Discover Financial Services said it acquired the Student Loan Corp. (SLC). The acquisition included SLC's ongoing private student loan business as well as private student loans and other assets totalling $4.2 billion.

The purchase also included $3.4 billion of SLC's existing ABS and other liabilities. This deal followed a series of transactions in which Sallie Mae bought $27 billion of SLC's federal student loans and related assets, and Citibank acquired $8.7 billion of SLC's federal and private student loans and other assets.

The acquisition expands Discover's presence in the private student loan market by combining forces with a top-three originator of private student loans in the country.

According to an earlier article published by StructuredFinanceNews.com, Discover and other card issuers are facing lower revenue and profits as a result of the Credit Card Accountability, Responsibility and Disclosure Act, which placed limits on the fees and interest rates lenders can charge.

The article said that buying a student loan portfolio of this size gives Discover a built-in pool of borrowers to whom it can market cards. For the full article, please access this link.

Impact on SLABS

In terms of SLC's securitizations, Moody's Investors Service analysts said at the time the purchase was announced that Citibank's announced sale of SLC to Discover and Sallie Mae should have no credit impact on its outstanding, Moody's-rated FFELP and private student loan securitizations.

However, the rating agency analysts said that any large servicing transfer will be faced with challenges.

Additionally, analysts said they expected private loans to be more sensitive to the risks of a servicing transfer since private loans do not benefit from a government guaranty. This is why losses in the loan pools are key drivers of collateral performance in this case, Moody's analysts said.

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