Sallie Mae 2011 Annual Report Download - page 161

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Borrowings (Continued)
securities as of December 31, 2011 bore interest at the maximum rate allowable under their terms. The maximum
allowable interest rate on our taxable auction rate securities is generally LIBOR plus 1.50 percent to 3.50 percent,
dependant on the security’s credit rating. The maximum allowable interest rate on many of our tax-exempt
auction rate securities is a formula driven rate, which produced various maximum rates up to 0.53 percent during
the fourth quarter of 2011. As of December 31, 2011, $0.6 billion of auction rate securities with shorter weighted
average terms to maturity have had successful auctions, resulting in an average rate of 1.70 percent.
Reset Rate Notes
Certain tranches of our term ABS are reset rate notes. Reset rate notes are subject to periodic remarketing, at
which time the interest rates on the notes are reset. We also have the option to repurchase a reset rate note upon a
failed remarketing and hold it as an investment until such time it can be remarketed. In the event a reset rate note
cannot be remarketed on the remarketing date, and is not repurchased, the interest rate generally steps up to and
remains at LIBOR plus 0.75 percent until such time as the bonds are successfully remarketed or repurchased. Our
repurchase of a reset rate note requires additional funding, the availability and pricing of which may be less
favorable to us than it was at the time the reset rate note was originally issued. Unlike the repurchase of a reset
rate note, the occurrence of a failed remarketing does not require additional funding. As a result of the ongoing
dislocation in the capital markets, at December 31, 2011, $6.2 billion of our reset rate notes bore interest at, or
were swapped to LIBOR plus 0.75 percent due to a failed remarketing. Until capital markets conditions improve,
it is possible these and additional reset rate notes will experience failed remarketings. As of December 31, 2011,
we had $7.0 billion and $1.5 billion of reset rate notes due to be newly remarketed in 2012 and 2013,
respectively, and an additional $4.2 billion to be newly remarked thereafter.
Federal Home Loan Bank of Des Moines (“FHLB-DM”)
On January 15, 2010, HICA Education Loan Corporation (“HICA”), our subsidiary, entered into a
borrowing agreement with the FHLB-DM. Under the agreement, the FHLB-DM will provide advances backed by
Federal Housing Finance Agency approved collateral which includes FFELP Loans (but does not include Private
Education Loans). The facility is available as long as we maintain membership with FHLB-DM. 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, 2011, subject to available collateral, is approximately $8.4 billion. As of December 31, 2011,
borrowing under the facility totaled $1.2 billion, and matures by February 15, 2012, and was secured by
$1.4 billion of FFELP Loans. We have provided a guarantee to the FHLB-DM for the performance and payment
of HICA’s obligations.
Other Funding Sources
Sallie Mae Bank
During the fourth quarter of 2008, the Bank, our Utah industrial bank subsidiary, began expanding its
deposit base to fund new Private Education Loan originations. The Bank raises deposits through intermediaries in
the brokered Certificate of Deposit (“CD”) market and through direct retail deposit channels. As of December 31,
2011, bank deposits totaled $6.3 billion of which $3.7 billion were brokered term deposits, $2.1 billion were
retail and other deposits and $453 million were deposits from affiliates that eliminate in our consolidated balance
sheet. Cash and liquid investments totaled $1.5 billion as of December 31, 2011.
In addition to its deposit base, the Bank has borrowing capacity with the Federal Reserve Bank (“FRB”)
through a collateralized lending facility. FRB is not obligated to lend; however, in general we can borrow as long
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