Sallie Mae will be “opportunistic” about any future sales of residual interests in federally guaranteed student loan securitizations, Joseph DePaulo, executive vice president, banking and finance said today.
He also said the company remains interested in acquiring portfolios of Federal Family Education Loan Program (FFELP) loans from other originators, though it doesn’t see much interest from potential sellers.
Sallie Mae completed three sales of the residual interest, or subordinated tranches of student loan securitization this year. Two of the sales took place in the second quarter. On Tuesday, the company disclosed that it had booked a $257 million gain on sale from these latter deals, boosting its second-quarter earnings.
In a conference call this morning, president and chief executive John Remondi said the company’s goals in selling the residuals were to demonstrate the high quality of cash flows backing the securities and to establish a market price for them.
Proceeds from the sale were used to pay down unsecured corporate debt, reducing funding costs and, in doing so, boosting future earnings.
“Our goal is to maximize the return of the FFELP portfolio; we’ll continue to explore financing opportunities, based on merit,” Remondi said.
He said Sallie Mae will continue to service loans backing the trust.
FFELP was discontinued in 2010 and Sallie Mae is winding down its portfolio of these loans. At June 30, 2013, the company held $108 billion of FFELP loans compared with $133 billion at June 30, 2012. Approximately $12 billion of the $25 billion decline was a result of the sales of the residual interests in FFELP loan securitization trusts.
Nevertheless, DePaulo said any future sales would be based on financial, rather than strategic, considerations.
“It’s a financial decision as to whether the discount adds more value versus holding [the securities] and collecting the cash flows over time,” he said. Sallie Mae will be “opportunistic,” looking at sales “on a one-off basis.”
DePaulo also said the company is still interested in acquiring portfolios of FFELP loans from other originators. “We would like to see more opportunities to buy, but even with the rate uptick, we haven’t seen banks, which are the primary holders, willing to part with these assets,” he said. “They have nothing else to do with that cash for now.”
