Fitch: More Institutions Likely to Sell US Student Loans
NEW YORK--(BUSINESS WIRE)--Growing interest from banks to sell non-core assets, specifically government-guaranteed student loans may signal that the market has finally reached an inflection point. To date, Fitch Ratings believes banks have been reluctant to sell their federal student loan portfolios due to a shortage of attractive opportunities to redeploy sale proceeds. However, new regulatory requirements combined with improved prospects in core businesses and greater interest from potential buyers have compelled more banks to explore potential sale opportunities.
Last Friday on July 11, Wells Fargo & Company announced that it had transferred its $9.7 billion Federal Family Education Loan Program (FFELP) loan portfolio to held-for-sale during the second quarter. The announcement follows CIT Group's sale of its $3.6 billion FFELP portfolio to Nelnet in April.
Importantly, we believe these transactions will provide a framework (e.g. structure, valuation) which may set a precedent for more banks and not-for-profit companies to sell their FFELP assets. We believe logical buyers include Navient Corp. and Nelnet, Inc. since each already holds sizable FFELP portfolios and service federal student loans for the Department of Education (ED).
Portfolio acquisitions would be positive for Navient's credit profile as they would create additional earnings capacity and potentially extend the duration of the company's existing portfolio. However, the pricing and financing of any potential acquisitions would also be considered.
Wells Fargo and CIT represented two of the top 15 largest holders of FFELP loans as of September 2013, according to data from ED. Other large banks and not-for-profit companies with sizable FFELP portfolios include the Brazos Group, JP Morgan, PNC, Access Group, SunTrust, Bank of America, Northstar Guarantee, and US Bank, to name a few.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Applicable Criteria and Related Research:
Cash Flow Analysis of Navient Corporation (Updated Cash Flow Projections Post Separation)