Slm Corporation · NASDAQ:SLM
Slm — Debt Investor Presentation (April 2006)
75 slides from Slm's debt investor presentation, Apr 21, 2006
Slide 1: SLM Corporation Debt Investor Presentation
SLM Corporation Debt Investor Presentation First Quarter ended March 31, 2006 April 21, 2006
Slide 2: Forward Looking Statements
Forward Looking Statements Forward Looking Statements - This report contains forward-looking statements and information that are based on management’s current expectations as of the date of this document. When used in this report, the words “anticipate,” “believe,” “estimate,” “intend” and “expect”
Slide 3: Disclosures
Disclosures 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 included in
Slide 4: Disclosures
Disclosures Non-GAAP “Core Earnings” Performance Measures – • Used by SLM’s management in developing financial plans, tracking results, establishing corporate performance targets and determining incentive compensation • Used by equity investors, credit rating agencies and debt capital providers to m
Slide 5: SLM Corporation Overview
SLM Corporation Overview jampions
Slide 6: SLM Corporation
SLM Corporation • #1 originator, servicer and collector of student loans in the vital and growing U.S. education lending market • Fully independent private sector company, traded on the NYSE with a market capitalization of $21 billion(1) • $127 billion managed student loan portfolio, 86% of which is
Slide 7: A Brief Corporate History
A Brief Corporate History Congress Congress creates creates the the Guaranteed Guaranteed Student Student Loan Loan 1965 Program Program (1) (1) Congress Congress establishes, establishes, as as aa GSE, GSE, the the Student Student Loan Loan SLM Corporate Debt Ratings 1972 Marketing Association or “
Slide 8: Pre- and Post-GSE Wind-Down
Pre- and Post-GSE Wind-Down Pre- and Post GSE Wind-Down - Pre- Wind-Down Post- Wind-Down 1999 2005 Moodys/S&P/Fitch Senior Debt Rating A3/A+/A A2/A/A+ Market Share of Federal Student Loan Originations(1) 15% 27% % of Loans Funded by the GSE 63% 0% Wtd. Average Life to Call of Managed Liabilities 2.0
Slide 9: What Makes SLM Unique
What Makes SLM Unique Limited Credit Risk 486% of student loans carried a U.S. government guarantee as of March 31, 2006 4Total student loan losses were only 0.12% of managed student loans for the full year 2005 Limited Exposure to Interest Rate and Economic Cycles 4Interest rate sensitivities of fl
Slide 10: The U.S. Student Loan Market
The U.S. Student Loan Market 10
Slide 11: Sources of Funding for Higher Education
Sources of Funding for Higher Education Sources of Funding for College Attendance Academic Year 2005-2006 ($billions) Total Cost - $222 Billion Federal Student Parent/Student Loans Contributions $61 $67 $19 $75 Private Education Scholarships, Loans Grants, Other Source: Based on estimates by Octamer
Slide 12: Trends in Higher Education Spending
Trends in Higher Education Spending Student Enrollment Projections Average Cost of College Attendance Degree Granting Institutions Cumulative % Increase millions 100 19 80 18 60 17 40 16 15 20 14 0 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 94 96 98 00 02 04 06 08 10 12 14 19 19 19
Slide 13: Higher Education's Return on Investment
Higher Education’s Return on Investment • Income and employment are strongly correlated to educational attainment Relationship between Higher Education, Income and Employment $150,000 8.4% 9% $128,942 8% $120,000 7% $103,903 5.5% 5.2% 6% $90,000 $78,351 4.0% 5% $62,660 4% $60,000 $42,663 $43,922 3%
Slide 14: Education and Unemployment Over Time
Education and Unemployment Over Time • The relationship between education and unemployment has remained relatively constant over time Historical U.S. Unemployment Rate for College Graduates versus the Overall U.S. Population 8.5 8 Unemployment Rate (% of labor force) Average = 5.43% 7.5 Min = 3.8% 7
Slide 15: The Federal Family Education Loan Program or FFELP
The Federal Family Education Loan Program or “FFELP” The Federal Family Education Loan Program (“FFELP”) – • Provides banks and others an explicit U.S. government guarantee on student loans • Loan pricing, terms and maximum borrowing limits set by Congress • Made to undergraduate students, graduate
Slide 16: Growth in FFELP Loan Originations
Growth in FFELP Loan Originations Growth in Federal Education Loan Originations FY 1999 - 2007E Stable, Long-Term Growth – $80.0 30% • In 2005, more borrowers took out more $70.0 FFELP loans with higher loan balances 25% than ever before $60.0 (YOY Growth Rate) 20% $50.0 ($ billions) • Total federal
Slide 17: The Private Education Loan Market
The Private Education Loan Market Private Education Loans – • Consumer loans made to students and parents specifically to fund the cost of undergraduate, graduate and other forms of post-secondary education • Typically used to bridge the funding gap between grants, aid and FFELP loans, and the incre
Slide 18: Private Education Loan Market Demand
Private Education Loan Market Demand • Private education loans help bridge the gap between funding available through government- sponsored programs and the rapidly increasing cost of education Cost of College AY 1995-1996 Cost of College AY 2005-2006 Based on a Four-Year Term Based on a Four-Year Te
Slide 19: Private Education Loan Market Growth
Private Education Loan Market Growth • As a result of strong demand for alternative sources of funding for higher education, private education loan originations have experienced consistent growth Private Education Loan Market (1) Growth in Non-Federal Student Loan Originations $20 $18 $16 $14 ($ bil
Slide 20: Higher Education Act Reauthorization
Higher Education Act Reauthorization 20
Slide 21: Higher Education Act Reauthorization
Higher Education Act Reauthorization • New student loan legislation effective July 1, 2006 is not expected to have a material impact on SLM’s business • Changes include… – Modest increase in FFELP loan borrowing limits effective July 1, 2007 – Eligibility of graduate students for PLUS Loans – Borrow
Slide 22: Political Change and SLM Earnings Growth
Political Change and SLM Earnings Growth • Past legislation, no matter how radical, has not had a long-term impact on SLM’s earnings Impact of Changes in Student Loan Legislation on SLM Net Income $1,200 400 1993 - Federal Direct Loan Program initiated 380 - 30 b.p. funding charge assessed to SLM $1
Slide 23: SLM Business Fundamentals
SLM Business Fundamentals 23
Slide 24: SLM's Loan Origination Model
SLM’s Loan Origination Model • Sallie Mae originates student loans primarily through schools’ financial aid offices, and services and collects those loans throughout their life cycle Sallie Mae’s Primary Loan Origination Model Preferred Channel Lending Partners Loan Students Applications College Loa
Slide 25: SLM's Competitive Advantage
SLM’s Competitive Advantage • SLM has a distinct competitive advantage in all facets of the education loan market Economies of Scale • $127B of managed loans • Over 9 million borrowers • Over 6,000 schools Vertically Integrated State-of-the-Art Origination/ Loan Delivery Platform Servicing/Collectio
Slide 26: Federal Student Loan Market Share
Federal Student Loan Market Share Federal Student Loan Originations SLM Historical Market Share of (FFY 2004-2005) Federal Student Loan Originations 2005 1999 Market Market 30% Rank Lender 26% 27% Share Share 25% 25% 25% 23% 1 Sallie Mae 27% 15% 20% 17% 2 Federal Govt 22% 32% 15% 15% 3 Citibank 5% 6
Slide 27: SLM's Private Education Loan Business
SLM’s Private Education Loan Business SLM's Private Education Loan Portfolio Private Education Loan Attributes(2) - (1) as of December 31, 2005 y High average FICO scores Higher Education y ~ 50% of loans with co-borrowers, typically parents Loans $14.3B, y Higher education loans non-dischargeable i
Slide 28: Debt Management, Guarantor Servicing and Other Income
Debt Management, Guarantor Servicing and Other Income Fee & Other Income – Fee & Other Income Growth (2) • Debt Management & Collections Operations – 2001 - 2005 $1,000 – 17% of operating revenue (1) $917 – Variable cost, low overhead business $900 – Consistent, recurring earnings stream (% of total
Slide 29: Historically Stable and Predictable Earnings
Historically Stable and Predictable Earnings 29
Slide 30: Extremely Low Loan Losses
Extremely Low Loan Losses • SLM’s net charge-offs represented 0.12% of managed student loans for the full year 2005, compared to the 2005 median of 0.83% for ‘Aa’ banks and 4.20% for highly rated finance companies (1)(2) Net Charge-Offs Total Net Charge-Offs (1) = 0.00% = 0.12% Net Charge Offs (1) =
Slide 31: Private Education Loan Portfolio Trends
Private Education Loan Portfolio Trends • Private Education Loan portfolio performance trends are very stable, in part as a result of sound underwriting, pricing, servicing and default management practices (1) Private Education Loan Spread vs. Net Charge-Offs 6.0% 5.0% 4.75% 4.62% 4.49% 4.24% 4.0% 3
Slide 32: Limited Interest Rate Risk
Limited Interest Rate Risk SLM’s Interest Rate and Currency Hedging Philosophy – • Fund floating rate assets with floating rate liabilities of comparable duration • Convert newly issued debt to US$ floating rates at the time of issue with interest rate swaps, currency swaps and interest rate caps •
Slide 33: Stable Net Interest Margin
Stable Net Interest Margin • Extremely low loan losses and match funding of interest rate sensitivities of floating rate assets and floating rate liabilities make SLM’s net interest margin highly stable 18% Net Interest Margin 16% 14% 12% 10% 8% 6% 4% 2% Net Asset Yield Cost of Funds 0% 74 77 80 83
Slide 34: Low Operating Expenses
Low Operating Expenses SLM vs. 'Aa' Banks and Specialty Finance Companies Operating Efficiency Ratio (1)(2) Unmatched Operating Efficiency - 70% 61% • SLM’s operating expenses stood at only 61% 60% 59% 58% 59% 59%58% 60% 58% 38% of operating revenue in 2005(1), 55% following three years of steady 50
Slide 35: Highly Predictable Earnings
Highly Predictable Earnings (1) SLM Net Income through Interest Rate and Economic Cycles 1990 - 2005 Highly Predictable Earnings - $1,200 10.0% 9.0% • SLM has generated highly consistent $1,000 8.0% earnings and cash flow since its 7.0% inception in 1973 SLM Net Income ($ mil) $800 GDP 6.0% Interest
Slide 36: Highly Stable Earnings
Highly Stable Earnings Highly Stable “Core Earnings” - • Between 2001 and 2005, SLM’s “core earnings” ROA displayed less than 1/3 the average volatility of leading ‘Aa’ banks and 1/5 the average of highly rated finance companies(1) • SLM’s earnings have not in the past been subject to the significan
Slide 37: Strong Risk-Adjusted Capitalization
Strong Risk-Adjusted Capitalization 37
Slide 38: Strong Risk-Adjusted Capitalization
Strong Risk-Adjusted Capitalization • SLM’s leverage compares extremely favorably to ‘Aa’ banks and other non-bank financials when measured relative to actual loss experience 2005 Medians for SLM Corp ‘Aa’ U.S. Banks / Not a risk adjusted capital ratio Investment Grade 2003 2004 2005 Finance Cos.(4)
Slide 39: Funding Diversity and Liquidity
Funding Diversity and Liquidity 39
Slide 40: Funding Sources
Funding Sources • At year end 2005, ABS represented 69% and unsecured corporate debt 31% of SLM’s $136 billion of total managed debt outstanding ABCP Global MTNs $5.0 $22.1 Euro MTNs $8.8 Extendibles $5.2 Term ABS Retail Notes $88.8 $3.6 Convertibles $2.0 Note: Totals may not add due to rounding. 40
Slide 41: SLM Corporate Debt and ABS Issuance
SLM Corporate Debt and ABS Issuance • SLM has issued $138 billion of long-term, non-GSE corporate debt and asset-backed securities over the past three years, across a broad range of maturities – New Issuance Volume YTD 1Q 2003 2004 2005 2006 Corporate Debt Issuance (1) $15B $15B $10B $1.7 Term Asset
Slide 42: Funding Diversity
Funding Diversity • During 2005, SLM issued 38 term ABS and corporate debt securities in eight different currencies to more than 500 institutional investors around the globe SLM 2005 Total Managed Debt Issuance by Currency, Investor Geography and Issue Type By By Investor By Issue Currency Geography
Slide 43: Excess Liquidity
Excess Liquidity • At December 31, 2005, SLM maintained significant excess liquidity… – Enough unused liquidity in cash, investments and committed credit lines to repay 18 months’ debt maturities – Enough additional liquidity in its readily saleable, unencumbered FFELP loan portfolio to repay 8 year
Slide 44: Dealers in SLM Corporate Debt and ABS
Dealers in SLM Corporate Debt and ABS • SLM utilizes a broad base of dealers globally, promoting liquidity in its corporate bonds and ABS 44
Slide 45: SLM Corporate Debt Program
SLM Corporate Debt Program 45
Slide 46: SLM Corporate Debt Issuance Volume
SLM Corporate Debt Issuance Volume SLM Corporate Term Debt Issuance Volume ($ billions) (1) – YTD 1Q Issuance Type 2003 2004 2005 2006 US$ Global and Medium Term Notes(1) $ 9.1 $ 6.4 $ 4.5 $ 1.1 Foreign Currency Denominated(2) 0.6 4.2 4.0 0.4 Extendible Notes 1.7 2.5 1.0 0.0 Retail Note Program 1.1
Slide 47: Representative SLM Corporate Benchmark Debt Issues
Representative SLM Corporate Benchmark Debt Issues Representative US$ & EUR Benchmark Corporate Debt Issues Issue Issue Size Issue Date (mil) Rating Coupon Maturity USD - SLM Corp Feb ’03 $800 A2/A/A+ 3.625% Mar ’08 SLM Corp Nov ’03 $1,000 A2/A/A+ 4.000% Jan ’09 SLM Corp Jul ’05 $2,000 A2/A/A+ L+14
Slide 48: Consistent Credit Spread Performance
Consistent Credit Spread Performance • SLM trades at spreads comparable to those of the leading ‘Aa’ U.S. banks SLM Corp 10 Year Bond Spreads vs. 350 Leading ‘Aa’ Banks and Finance Companies 300 Non-Bank SLM Corp ‘Aa’ Banks Financials 250 Current 39 24 31 Spread to LIBOR (bp) Max 87 85 303 200 Min 2
Slide 49: SLM Corporation ABS Program
SLM Corporation ABS Program 49
Slide 50: SLM ABS Issuance Volume
SLM ABS Issuance Volume SLM ABS Term Issuance Volume ($ billions) (1) – YTD 1Q 2003 2004 2005 2006 Non-Consolidation FFELP ABS $ 5.8 $10.1 $ 6.6 $ 5.1 Consolidation FFELP ABS 21.0 17.4 17.1 3.1 Private Credit ABS 3.8 2.8 3.4 2.2(2) Total ABS Issuance $ 30.6 $ 30.3 $ 27.0 $ 10.4 (1) Excludes outstand
Slide 51: SLM Asset-Backed Securities Structures
SLM Asset-Backed Securities Structures • Recent SLM new issue ABS Structures – Non-Consolidation FFELP Consolidation FFELP Private Education Loans Issue $2.6B SLM Trust 2006-3 $2.6B SLM Trust 2006-4 $2.2B SLM Trust 2006-A Pricing Date March 2, 2006 April 12, 2006 March 31, 2006 Collateral US Govt. G
Slide 52: 2005 ABS Issuer Rankings
2005 ABS Issuer Rankings 2005 Public/144A Student Loan ABS 2005 US$ ABS Issuance by Issuer (1) Issuance by Issuer (in equivalent US$ billions) (in equivalent US$ billions) MARKET MARKET RANK ISSUER PROCEEDS SHARE(2) RANK ISSUER PROCEEDS SHARE 1 Sallie Mae $27.0 6.1% 1 Sallie Mae $27.0 42.2% 2 Ford M
Slide 53: SLM U.S. Government Guaranteed Student Loan ABS
SLM U.S. Government Guaranteed Student Loan ABS 53
Slide 54: SLM FFELP ABS Issue Characteristics
SLM FFELP ABS Issue Characteristics Typical SLM FFELP ABS Transaction Features – • U.S. Government guaranteed collateral • Issue size $1.5B to $3.0(+)B • Tranches denominated in US$ or Euros • ‘Aaa/AAA/AAA’ rated senior tranches make up 97% of issue structure • 20% risk based capital weighting, in m
Slide 55: SLM FFELP ABS Reset Rate Notes
SLM FFELP ABS Reset Rate Notes SLM FFELP ABS ‘Soft Bullet’ Fixed Rate, Euro and Sterling Structures - • Shorter term “soft bullet” US$ fixed rate, Euro and Sterling tranches, backed by long- dated collateral • Remarketed at a date certain prior to the expected maturity date, typically 3, 5 , 7 or 10
Slide 56: SLM Trust 2004-10 Reset Rate Note Structure
SLM Trust 2004-10 Reset Rate Note Structure • Class A Notes pay sequentially • A-4, A-5, A-6 and A-7 Reset Rate Note remarketing dates occur well in advance of expected amortization of underlying collateral Amortization Illustration Outstanding Balance Description USD FRN A-1 USD FRN A-2 USD FRN A-3
Slide 57: SLM FFELP ABS Relative Value
SLM FFELP ABS Relative Value • SLM FFELP ‘AAA’ ABS spreads track ‘AAA’ prime credit card ABS, yet SLM FFELP ABS collateral is backed by an explicit U.S. government guarantee Historical 3 Year Triple-A Rated ABS Historical 7 Year Triple-A Rated ABS Secondary Spreads Secondary Spreads 6 25 5 20 4 Spre
Slide 58: SLM 'AAA' FFELP vs. US Agencies
SLM ‘AAA’ FFELP vs. US Agencies • Sallie Mae ‘AAA’ FFELP ABS offers wider new issue spreads than U.S. agency debentures across all maturities 15 10 SLM ‘AAA’ FFELP ABS (1) 5 Spread to LIBOR 24bps 0 1 2 3 5 7 10 Maturity (yrs.) -5 20bps 19bps 11bps 16bps -10 16bps -15 US Agency Debt (1) -20 (1) Sprea
Slide 59: SLM 'AAA' FFELP ABS Spread Performance vs. U.S. Agencies
SLM ‘AAA’ FFELP ABS Spread Performance vs. U.S. Agencies Historical Spread to LIBOR on SLM ‘AAA’ FFELP ABS vs. U.S. Agencies SLM FNMA Current 5 -13 Max 12 6 40 Min 3 -20 30 Spread to US$ LIBOR Mean 8 -9 20 5-Year SLM ‘AAA’ FFELP ABS Std Dev 3 4 10 0 -10 -20 5-Year Fannie Mae -30 7 /03 7 /03 7 /03 7
Slide 60: SLM Private Credit Student Loan ABS Program
SLM Private Credit Student Loan ABS Program 60
Slide 61: SLM Private Credit ABS Issue Characteristics
SLM Private Credit ABS Issue Characteristics Typical SLM Private Credit ABS Transaction Features – • Issue size $1.0B to $2.0B • US$ denominated • Student loan collateral not guaranteed by the U.S. Government • ‘Aaa/AAA/AAA’ rated class A senior tranches, ‘Aa3/A/AA’ rated Class B and ‘A3/BBB/A’ rate
Slide 62: SLM Private Credit Loan Programs
SLM Private Credit Loan Programs SLM Private Credit Loan Program Characteristics – Current Minimum Underwriting Loan Program Description FICO Score(1) Standards Signature Student Loans® Undergraduate students 640 Signature Student Loans® Graduate students 640 FICO Basis Law school and (May 1998 – LA
Slide 63: SLM Private Credit ABS Issuance
SLM Private Credit ABS Issuance • Prior to its most recent $2.2 billion private credit ABS issue in March 2006, SLM had issued $10.6 billion of private credit ABS SLM Managed Private Credit SLM Private Credit Loans Outstanding(1) Cumulative ABS Issuance(1) $17.2 $16.0 $16.0 $14.0 $12.1 $14.0 $10.7 $
Slide 64: SLM Private Credit ABS Relative Value
SLM Private Credit ABS Relative Value • Spreads on SLM Private Credit ABS tightened over the past two years, until widening recently relative to credit card ABS Historical 3 Year Triple-A Rated ABS Historical 7 Year Triple-A Rated ABS Secondary Spreads Secondary Spreads 12 50 11 45 10 9 40 8 35 Spre
Slide 65: SLM 2006-A Private Credit Student Loan ABS
SLM 2006-A Private Credit Student Loan ABS 65
Slide 66: SLM 2006-A Transaction Structure
SLM 2006-A Transaction Structure WA Life Expected Principal Principal to Call Principal (1) Class Balance ($) Balance (%) Ratings (M/S/F) Index (4%CPR) Window Maturity A-1 $434,000,000 19.3% Aaa/AAA/AAA 3ml 3.0 06/06-09/10 03/16/2020 A-2 $207,000,000 9.2% Aaa/AAA/AAA 3ml 5.0 09/10-12/11 12/15/2020 A
Slide 67: SLM 2006-A Pool Characteristics
SLM 2006-A Pool Characteristics Loan Program % Co-Borrower as Obligor Borrower Payment Status Co- Borrower 51% LAW Forbearance 6% 2% Repayment MBA In School 11% 5% No Co- 78% Signature Borrower Grace MED 87% 49% 8% 2% Deferment 1% Pool Weighted Original Average FICO Score 719 Pool Weighted Curre
Slide 68: SLM 2006-A Collateral Pool FICO Distribution at Origination
SLM 2006-A Collateral Pool FICO Distribution at Origination(1) SLM 2006-A FICO Distribution at Origination (1) 16% 14% 13.0% 12.8% 12.6% 12% 11.5% 10.8% 10.6% 9.8% 10% 9.2% % of Pool 8% 5.8% 6% 4% 1.9% 2% 0.1% 0% <630 630-639 640-659 660-679 680-699 700-719 720-739 740-759 760-779 780-799 800+ FICO
Slide 69: SLM Private Credit ABS Prepayment Analysis
SLM Private Credit ABS Prepayment Analysis Historical SLM Private Credit ABS CPRs 4.0% 3.5% Historical Life to Date CPR 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Quarters from Pricing 0.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 2002-A 3.1% 2.9% 2.4% 2.1% 1.9% 1.9% 1.9% 1.9% 2.0% 2.2% 2.4% 2.6% 2.7% 2.9% 2003-A 2.6% 2
Slide 70: Additional Information
Additional Information — vo SallieMae jampions
Slide 71: Additional Information Available at www.salliemae.com
Additional Information Available at www.salliemae.com 71
Slide 72: SLM "Core Earnings" Revenue Mix
SLM “Core Earnings” Revenue Mix 2005 “Core Earnings” Revenue Mix - Net Interest Income 70% • Net interest income from student loans Debt made up 70% of net revenue in 2005 Mgmnt & Collection • The remaining 30% of net revenue was 17% derived primarily from fee generating businesses – Debt Management
Slide 73: SLM Summary Financial Performance
SLM Summary Financial Performance Managed Student Loans Outstanding "Core Earnings" Net Income $140 $1,131 Year End Outstanding, Net ($billions) $1,200 $123 (1) $120 $986 $107 $16 $1,000 $926 $100 $11 $89 $800 $78 $690 ($millions) $8 $80 $72 $65 $624 $49 $600 $60 $25 $35 $17 $400 $40 $50 $47 $46 $47
Slide 74: Sallie Mae Offices
Sallie Mae Offices 10,600 employees located across the United States* Arrow GRC Sallie Mae 1,275 880 Home Loans Pioneer Credit Nellie Mae Student Loan 275 1,050 95 Finance Association AMS 55 120 GRP 65 SLM Financial 440 Western Headquarters Collections 680 Center 460 Southwest Student Student Loan S
Slide 75: Debt Investor Relations Contact Information
Debt Investor Relations Contact Information Guido van der Ven Leo Subler Vice President, Corporate Finance Managing Director, Corporate Finance Sallie Mae, Inc. Sallie Mae, Inc. 36 Leitch Avenue 12061 Bluemont Way Skaneateles, NY 13152 Reston, VA 20190 315-685-9825 703-984-5564 guido.e.vanderven@slm