Sallie Mae 2009 Annual Report Download - page 182

7. Borrowings (Continued)
becomes less than probable the Company will call these bonds at a future date, it will result in the Company
reversing this prior accretion as a cumulative catch up adjustment. The Company has accreted approximately
$59 million as a reduction of interest expense through December 31, 2009.
During 2009 and 2008, five and two, respectively, of the Company’s off-balance sheet securitization trusts
were re-evaluated and it was determined that they no longer met the criteria to be considered QSPEs. These
trusts were then evaluated as VIEs and it was determined that they should be consolidated and accounted for
as secured borrowings as the Company is the primary beneficiary. These trusts had reached their 10 percent
clean-up call levels but the call was not exercised by the Company. Because the Company can now exercise
that option at its discretion going forward, the Company effectively controls the assets of the trusts. This
resulted in the Company consolidating at fair value $685 million and $289 million in assets and $649 million
and $278 million in liabilities related to these trusts during 2009 and 2008, respectively. This resulted in
$20 million and $2 million recognized gains in 2009 and 2008, respectively.
Auction Rate Securities
At December 31, 2009, the Company had $1.0 billion of taxable and $1.1 billion of tax-exempt auction
rate securities outstanding in on-balance sheet securitizations and indentured trusts, respectively. Since
February 2008, problems in the auction rate securities market as a whole led to failures of the auctions
pursuant to which certain of the Company’s auction rate securities’ interest rates are set. As a result, all of the
Company’s auction rate securities as of December 31, 2009 bore interest at the maximum rate allowable under
their terms. The maximum allowable interest rate on the Company’s $1.0 billion of taxable auction rate
securities is generally LIBOR plus 1.50 percent. The maximum allowable interest rate on many of the
Company’s $1.1 billion of tax-exempt auction rate securities is a formula driven rate, which produced various
maximum rates up to 1.14 percent during the fourth quarter of 2009. Since December 31, 2009, certain of the
Company’s taxable auction rate securities with shorter terms to maturity have had successful auctions.
Indentured Trusts
The Company has secured assets and outstanding bonds in indentured trusts resulting from the acquisition
of various student loan providers in prior periods. The indentures were created and bonds issued to finance the
acquisition of student loans guaranteed under the Higher Education Act. The bonds are limited obligations of
the Company and are secured by and payable from payments associated with the underlying secured loans.
Federal Home Loan Bank in Des Moines
On January 15, 2010, HICA Education Loan Corporation, a subsidiary of the Company, entered into a
lending agreement with the Federal Home Loan Bank of Des Moines (the “FHLB”). Under the agreement, the
FHLB will provide advances backed by Federal Housing Finance Agency approved collateral including
federally-guaranteed student loans. The initial borrowing of $25 million at a rate of .23 percent under this
facility occurred on January 15, 2010 and matured on January 22, 2010. The amount, price and tenor of future
advances will vary and will be determined at the time of each borrowing. The maximum amount that can be
borrowed, as of January 15, 2010, subject to available collateral, is approximately $11 billion. The Company
has provided a guarantee to the FHLB for the performance and payment of HICA’s obligations.
8. Student Loan Securitization
The Company securitizes its FFELP Stafford Loans, FFELP Consolidation Loans and Private Education
Loan assets and, for transactions qualifying as sales, retains a Residual Interest and servicing rights (as the
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SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)