Presentation is loading. Please wait.

Presentation is loading. Please wait.

FFELP Capital Markets Update NCHELP Spring Meeting May 15, 2012 Mark Weadick Student Loan Capital Strategies LLC.

Similar presentations

Presentation on theme: "FFELP Capital Markets Update NCHELP Spring Meeting May 15, 2012 Mark Weadick Student Loan Capital Strategies LLC."— Presentation transcript:

1 FFELP Capital Markets Update NCHELP Spring Meeting May 15, 2012 Mark Weadick Student Loan Capital Strategies LLC

2 Discussion Topics Topics to discuss today include: –Student Loan Collateral Performance –FFELP Capital Markets Conditions –Changing Business Models/Consolidation –Predictions for 2012 and 2013 –and…….Industry Gossip Im looking forward to an open discussion, so please ask Qs as we go. Thank you for having me at your meeting. 2

3 Who holds Student Loan Collateral? Loan Programs: $870 BFunding Source: $870 B Dollars in Billions, Public sources and SLCS guesstimates as of September 30, 2011 3

4 4 FFELP Performance Stabilizing? Forbearance and delinquency have increased Cohort gross defaults have increased; likely will reach low to mid 20% levels Source: SLM public reports; SLCS estimates

5 5 FFELP CPRs are Slower Since issued Trust CPRs as of 12/31/11: Source: SLM securitization reports

6 FFELP Financing Spreads The table below shows FFELP FRN financing spreads over time. 6

7 Forward Interest Rates 7 Existing ARS financing trusts benefit from low interest rates. The graph below illustrates forward interest rate projections based on LIBOR. The current projection continues to call for low rates for some time.

8 Securitization Then & Now Pre Credit Crisis Investment Grade market – AAA down to A Advance rates up to 104% of FFELP Portfolio Ready, shoot, aim investor marketing All-in debt cost of LIBOR + 25 ARS and FRN markets are workhorses Trust structures contain myriad of debt types – ARS, FRN, Muni, Fixed Rate, RRN Excess Spread released at 103 parity Rating Agencies fair and flexible Current AAA taxable market only; though munis down to A marketable Advance rates around 95% of FFELP Portfolio By appointment only investor marketing All-in debt cost of LIBOR + 100A in ARS fail mode; and +110A for new issue FRN market selectively open Discreet Trust Structures only Excess Spread retained until Investors paid Rating Agencies very tough 8

9 NFP/Agency FRN Transactions 9

10 Rating Agency Update The rating process is substantially more complicated: Chinese wall between rating engagement and rating process Rating analysts cannot discuss transaction structure Servicing and trust administration a key area of focus - Backup Servicing and Administration often required Increased surveillance post closing Stepped up site visits and heightened scrutiny broadly Moodys requires tapes direct from the servicer to verify collateral work SEC rule 17g-5 may come into play – requires all deal documents to be posted to a website where any rating agency can choose to rate a transaction 10

11 FFELP Fair Market Value 11 Par The chart below shows Sallie Maes fair market value disclosures for their FFELP Portfolio from Dec. 31, 2006 to the present. Source: SLM SEC filings

12 Market (R)Evolution Private Sector FFELP Portfolio is $350 Billion and amortizing – Non-scale programs: Restructure, right size or sell? – Scale programs: add Portfolio and servicing volumes to defray investment – An estimated $50B is not term financed Capital Markets recovery: more half full than half empty – Financing costs have tightened dramatically though remain elevated – Financings are difficult to execute – a by appointment only market – Approximately $28B of Loans are financed in ECASLAs Straight A Conduit Broker/Dealers & Investors are monetizing losses – ARS Bonds often sold/exchanged at a discount (high-80s to mid-90s) – Whole loan portfolio sales occur (low- to high- 90s) 12

13 Market (R)Evolution NFPs/Agencies are exploring different business models –NFP DL Servicing opportunity, though economics are thin –State-based Fixed Rate Private loan programs are well received by investors –Non-diversified business models face greater challenges The Big Guys (SLM/USAF, NNI, Large Banks, TIVAS) –Many are seeking and achieving market share gains –Continuous focus on cost efficiencies –Increased focus on extracting value Legacy Broker Dealers continue to play a significant role –Continue to hold large ARS and warehouse positions –Broker Dealer financial participation required for most restructurings 13

14 14 Industry Consolidation Sale of Student Loan Corporation – $26B of securitized FFELP and servicing rights sold to SLM – Citi Holdings purchases remaining FFELP and Privates – Discover purchases stock, thus receiving origination platform and certain securitized private loans Alliance Holdings acquisitions: –Northstar Capital Markets (servicing and admin rights) –Panhandle Plains Servicing (servicing and admin rights) CollegeInvest sale of $1.4B FFELP Portfolio to NNI Liquidation of $1.8B NextStudent FFELP Trust First Marblehead dispositions

15 2012/3 Market Developments? Financing restructurings and Industry consolidation will continue –Transaction timing will be uncertain – market, Board timing, regulators –Companies, business lines and FFELP portfolios will change hands –High levels of stuck collateral in non-term financings Dept. of Educations Policy during FFELP wind down is unclear –DL and NFP Servicing impact –Guarantors: VFA? Other tracks FFELP asset values will remain under par: likely in mid-to-high 90s –Value range will be driven by securitization market spreads –legacy program and thin buyer base will keep prices at or below par 15

Download ppt "FFELP Capital Markets Update NCHELP Spring Meeting May 15, 2012 Mark Weadick Student Loan Capital Strategies LLC."

Similar presentations

Ads by Google