Sallie Mae 2010 Annual Report Download - page 79

ABS Transactions
In early 2009, the Federal Reserve Bank of New York initiated a program, The Term Asset-Backed Securities
Loan Facility (“TALF”), to facilitate renewed issuance of eligible consumer and small business ABS with a term of
up to five years. For student loan collateral, TALF expired on March 31, 2010. During the program, we completed
five transactions totaling $7.5 billion which were TALF-eligible. Under this program we have $5.3 billion of ABS
outstanding where we have the option to call the bonds at a discount between 2011 and 2014.
In 2010, we completed three Private Education Loan ABS transactions totaling $4.1 billion.
In 2010, we completed two FFELP long-term ABS transactions totaling $2.0 billion.
Although we have demonstrated our continued access to the ABS market and we expect ABS financing
to remain a primary source of funding over the long term, we also expect our transaction volumes to be more
limited and pricing less favorable than prior to the credit market dislocation that began in the summer of 2007,
with significantly reduced opportunities to place subordinated tranches of ABS with investors.
Asset-Backed Financing (“ABCP”) Facilities
In early 2008, we entered into two new asset-backed financing facilities (the “2008 Asset-Backed Financing
Facilities”) to fund FFELP Loans. In 2009, the FFELP facilities were subsequently amended and reduced and in
early 2010 we terminated these facilities and entered into new multi-year ABCP facilities (the “2010 Facility”)
which will continue to provide funding for our federally guaranteed student loans. The 2010 Facility provides for
maximum funding of $10 billion for the first year, $5 billion for the second year and $2 billion for the third
year. The underlying cost of borrowing under the 2010 Facility for the first year is expected to be commercial
paper issuance cost plus 0.50 percent, excluding up-front commitment and unused fees.
Borrowings under the 2010 Facility are non-recourse and the maximum amount we may borrow under the
2010 Facility is limited based on certain factors, including market conditions and the fair value of student
loans in the facility. The 2010 Facility is subject to termination under certain circumstances. The principal
financial covenants in this facility require us to maintain consolidated tangible net worth of at least
$1.38 billion at all times. Consolidated tangible net worth as calculated for purposes of this covenant was
$3.1 billion as of December 31, 2010. The covenants also require us to meet either a minimum interest
coverage ratio or a minimum net adjusted revenue test based on the four preceding quarters’ adjusted “Core
Earnings” financial performance. We were compliant with both of the minimum interest coverage ratio and the
minimum net adjusted revenue tests as of the quarter ended December 31, 2010. Increases in the borrowing
rate of up to LIBOR plus 4.50 percent could occur if certain asset coverage ratio thresholds are not met.
Failure to pay off the 2010 Facility on the maturity date or to reduce amounts outstanding below the annual
maximum step downs will result in a 90-day extension of the 2010 Facility with the interest rate increasing
from LIBOR plus 2.00 percent to LIBOR plus 3.00 percent over that period. If, at the end of the 90-day
extension, these required paydown amounts have not been made, the collateral can be foreclosed. As of
December 31, 2010, there was approximately $5.9 billion outstanding in this facility. The book basis of the
assets securing this facility at December 31, 2010 was $6.4 billion.
On January 14, 2011, we amended the 2010 Asset Backed Financing Facility, which will continue to provide
funding for our federally-guaranteed student loans, expanding the size and extending the maturity. The facility
amount is now $7.5 billion, reflecting an increase of $2.5 billion over the previously scheduled facility reduction.
The facility size will decrease by $2.5 billion annually with a scheduled maturity date of January 10, 2014.
Federal Home Loan Bank in Des Moines (“FHLB-DM”)
In early 2010, HICA Education Loan Corporation (“HICA”), a subsidiary of the Company, entered into a
lending agreement with the FHLB-DM. Under the agreement, the FHLB-DM will provide advances backed by
Federal Housing Finance Agency approved collateral which includes federally-guaranteed student loans (but does
not include Private Education Loans). The amount, price and tenor of future advances will vary and be subject to
the agreement’s borrowing conditions as then in effect determined at the time of each borrowing. The maximum
amount that can be borrowed, as of December 31, 2010, subject to available collateral, is approximately $9.6 billion.
As of December 31, 2010, borrowing under the facility totaled $900 million and was secured by $1.2 billion of
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