rate related to Private Education Loans ($120 million).
CONTRACTUAL CASH OBLIGATIONS
The following table provides a summary of our obligations associated with long-term notes at
December 31, 2009. For further discussion of these obligations, see Note 7, “Borrowings,” to the consolidated
financial statements. The Company has no outstanding equity forward positions outstanding after the contract
settlement on January 9, 2008. See Note 11, “Stockholders’ Equity,” to the consolidated financial statements.
1 Year
or Less
2to3
Years
4to5
Years
Over
5 Years Total
Long-term notes:
Unsecured borrowings ................. $ — $ 8,569 $ 7,936 $ 6,292 $ 22,797
Unsecured term bank deposits ........... — 3,122 1,614 59 4,795
Secured borrowings
(1)(2)
............... 6,883 23,706 15,202 53,743 99,534
Total contractual cash obligations
(3)
....... $6,883 $35,397 $24,752 $60,094 $127,126
(1)
Includes long-term beneficial interests of $89.2 billion of notes issued by consolidated VIEs in conjunction with our on-balance
sheet securitization transactions and included in long-term notes in the consolidated balance sheet. Timing of obligations is esti-
mated based on the Company’s current projection of prepayment speeds of the securitized assets.
(2)
Includes $8.8 billion of 2008 Asset-Backed Financing Facilities. On December 31, 2009, ABCP borrowings were reclassified to
long-term as the facility was renegotiated on January 15, 2010, resulting in the maturity date being greater than one year from
December 31, 2009.
(3)
Only includes principal obligations and specifically excludes ASC 815 derivative market value adjustments of $3.4 billion for
long-term notes. Interest obligations on notes is predominantly variable in nature, resetting quarterly based on 3-month LIBOR.
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