Slm Corporation · NASDAQ:SLM
Slm — IPO Roadshow (September 2008)
65 slides from Slm's IPO roadshow presentation, Sep 30, 2008
Slide 1: SLM Corporation Private Credit ABS Investor Presentation
SLM Corporation Private Credit ABS Investor Presentation September 2008
Slide 2: Forward-looking statements
September 2008 2 This Presentation contains forward-looking statements and information based on management's current expectations as of the date of this presentation. Statements that are not historical facts, including statements about our beliefs or expectations and statements that assume or are de
Slide 3: Non-GAAP Financial Measures and Additional Information
September 2008 3 Non-GAAP Financial Measures - The following presentation includes non-GAAP performance measures. A presentation of the most comparable GAAP financial measures and a reconciliation of the non-GAAP performance measures to the most directly comparable GAAP financial measures are includ
Slide 4: Contents
September 2008 4 Page I. Introduction and Overview 5 II. SLM Private Credit Student Loan ABS 10 III. SLM Private Credit ABS Relative Value 15 IV. SLM Private Credit Student Loan Program 21 V Cumulative Loss Expectations 28 VI. Performance Drivers 33 VII. Reason to Invest in SLM Private Credit ABS 37
Slide 5: I. Introduction and Overview
September 2008 5 I. Introduction and Overview
Slide 6: Introduction and Overview
September 2008 6 Introduction and Overview Leading originator, servicer and collector of student loans, with a 35% market share of all FFELP and private education loan servicing (1) More than 10 million customers, relationships with over 6,000 schools Profitable despite current credit environment Am
Slide 7: Higher Education Enrollment and Cost of Education
September 2008 7 Column 1 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9 Column 10 Column 11 Column 12 Column 13 Column 14 Column 15 Column 16 1/1/2000 15.312 1/1/2001 15.928 1/1/2002 16.612 1/1/2003 16.901 1/1/2004 17.272 1/1/2005 17.428 1/1/2006 17.672 1/1/2007 17.958 1/1/2008 18.2
Slide 8: Traditional vs Non-Traditional
September 2008 8 Traditional vs Non-Traditional SLM's Managed private education loan portfolio is segmented into two categories: Traditional and Non-Traditional Non-Traditional loans are loans primarily made to borrowers attending schools with unacceptably high default rates, or as exceptions to FIC
Slide 9: SLM Traditional Loan Net Charge-off Rates vs Credit Cards
September 2008 9 SLM Traditional Loan Net Charge-off Rates vs Credit Cards SLM Traditional* American Express** Bank of America*** Citibank JPMorgan Q2'07 0.016 0.029 0.052 0.045 0.036 Q1'08 0.017 0.043 0.057 0.058 0.044 Q2'08 0.02 0.053 0.067 0.065 0.05 * Net charge-offs as a percentage of average M
Slide 10: II. Student Loan ABS
September 2008 10 II. SLM Private Credit Student Loan ABS
Slide 11: SLM Issue Characteristics
September 2008 11 SLM Private Credit ABS Issue Characteristics Historical issue size of $1.0B to $2.5(+)B US$ denominated Student loan collateral not guaranteed by the U.S. Government Typical capital structure and credit enhancement Floating rate tied to 3 mo. LIBOR Typically amortizing tranches, wi
Slide 12: Potential SLM Structural Changes
September 2008 12 Potential SLM Private Credit ABS Structural Changes Collateralized entirely by Traditional private credit loans More credit and liquidity enhancement to reflect higher coupon on securities No other major structural changes to SLM Private Credit Student Loan Trusts planned
Slide 13: SLM Transactions Modeled on Intex
September 2008 13 SLM Private Credit ABS Transactions Modeled on Intex Intex Screenshot Intex Screenshot SLM Private Credit ABS transactions are now modeled on Intex Forbearance and deferment status projections are expected to be available in the December release of their cash flow engine Transactio
Slide 14: Rating Actions on Student Loan ABS
September 2008 14 Rating Actions on SLM Private Credit Student Loan ABS There have been a number of upgrades and no downgrades to Sallie Mae's Private Credit ABS since the program's inception in 2002 Moody's(1) - March 2007 S&P - July 2008 Fitch - September 2007 On September 17, 2008, as a result of
Slide 15: III. SLM Relative Value
September 2008 15 III. SLM Private Credit ABS Relative Value
Slide 16: Bonds Well Protected Against Expected Defaults
September 2008 16 SLM Private Student Loan Trust ABS are rated to withstand extremely high default rates on the underlying collateral Bonds Well Protected Against Expected Defaults Cumulative default breakeven before dollar of principal loss. Modeled to maturity and based on information as of the cl
Slide 17: Bonds Well Protected Against Extension Risk
September 2008 17 Cash Capitalization Account protects SLM Private Credit ABS against significant average life extension Even with a doubling of deferment and forbearance, bonds in a representative SLM Private Credit ABS issue extend by less than one year Bonds Well Protected Against Extension Risk
Slide 18: Recessions Historically Have Had Less Impact on College Graduates
September 2008 18 Recessions Historically Have Had Less Impact on College Graduates Income and employment are strongly correlated to educational attainment Recessions have less impact on employment level of college grads Unemployment rate for those with college degrees was at 2.3% in June 2008, comp
Slide 19: SLM Traditional Loan 90+ Day Delinquencies vs Credit Cards
September 2008 19 SLM Traditional* Bank of America** Citibank JPMorgan Q2'07 0.013 0.027 0.015 0.014 Q1'08 0.015 0.03 0.02 0.018 Q2'08 0.014 0.03 0.02 0.018 SLM Traditional Loan 90+ Day Delinquencies vs Credit Cards 90+ day delinquencies on Traditional Loans continue to run lower than 90+ day delinq
Slide 20: SLM Pricing vs. Credit Card ABS
September 2008 20 SLM Private Credit ABS Pricing vs. Credit Card ABS Prior to the ABS market disruption, spreads on SLM Private Credit ABS were trading in line with credit card ABS Source: JPMorgan Research Date Private Credit Cards Line 3 Line 4 Line 5 Line 6 Line 7 Line 8 Line 9 Line 10 Line 11 Li
Slide 21: IV. Student Loan Program
September 2008 21 IV. SLM Private Credit Student Loan Program
Slide 22: Private Credit Student Loan Characteristics
September 2008 22 Sallie Mae's Private Credit Student Loan Characteristics (1) Made to undergraduate and graduate students Floating rate, indexed to either LIBOR or Prime, with risk-based pricing Repayment term varies from 15 to 20(+) years, depending on loan balance Payments typically deferred unti
Slide 23: Private Credit Loan Products
September 2008 23 Private Credit Loan Products Securitized School Channel Undergraduate and Graduate Loans - Loans made to students and parents through college financial aid offices to fund 2-year and 4-year college tuition, room and board Direct-To-Consumer Loans - Similar to school channel undergr
Slide 24: Private Credit Loan Underwriting Criteria
September 2008 24 Private Credit Loan Underwriting Criteria (1) As of September 2008. Underwriting has recently been intensified and enhanced with school-based decision criteria
Slide 25: Private Credit Loan Collections
September 2008 25 Private Credit Loan Collections Sallie Mae services and collects the loans in its Private Credit ABS Trusts Private credit collections are conducted by a stand-alone consumer credit collections unit, not the company's FFELP collections operations Managed by individuals with prior e
Slide 26: Forbearance
September 2008 26 Forbearance A collections tool used to provide borrowers time to improve their ability to repay Between graduation and start of first job Economic hardship Provides borrower with time to obtain employment and income to support their obligations Applied most frequently in the first
Slide 27: Performance of Loans Receiving Forbearance
September 2008 27 Performance of Loans Receiving Forbearance (1) Managed portfolio as of June 30, 2008. Tracked 36 months after first month-end forbearance, or 36 months after repayment begin date. Repayment cohorts since January 2001. Loans receiving first forbearances since January 2001. Three yea
Slide 28: V. Cumulative Loss Expectations
September 2008 28 V. Cumulative Loss Expectations
Slide 29: Default Emergence Profile
29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Defaults Per Repayment Year 0.017 0.122 0.236 0.177 0.14 0.088 0.069 0.039 0.028 0.023 0.017 0.014 0.012 0.01 0.009 Cumulative Default 0.017 0.139 0.375 0.552 0.691 0.78 0.848 0.887 0.915 0.938 0.955 0.969 0.981 0.991 1 SLM Private Credit Default Emergence Prof
Slide 30: Gross Defaults: Actual-To-Date vs. Current Lifetime Expectations
30 SLM Private Credit Gross Defaults: Actual-To-Date vs. Current Lifetime Expectations For SLM Private Credit Student Loan Trusts issued prior to 2005-B, the servicer has the option, but not the obligation, to repurchase loans that (i) become 180+ days delinquent and/or (ii) have a borrower who file
Slide 31: Gross Defaults: Actual To Date vs. Current Lifetime Expectations
31 SLM Private Credit Gross Defaults: Actual To Date vs. Current Lifetime Expectations 2002-A 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B 2006-A 2006-B 2006-C 2007-A Charge-off (1) 0.030727995 0.033827393 0.028838063 0.02836175 0.025131695 0.017115889 0.013727319 0.011211874 0.007384162 0.00712
Slide 32: Current Lifetime Expectations vs. Rating Agency Stress Levels
32 SLM Private Credit Gross Defaults: Current Lifetime Expectations vs. Constraining Rating Agency Stress Levels at Issuance 2002-A 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B 2006-A 2006-B 2006-C 2007-A Current Lifetime Gross Current Loss Expectation (1) 0.06 0.065 0.073 0.075 0.083 0.079 0.09
Slide 33: VI. Performance Drivers
September 2008 33 VI. Performance Drivers
Slide 34: Performance Drivers
September 2008 34 SLM Private Credit Performance Drivers Among the multiple variables that impact the performance of private credit loans, a combination of the following has the greatest impact FICO score of Borrower or Co-Borrower(1) Presence of a Co-Borrower School attended: Likelihood the borrowe
Slide 35: Performance Data Segmentation
September 2008 35 Performance Data Segmentation Unless otherwise noted, historical data provided in this section has been segmented into two categories reflecting SLM's current underwriting and pool selection criteria Loans Meeting Current Selection Criteria Not-For-Profit Schools, FICO ^ 640 For-Pr
Slide 36: Performance Drivers: Original FICO
September 2008 36 SLM Private Credit Performance Drivers: Original FICO Original FICO is among several factors historically proven to be highly correlated with actual losses in Sallie Mae's Managed Private Credit Loan portfolio Impact of Original FICO Actual Cumulative Gross Defaults for Loans in Re
Slide 37: VII. Reasons to Invest in SLM
September 2008 37 VII. Reasons to Invest in SLM Private Credit ABS
Slide 38: Reasons to Invest in SLM
September 2008 38 Reasons to Invest in SLM Private Credit ABS SLM is the market leader in private education loans SLM originates, services and collects all of its private credit loans SLM Private Credit ABS are well-protected, with 2007-A able to withstand 46% cumulative losses, or 4.6x current expe
Slide 39: Contact Information
September 2008 39 Contact Information Ken Fischbach Senior Vice President, Corporate Finance Sallie Mae, Inc. 12061 Bluemont Way Reston, VA 20190 703-984-6310 kenneth.fischbach@slma.com Leo Subler Vice President, Corporate Finance Sallie Mae, Inc. 12061 Bluemont Way Reston, VA 20190 703-984-5564 leo
Slide 40: Appendix A: SLM Trust Characteristics
September 2008 40 Appendix A: SLM Private Credit ABS Trust Characteristics
Slide 41: SLM Collateral Characteristics: Performance Drivers
September 2008 41 SLM Private Credit ABS Collateral Characteristics: Performance Drivers If there is a co-borrower, FICO score represents higher of borrower and co-borrower score
Slide 42: Appendix B: SLM Trust Analytics
September 2008 42 Appendix B: SLM Private Credit ABS Trust Analytics
Slide 43: Performance Data Segmentation
September 2008 43 Performance Data Segmentation Unless otherwise noted, historical data provided in this section has been segmented into two categories reflecting SLM's current underwriting and pool selection criteria Loans Meeting Current Selection Criteria Not-For-Profit Schools, FICO ^ 640 For-Pr
Slide 44: SLM Collateral Characteristics: Performance Drivers
September 2008 44 SLM Private Credit ABS Collateral Characteristics: Performance Drivers If there is a co-borrower, FICO score represents higher of borrower and co-borrower score.
Slide 45: Delinquency and Forbearance Seasoning Trends
45 SLM Private Credit Delinquency and Forbearance Seasoning Trends Delinquency and forbearance are highest when loans enter repayment, and diminish as loans season As the trust loans season, delinquency and forbearance are expected to decline
Slide 46: SLM Trusts: 90+ Day Delinquencies
September 2008 46 SLM Private Credit ABS Trusts: 90+ Day Delinquencies Overall, loans meeting current criteria exhibit relatively stable performance Upward trend in delinquencies for newer trusts is driven by a higher percentage of loans first entering repayment, when borrowers are most likely to be
Slide 47: SLM Trusts: Forbearance
September 2008 47 SLM Private Credit ABS Trusts: Forbearance 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 2/28/2006 5/31/2006 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2008 5/31/2008 8/3
Slide 48: SLM Trusts: Annualized Gross Charge-offs
September 2008 48 SLM Private Credit ABS Trusts: Annualized Gross Charge-offs 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 2/28/2006 5/31/2006 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2
Slide 49: SLM Trusts: Historical Cumulative Gross Charge-Offs
September 2008 49 SLM Private Credit ABS Trusts: Historical Cumulative Gross Charge-Offs(1) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2002 0 0.0001 0.0005 0.0006 0.0009 0.0009 0.001 0.0012 0.0016 0.0029 0.004 0.0067 0.0097 0.0112 0.0125 0.0142 0.0159 0.0198 0.023 0.0262 0.0287 0.03
Slide 50: SLM Trusts Prepayment Analysis
September 2008 50 SLM Private Credit ABS Trusts Prepayment Analysis Historical SLM Private Credit ABS CPRs Constant prepayment rates increased in 2007 due to the introduction of Private Credit Consolidation loans, but then declined accordingly following SLM's decision to suspend its consolidation lo
Slide 51: Appendix C: Managed Portfolio Performance
September 2008 51 Appendix C: SLM Private Credit Managed Portfolio Performance
Slide 52: Performance Data Methodology
52 SLM Private Credit Performance Data Methodology Loans Meeting Current Selection Criteria Methodology - Performance metrics are expressed relative to the balance of loans entering repayment (including capitalized interest from the school period) Performance is captured at the end of each quarter o
Slide 53: Portfolio Performance Cohort Cumulative Defaults
53 SLM Private Credit Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria
Slide 54: Cohort Cumulative Defaults - 760+ FICO
54 SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria - 760+ FICO
Slide 55: Cohort Cumulative Defaults - 730-759 FICO
55 SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria - 730-759 FICO
Slide 56: Cohort Cumulative Defaults - 700-729 FICO
56 SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria - 700-729 FICO
Slide 57: Cohort Cumulative Defaults - 670-699 FICO
57 SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria - 670-699 FICO
Slide 58: Cohort Cumulative Defaults - 640-669 FICO
58 SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria - 640-669 FICO
Slide 59: Cumulative Cohort Recovery Rates
September 2008 59 SLM Private Credit Managed Portfolio Performance (All Loans) Cumulative Cohort Recovery Rates Recovery data is based substantially on experience under HICA, a captive insurance subsidiary of SLM that collected and recovered defaulted loans until 2004, when HICA was dissolved and SL
Slide 60: Appendix D: SLM Corporation Update
September 2008 60 Appendix D: SLM Corporation Update
Slide 61: Sallie Mae Update
September 2008 61 Sallie Mae Update DOE funding authority - extended through academic year 09/10 - assures profitability on new Stafford/PLUS loans, and eliminates funding need for this asset Term FFELP ABS market continues to provide funding, with $5.1B raised in August and $18.5B YTD ABCP program
Slide 62: Traditional vs. Non-Traditional Private Loan Performance
September 2008 62 62 Traditional vs. Non-Traditional Private Loan Performance Reserve coverage of annualized net charge-offs totaled 2.0x and 2.6x for Traditional and Non-Traditional loans respectively for the first half of 2008
Slide 63: Earnings Summary ($ millions)
September 2008 63 1H 2008, 2007 and Full Year 2007, 2006 Earnings Summary ($ millions) 1H 2008 1H 2007 Full Year 2007 Full Year 2006 "Core Earnings" Net Income (1) $344 $440 $560 $1,253 Stafford/PLUS Originations ($B) $8.4 $8.1 $17.3 $16.0 Private Education Loan Originations ($B) $3.4 $3.5 $7.9 $7.4
Slide 64: "Core Earnings" Presentation
September 2008 64 "Core Earnings" Presentation Used by SLM's management in developing financial plans, tracking results, establishing corporate performance targets Used by securities analysts, credit rating agencies and debt capital providers to measure the company's business performance Treat secur
Slide 65: GAAP to "Core Earnings" EPS Reconciliation
September 2008 65 GAAP to "Core Earnings" EPS Reconciliation