Did student loan servicer Nelnet took advantage of a sharp selloff in student loan backed securities during the third quarter to add to its holdings?

In a third-quarter regulatory filing late Thursday, Nelnet disclosed that, as of Sept. 30, it held student loan asset-backed securities with a fair value of $113.7 million. The securities are in its portfolio of available-for-sale and trading investments.

By comparison, as of June 30, 2015, the company held student loan backed securities with a par value of $82.1 million, according to its second quarter filing with the Securities and Exchange Commission. The filing described these securities, which were issued by Nelnet itself, as “effectively retired” and not included in the firm’s consolidated financial statements.

Nelnet did not return calls or emails made Friday to determine whether the two figures are directly comparable.

But it appears that the company may been one of the buyers that stepped in after Moody’s Investors Service and Fitch Ratings put some $37 billion of securities backed by federally guaranteed student loans under review for possible downgrades. This sparked a selloff in both federally guaranteed and private student loan backed securities.

Nelnet did disclose that it purchased $1.8 billion in federally guaranteed student loans during the third quarter, including $1.5 billion from the purchase of the residual interests in two securitized student loan trusts. 

It also disclosed that it has amended its $350 million revolving line of credit, extending the term by 16 months to Oct. 30, 2020 and relaxing covenants governing its ability to make business acquisitions and investments.

A provision was added to permit Nelnet to spend up to $75 million per fiscal year acquiring businesses outside of the company’s existing lines of business.

The cap for other non-specified permitted investments increased to 20% of the company’s consolidated net worth, and this cap excludes all existing investments at the time of the amendment.

At the same time, the current cap on the volume of private student loans that Nelnet can hold was cut to $500 million from $900 million. This cap excludes student loans that Nelnet has securitized.

The size of the facility and cost of funds has not changed. As of Sept. 30, Nelnet had drawn $70 million, leaving $280 million was available for future use.

Nelnet has agreement with CommonBond, a marketplace lender, to purchase private student loans for a period of 18 months; in August, the company amended the agreement to increase the maximum purchase obligation by $50 million to $200.0 million; As of September 30. Nelnet had purchased $127.8 million under this arrangement.

Netnet is split-rated; Moody's Investors Service has it at 'Ba1' and Standard & Poor's at 'BBB-'.

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