Navient is hopeful that its purchase of $6.9 billion of student loans from JPMorgan Chase could encourage other banks to consider selling their portfolios.
On Tuesday, after the close of the market, the company announced plans to acquire $3.7 billion in federally guaranteed student loans and $3.2 billion in private education loans from the bank. It hopes to complete the acquisition in stages this quarter and eventually move the loans to its servicing platforms.
Terms of the deal were not disclosed, but chief financial officer Christian Lown said during a conference call Wednesday that the loans were acquired at a discount to face value.
The CFO said that the transaction, which is expected to be accretive to the company’s earnings, “will encourage other institutions to evaluate sales of their education portfolios as well.”
Chief Executive Jack Remondi, speaking on the same conference call, said that Navient can readily finance future acquisitions. He pointed to the company’s ability to tap the securitization market; it has issued some $3 billion of bonds backed by student loans so far this year. Most recently, it priced a $1 billion offering of bonds backed by rehabbed Federal Family Education Loans on April 10.
In addition, Remondi said, Navient recently extended the maturity of an asset-backed commercial paper facility to April 2019 from April 2018, giving the company additional flexibility to acquire FFELP loans. Last year, capacity under the facility was increased, to $7.5 billion from $7 billion, according to a regulatory filing.
While JPMorgan Chase only recently disclosed that it was exploring options for a disposal, Remondi said that Navient had been working on the transaction “for a long period of time.” He acknowledged that few banks have student loan portfolios of this size, but said that a number of financial institutions still have some FFELP holdings, and to a lesser extent, holdings of private student loans, on their books, he said.
The deal comes as Navient faces allegations from federal and state officials that failed to process loan payments and enroll troubled borrowers in less expensive repayment plans. Navient has denied the allegations and is contesting the legal actions.