Sallie Mae 2012 Annual Report Download - page 160

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Borrowings (Continued)
Auction Rate Securities
At December 31, 2012, we had $3.1 billion of auction rate securities outstanding in securitizations. Since
February 2008, problems in the auction rate securities market as a whole led to failures of the auctions pursuant
to which certain of our auction rate securities’ interest rates are set. As a result, $1.4 billion of our auction rate
securities as of December 31, 2012 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 0.63 percent during
the fourth quarter of 2012. As of December 31, 2012, $1.7 billion of auction rate securities have had successful
auctions, resulting in an average rate of 2.12 percent.
Reset Rate Notes
Certain tranches of our term asset-backed securities (“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, 2012,
$6.0 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, 2012, we had $7.5 billion and $1.5 billion of reset rate notes
due to be remarketed in 2013 and 2014, respectively, and an additional $2.7 billion to be newly remarketed
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, including,
among others, facility size, current usage, and availability of qualifying collateral from unencumbered FFELP
Loans, as then in effect and determined at the time of each borrowing. The maximum amount that can be
borrowed, as of December 31, 2012, subject to available collateral, is approximately $8.5 billion. As of
December 31, 2012, borrowing under the facility totaled $2.1 billion, matures by March 18, 2013, and was
secured by $2.7 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
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