Sallie Mae 2009 Annual Report Download - page 145

2. Significant Accounting Policies (Continued)
Participation Program facility were accounted for as on-balance sheet secured borrowings under ASC 860 as
the trusts were either not QSPEs and/or the Company controlled the transferred assets. See “Securitization
Accounting” below for further discussion on the criteria assessed under ASC 860 to determine whether a
transfer of financial assets is a sale or a secured borrowing.
Securitization Accounting
To meet the sale criteria of ASC 860 the Company’s securitizations use a two-step structure with a QSPE that
legally isolates the transferred assets from the Company, even in the event of bankruptcy. Transactions receiving
sale treatment are also structured to ensure that the holders of the beneficial interests issued by the QSPE are not
constrained from pledging or exchanging their interests, and that the Company does not maintain effective control
over the transferred assets. If these criteria are not met, then the transaction is accounted for as an on-balance sheet
secured borrowing under ASC 810, “Consolidation,” as the Company is the primary beneficiary of the VIE. In all
cases, irrespective of whether they qualify as sales under ASC 860, the Company’s securitizations are structured
such that legally they are sales of assets that isolate the transferred assets from the Company.
The Company assesses the financial structure of each securitization to determine whether the trust or
other securitization vehicle meets the sale criteria as defined in ASC 860 and accounts for the transaction
accordingly. To be a QSPE, the trust must meet all of the following conditions:
• It is demonstrably distinct from the Company and cannot be unilaterally dissolved by the Company and
at least 10 percent of the fair value of its interests is held by independent third parties.
• The permitted activities in which the trust can participate are significantly limited. These activities must
be entirely specified in the legal documents at the inception of the QSPE.
• There are limits to the assets the QSPE can hold; specifically, it can hold only financial assets
transferred to it that are either passive in nature, passive derivative instruments pertaining to the
beneficial interests held by independent third parties, servicing rights, temporary investments pending
distribution to security holders, or cash.
• It can only dispose of its assets in automatic response to the occurrence of an event specified in the
applicable legal documents and must be outside the control of the Company.
In certain securitizations there are certain terms present within the deal structure that result in such
securitizations not qualifying for sale treatment by failing to meet the criteria required for the securitization
entity (trust) to be a QSPE, or by failing other criteria for the securitization to qualify as a sale. Accordingly,
these securitization trusts are accounted for as VIEs. Because the Company is considered the primary
beneficiary in such VIEs, the transfer is deemed a financing and the trust is consolidated in the financial
statements. The terms present in these structures that prevent sale treatment are: (1) the Company holds rights
that can affect the remarketing of specific trust bonds that are not significantly limited in nature, (2) the trust
has the right to enter into interest rate cap agreements after its settlement date that do not relate to the
reissuance of third-party beneficial interests or (3) the Company holds an unconditional call option related to a
certain percentage of trust assets.
Irrespective of whether a securitization receives sale treatment or not, the Company’s continuing
involvement with its securitization trusts is generally limited to:
• Owning the equity certificates of the trust.
• The servicing of the student loan assets within the securitization trusts, on both a pre- and post-default basis.
F-18
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)