Sallie Mae 2012 Annual Report Download - page 158

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Borrowings (Continued)
ABCP Facility is subject to usual and customary conditions. The FFELP ABCP Facility is subject to termination
under certain circumstances. In addition, the facility has financial covenants that if not maintained, will cause the
facility to become an amortizing facility. The covenants are, however, curable. The principal financial covenants
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 $3.4 billion as of December 31, 2012. 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, 2012. Increases in the borrowing rate of up to LIBOR plus 4.50 percent could occur if certain asset
coverage ratio thresholds are not met. If liquidity agreements are not renewed on the trigger dates, the usage fee
increases to 1.00 percent over the applicable funding rate on January 10, 2014. Failure to pay off the FFELP
ABCP 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 facility with the interest rate increasing from LIBOR plus 1.00 percent to
LIBOR plus 2.00 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 upon. As of December 31, 2012, there was
approximately $4.2 billion outstanding in this facility. The book basis of the assets securing this facility at
December 31, 2012 was $4.5 billion.
Private Education Loan ABCP Facility
On October 5, 2011, we closed on a $3.4 billion asset-backed commercial paper facility, which matures in
January 2014, to fund the call of certain Private Education Loan trust securities issued under the TALF program.
The cost of borrowing under the facility is commercial paper issuance cost plus 1.10 percent, excluding up-front
commitment and unused fees. The maximum amount that can be financed steps down to $2.5 billion on July 25,
2012, $1.7 billion on January 25, 2013 and $0.8 billion on July 25, 2013 with final maturity on January 27, 2014.
If the amount outstanding is greater than the maximum amount at any step down, the cost increases to
commercial paper issuance cost plus 1.95 percent. Our borrowings under the facility are non-recourse. On
November 15, 2011, the facility provided the financing to call the outstanding securities issued by SLM Private
Education Loan Trust 2009-B ($2.5 billion principal) at its call price of 93 percent of par. On January 17, 2012
the facility was also used to call the outstanding securities issued by SLM Private Education Loan Trust 2009-C
($1.0 billion principal) at its call price of 94 percent of par. At December 31, 2012, there was $1.1 billion
outstanding in this facility. The book basis of the assets securing the facility at December 31, 2012 was $1.8
billion.
SLC Acquisition Financing
On December 31, 2010, we closed on our agreement to purchase an interest in $26.1 billion of securitized
federal student loans and related assets from the Student Loan Corporation (“SLC”), a subsidiary of Citibank, N.A.
The purchase price was approximately $1.1 billion. The transaction was funded by a 5-year term loan provided by
Citibank in an amount equal to the purchase price. The loan is secured by the purchased assets and guaranteed by
us. The loan bears interest at a rate of LIBOR plus 4.50 percent, and is subject to scheduled quarterly principal
payments of the lesser of (i) 2.5 percent of the original principal amount of the term loan or (ii) the residual cash
flow derived from the assets securing the loan. In addition, the remaining balance is due on December 31, 2015.
Residual cash flow in excess of that needed to make quarterly principal payments is restricted but we are permitted,
at our option, to prepay the obligation, in whole or in part, at any time without penalty.
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