Navient Corp (NAVI) 2016 Q1 法說會逐字稿

Good morning, my name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Navient first-quarter 2016 earnings conference call.

(Operator Instructions)

Thank you, Mr. Joe Fisher, Vice President of Investor Relations, you may begin your conference.

Thank you, Jessa. Good morning, and welcome to Navient's 2016 first-quarter earnings call. With me today are Jack Remondi, our CEO; and Somsak Chivavibul, our CFO. After their prepared remarks, we will open up the call for questions.

Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the Company's Form 10-K and other filings with the SEC.

During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of our core earnings, a full reconciliation to GAAP measures, and our GAAP results can be found in the first-quarter 2016 supplemental earnings disclosure. This is posted along with our earnings press release on the investors page at Navient.com.

Thank you, and now I will turn the call over to Jack.

Thanks, Joe. Good morning, everyone, and thank you for joining us today. Our results for the first quarter were consistent with our plans. We earned an adjusted $0.44 in core earnings per share, with student loan margins and operating expenses in line with expectations.

Credit was a bright spot this quarter, and I will touch on this topic a bit more in a moment. During the quarter, we continued to focus on several key areas, improving our access to and the cost of funding, delivering value to our customers and clients, capturing new business opportunities, improving our operating efficiency, and growing the value of our Company. While the work in these areas is never complete, I am pleased with our efforts, execution, and results this quarter.

We've been working on a number of fronts to address our access to funding, and specifically funding for our government guaranteed FFELP assets. As you know, Moody's and Fitch have been reviewing their criteria for rating term FFELP asset-backed bonds. Unfortunately to date, they have not issued any updated guidance.

While we currently believe that the final criteria will be more favorable than the initial draft proposals, we have decided not to wait any longer to restart our FFELP ABS program. We completed our first FFELP ABS transaction the first quarter, followed earlier this month with a second sale. Combined, we have now issued $1.6 billion in FFELP ABS bonds, investor reception was good, and more importantly, even stronger in the second deal.

We also have completed an extension of our FFELP conduit facility, pushing the maturity date out one year to 2018. This facility was also scheduled to decline $7 billion in size. Given the potential for FFELP portfolio purchases, we increased the size to $7.5 billion, and extending this facility and returning for the FFELP ABS market demonstrates the high quality of the FFELP portfolio, and the confidence of lenders and investors in our securities.

We are also addressing the potential rating agency impacts on outstanding bonds. As of today, we have extended the legal final maturity date on $4.8 billion in bonds. While we believe the assumptions used to determine the new maturity date of these extensions are unnecessarily long, or set differently, we certainly expect the loans to pay off prior to new maturity date. We have worked with bondholders to extend the maturity date of their bonds, in order to protect the value of their investment.

Also on the financing front, we completed a private loan securitization in the first quarter and last week, we completed our second private credit residual financing. Combined, these transactions raised over $525 million in free cash. The proceeds will be used to further reduce our unsecured debt.

Combined, our steady and significant financing activity ensures that we have ample liquidity to run our business, pursue portfolio acquisitions, and increase the intrinsic value for shareholders. As we all know, it's an election year, so student loan performance and indebtedness continues to be a regular political and media topic. The data reported here is often misleading, confusing, and driven by anecdotes instead of facts.

For example, it was recently reported that few student loan borrowers are making payments on their loans. The calculation here is complicated by the way the program reports outstanding balances. Unique to the federal loan program is that cumulative defaults are included in delinquency and repayment specifics, since there is no charge-off or bad debt used by the federal government.

This would be fine, if the statistics also included the balances that were paid down, but they do not. As a result, borrowers who successfully repay their loans are excluded from the analysis.

For the record, for loans we own, our customers are successfully making payments on their loans, having made over $3.6 billion in payments to principal in the first quarter. What we see from over 12 million customers with over $300 billion in balances is continued improvement in credit performance. For our private loans, our 90 plus delinquency rate fell to 3.2% at March 31, down from 3.6% a year ago, and importantly, the dollar balance of loans over 90 days past due declined over 20% from a year ago to $749 million.

The charge-off rate also improved, declining 17% from the year ago quarter to 2.4%. And the performance this quarter, and the reductions in delinquent dollar balances at quarter-end are positive signs for the remainder of the year.

We continue to work to capture new business opportunities. During the quarter we acquired $1.5 billion in FFELP loans. We are beginning to see signs that opportunities to purchase additional student loan portfolios will increase.

Our processing business in the municipal and healthcare areas is also growing nicely. For example, we recently won a new multi-year contract in New Jersey, as well as new contracts in Arizona, Pennsylvania, California, and Mississippi, to name a few. And we expanded our healthcare receivable services to new hospitals in New Hampshire, Pennsylvania, Maryland, and Wisconsin.

This month, the Department of Education issued an RFP for a single servicing platform. The request for proposals is to provide a servicing platform, not loan services. Our existing servicing contract extends into 2019. Our team here is actively engaged in evaluating the opportunity, with respect to the system RFP.

Like most financial services entities, we are working to continuously improve our operating efficiency, and we have several initiatives underway to accelerate our pace here. We plan to exit 2016 with a lower run rate operating expense level than where we are today. This is another example of our efforts to add value for our clients and other stakeholders.

During the quarter, we purchased 19.2 million shares, at an average price of $10.42, a level significantly below what we see as the intrinsic value of the Company. Capturing the opportunity here allows us to increase the intrinsic value per share to non-selling shareholders. Our stock price is up significantly from its low earlier this year, still, it does not reflect the full value of the Company as we see it.

Our focus on funding, capturing new business opportunities, improving operating efficiency, and taking advantage of a mispriced market has allowed us to add value. We will continue this focus on execution going forward.

I will now turn the call over to Somsak for a deeper look at our financial results, and I look forward to taking your questions later.

Thanks, Jack. Good morning, everyone. During my prepared remarks, I will review the first-quarter results before highlighting the recent financing activities that took place. I will be referencing the earnings call presentation, available on the Company's website, beginning with slide 4, which provides a summary of our core earnings.

In the first quarter, we reported adjusted core earnings per share of $0.44, which excludes regular program-related costs during the quarter. The first-quarter adjusted operating expenses totaled $243 million, versus $230 million a year ago. The increase in these expenses is related to the additional costs resulting from the acquisitions of Gila and Xtend Healthcare. Excluding the expenses associated with these acquisitions, operating expenses were lower, 6% lower than a year ago.

Let's turn to slide 5 to discuss our FFELP segment results. In the quarter, we acquired $1.5 billion of FFELP student loans. While many major holders continue to wait for the resolution from the rating agencies related to the legal final maturities, we are beginning to see renewed interest in portfolio sales, as well as FFELP ABS transactions.

FFELP core earnings were $66 million for the first quarter of 2016, compared with $85 million in the first quarter of 2015. The decrease in FFELP core earnings was primarily the result of the lower FFELP balance compared to the prior year, and a net interest margin of 81 basis points, which was in line with our expectations.

The FFELP net interest margin declined from the fourth quarter, due mainly to the seasonal impact of [14 company base] that occurs during the first quarter of each year. During the quarter, we did hedge an additional $295 million of core income, bringing future hedge core income to $1 billion. We are also seeing improving credit trends in our portfolio, as demonstrated by the 17% improvement in our 90-day delinquency rate.

Let's now turn to slide 6 for a review of our private education loan segment. Core earnings in this segment decreased $16 million from a year ago quarter to $61 million. The decline is primarily a result of the declining balance in our private education loan portfolio and lower net interest margin.

The decline in NIM was partially offset by the $16 million reduction in our loan loss provision. This reduction came as a result of the improved credit performance that we continue to see in our delinquency, forbearance, and charge-off rates. Charge-offs declined $46 million, or 24% from the prior year. Improved performance demonstrates the power of seasoning that we have seen in our portfolio.

Slide 7 highlights some of those improvements in our private education loan asset quality trends over the last five years. This portfolio is well seasoned, with 95% of our loans in repayment status having made more than 12 payments. Our first quarter charge-offs came in at 2.4%, and our total delinquency rate declined to 6.2%.

The chart on the bottom of the slide demonstrates the benefits improved performance is having on our borrowers' FICO scores. The non-traditional loans that we have in our portfolio today have improved their FICO scores by 35 points on average over the last five years. Today, these loans are nontraditional in name only, and we expect to see continued year-over-year improvements in this segment of the portfolio.

Let's turn to slide 8 to review our business services segment. In this segment, core earnings were $75 million in the quarter, compared with $86 million in the first quarter of 2015. The decrease was primarily related to the expected decline in education-related revenues.

Our non-federal student loan related asset recovery revenues increased by $30 million from a year ago quarter, to $51 million. The increase in these revenues was primarily related to the additions of Gila and Xtend Healthcare in 2015. As Jack noted, we have been leveraging our skills and platform to grow our non-federal student loan-related business steadily over the last few quarters. We continue to win additional contracts in this space.

On slide 9, I would like to highlight our recent financing activities that we have completed so far in 2016. In the past two months, we have issued over $1.6 billion of FFELP asset-backed securities. Our $1.1 billion 2016 dash one transaction that took place in the first quarter was the largest FFELP securitization in over two years. This transaction was done in conjunction with a loan acquisition from a third-party, and was unique because we did not utilize any funding capacity for this transaction.

Last week, we closed on an additional $497 million FFELP securitization. This was the first bargained and marketed FFELP transaction since June of last year. The securitization was met by strong investor demand, and included over 18 unique investors receiving allocations.

The AAA rated securities priced at a one month LIBOR of plus 138 basis points, with the weighted average life of 5.3 years. With rating agency extension concerns, both these transactions are structured with long legal maturity dates, and a date-specific full term in the future.

While we continue to wait for Moody's and Fitch to provide final ratings methodology, we have been actively extending the legal final maturity dates on various trusts. Just on Monday, we announced the maturity extension of $1.2 billion in bonds. And since December of 2015, we have now extended the legal final maturity date on $4.8 billion in bonds.

As Jack mentioned earlier, we also increased and extended our FFELP ABCP facility. This facility's revolving carriers was extended to March 2018. The maximum financing amount, which was originally scheduled for step-down $7 billion was increased to $7.5 billion. The facility extension and funding costs were consistent with our client.

Not all of our activities were related to FFELP during the quarter. We also issued a $488 million private education loan ABS in January. The AAA portion of this transaction is priced at one month LIBOR plus 239 basis points, with a 4.9 year weighted average life.

On April 15, we added three trusts to our existing private education loan repurchase facility, providing an additional $478 million of financing. This facility allows us to borrow against the private student loan over prioritization and our private education loan securitizations, that is a full turbo repayment future. The proceeds from this transaction will be used to pay down our unsecured debt.

On that front, our unsecured debt declined by $1 billion in the quarter, to $14.2 billion outstanding at quarter end. And I will note that over the last 15 months, our have reduced our unsecured debt outstanding by $3.3 billion, or 19%. So, as you can see, we remain focused on reducing the total amount of unsecured debt outstanding, and smoothing out the maturity profiles that are matched to predictable cash flows from our education loan portfolio.

In the quarter, we repurchased 19.2 million shares for $200 million, at an average price of $10.43. And at quarter end, we had remaining the authority of $565 million under our share repurchase authority. All of this activity was undertaken while maintaining a strong capital position, and a tangible net asset ratio of 1.25 times.

Finally, turning to GAAP results on slide 10, we have recorded first-quarter GAAP net income of $181 million or $0.53 per share, and that compares with net income of $292 million or $0.72 per share in the first quarter of 2015. The primary differences between core earnings and GAAP results are the months related to our group decision, expenses related to the restructuring and reorganization, and the income associated with the bank that we spun from.

That concludes my remarks, and we will open now the call to questions.

(Operator Instructions)

Eric Beardsley, Goldman Sachs.

I just wondered if you could talk a little bit about how the business services revenue should ramp up over the course of the year, and if we should still think about the guidance of $620 million to $650 million as still being a target?

Eric, that is absolutely still the target here. I think we are on track to meet that target based on these first-quarter results.

Got it. And then just on the credit, I guess, given the strength that you saw in the first quarter, I certainly the trend is implying better than guidance for 2.3% to 2.5% that you had. How much upside can we think about to the provision here for the year, and to the charge-off rate?

Eric, so obviously it's just the first quarter, but the trends here are positive. I think the big number to look at is the amount that is in the 90-day plus delinquency balance, so $749 million gives you an indication of what -- the potential of what's available in effect to default over the next nine months. But we are keeping our guidance the same here, and we will certainly look to benefit from better performance than expected.

Got it. And then just lastly, after you did the latest private loan OC deal, how much capacity left do you have in those turbo loans to similar deals? And could you just talk about your appetite to issue unsecured debt still over the rest of the year?

Let me take the first part of that question, Eric. As of today, we have got about $2.1 billion of OC balances left on these turbo deals that we have not managed yet. However, those balances will grow over time, and by the time they have reach their call base, it's expected to grow to about $3.1 billion.

And, the second piece of the question was related to the unsecured debt. Certainly, we would like to access the unsecured debt market, the cost right now is high relative to other sources of financings, that we can access. But certainly, we think that once we get through the legal fund maturity issue, and some of the other unknowns out there, we want to be able to access the unsecured market, hopefully in the second half of the year.

Okay. Great thank you.

I would just add to that, we have more than enough liquidity to meet and service our debt obligations here, including our peak maturity period. What we really want to do is, as Somsak said, smooth out those items to create a little bit more flexibility for us, particularly as we see opportunities to buy student loan portfolios.

We are certainly pleased with the improvements we have seen in terms of access to funding and liquidity over the last -- both what we did in the fourth quarter of last year, and what we were able to accomplish this quarter. The return to the FFELP ABS market is a good indication of the broadening of that access, and we will continue to be opportunistic where we see those opportunities.

Great, thank you.

Sanjay Sakhrani, KBW.

The first question, I feel like I ask this question many calls, could you just talk about the timing of a potential ruling for Moody's or resolvement of the issue, and then where your discussions are with CFPB?

Sure. So on the rating agency side, obviously, this has been an open item now for over a year. We are clearly disappointed in terms of the amount of time that it's taking to get a resolution. The challenge here is, the cash flow aspects of the federal student loans are fairly complex. There is over 56 different repayment options available to borrowers, including, I think nine income-driven repayment solutions loans.

What we have seen historically is that while borrowers can in fact take advantage of multiple opportunities in some form of sequential fashion, that is actually not how the practice actually unfolds. And so, I think the struggle has been what customers are eligible to do, versus what they really do.

And what we are seeing on the FFELP side of the equation, as we see in our private loan, is that as the portfolios season, borrowers grow their income, their actual income and their income potential grows, and delinquencies fall, and repayments increase. So we are looking to get the rating agencies, and work with the rating agencies to get this issue resolved as quickly as possible. But as we said in our comments, at this point in time, we decided to not wait for those resolutions and returned to the FFELP ABS market.

On the regulatory front, we continue to have ongoing dialogue with the entities. I think a lot of the issues and items are related to how borrowers access and understand the different programs that are available to them. We are a firm believer that the program terms and options are too many, and too complex.

But at the end of the day, we know that when 9 times out of 10, when we reach a delinquent customer, we're able to explain those options to them, and get them into a repayment plan that keeps them out of default. Our biggest challenge in preventing defaults and helping people enroll in income-driven repayment programs is contact with the customer.

Over 90% of the loans, the federal loans that we service, that do end up in default we are at a much smaller rate than all other servicers. Those customers do not respond to the extensive efforts we make to reach them. And, as you know, we can't help a delinquent customer take advantage of the opportunities that are available to them, if we can't reach them.

Do you envision any -- both of these issues being resolved over the next six months or so, or is it more open-ended?

Well, if you are asking me what I wish, and what we are able to do, we are one side of the transaction. So we have been very responsive to the rating agencies, we've provided them with extensive amounts of data and analytics, to help them along on their way. But we can't convene the meetings, and take the votes.

On the regulatory side of the equation, we're working aggressively with the regulators, to make sure that they understand what we are doing, how we run our business, and certainly more than willing to work with them to improve the way the federal student loan program works and operates, so that we produce better results. We and our peers in the industry produce better results. But I can't tell you when -- we're just one side of the transaction, and I can't predict when all of these things unfold and resolve.

That's fair. One quick follow-up for Somsak, you mentioned the renewed interest in portfolio sales, could you just talk about the nature of those M&A potential deals?

Sure, this particular, the first deal was one that I think came in conjunction with the ABS transaction. The fact that we were able to get back to an ABS deal opens the door to future transactions, merely because, there wasn't that avenue previously in the last year, to be able to acquire portfolios, unless you had access to term funding.

So I think, the fact that we returned to the ABS market with two ABS transactions, it will open the door to acquisitions. And I'll remind you, we did acquire, in addition to the $1.1 billion portfolio, we did acquire another $400 million of loans. So, I think once we get through this, and then get through the legal final maturity issue, I think the opportunities to acquire portfolios will open up.

And to be clear, the motivation is still there by the larger banks to sell their portfolios, not to retain them?

Yes, yes. But as you know, the pricing is partly determined by what the funding cost is to fund these assets, and if the cost, the access to funding is not there, or the costs have elevated, it is going to impact the pricing that sellers might be willing to accept.

Okay, great. Thank you.

Moshe Orenbuch, Credit Suisse.

Just to follow-up on the whole FFELP situation, the spreads on those transactions were still on the wider end. Does it require the resolution by Moody's to get the spreads down? How do you think about that, recognizing you'd obviously rather have it sooner, but do you have any thoughts there?

Well I think we saw spreads tighten. And they are tightening, even without a resolution from the rating agency side. But your point is correct. I mean, we believe they would tighten even further, if we were able to close this issue.

The legal final maturity dates that we are embedding in new deals, and the dates we are using to amend old deals is very long. We believe, that is providing the protection to investors to make sure that the ratings will exist throughout the life of the loan. At the end of the day, what the rating agency assumptions are, however, don't really -- don't impact what the cash flows actually are in the transactions, and we are confident, based on the payment activity that we see in borrower behavior, that those maturity dates, those legal final maturity dates are well in excess of what is required.

The deals that we acquired, the portfolios, the $1.5 billion of FFELP loans that we acquired this quarter reflect current spreads and funding costs in term ABS, so from our perspective, we believe, the earnings that we will generate from those transactions, if similar spreads were tighter, we just believe that as spread tightens we will see increased opportunities to buy loans, which is obviously what we are hoping for.

Okay. And maybe, could you just talk a little bit about where you would want to see unsecured spreads, before you actually were willing to issue unsecured debt? It just feels like you have done so much of varied sources of financing, but there still seems to be some doubt, and I think that would probably put people's minds at ease a little more. Could you just discuss that a little?

Yes, I think -- I don't, I'm not sure we want to provide an exact level of where we would be issuing here. I think the big opportunity for us is, we don't need to borrow funds to grow our liability base. We just want to smooth out our unsecured debt maturity. So to the extent that spreads are unattractive, it just changes the timing of certain cash flow distributions, but it doesn't change the aggregate story.

When we look at the financing transactions that we have done, particularly these private credit residual financings, those cost of funds are several hundreds of basis points inside where our unsecured debt levels trade, and that's kind of the trade-off we look at, is what's the opportunity between different alternatives there.

Frankly, our biggest challenge right now is, and this, I think, tells a story a little bit, about where we see unsecured spreads going is buying unsecured debt in the open market. Our investors are telling us they are very happy with what they hold, and not looking to sell, and that is the biggest challenge. But it also tells you where the direction is likely to go in spreads here.

Thanks very much.

Rick Shane, JPMorgan.

I will make an observation, and ask a question. It does feel like in the last three months, the environment has changed immeasurably. And I think it's interesting that I think throughout this, you have consistently done the same thing, and I think that's a good sign.

I'd love to talk a little bit more, following up on what Sanjay and Moshe asked about the FFELP markets, my take away from what you just said is that the pricing on asset sales has recalibrated, so that the returns on those deals aren't very different for you, from what you've experienced historically. I am curious, you talked about the spread on the $1.1 billion deal you did last quarter, I'm curious where pricing was on the second deal.

Sure. The second deal came in at, we talked about that in my prepared remarks, actually. The second deal came in at LIBOR plus 138 basis points, with a 5.2 year weighted average life.

I'm sorry, I transposed things. What was the first deal then? I apologize.

The first deal was well, 109, but that was a privately placed deal.

Got it. That's what I missed. I got the 138 in my notes. Got it. Thank you.

Lee Cooperman, Omega.

I just want to go back to the last call that we had, and I just wanted to do a reality check. Jack, you very forcefully opened up the call, basically saying that the reason, I think up until this quarter, you had bought back about $1.3 billion, and stock average price paid $17.20, the stock was hovering around $9 or $10, and you said that the reason we were returning money aggressively through share repurchase, is because we agree with those analyst that the value in the high teens, actually you said low $20s, and this was a justification for the buyback.

We agree with that, I'm just curious whether your view is similar, and that the $55 million remaining on your repurchase program, that your plan is to execute it this year? So that would be question one, just update us in your thinking valuation and the repurchase program.

And second, if there is an order of magnitude, I would think operating expenses ought to be lower, given that the business is shrinking as we pay down loans. What kind of leverage is there to the shareholders from reduced operating expenses? Thank you.

Thanks, Lee. So our view on the intrinsic value of the Company has not changed. In fact, our ability to buy back 19.2 million shares at $10.43 actually increases that value for the remaining shareholders. And that's the type of activity that I said, when we see in this price market like this, we're trying to take advantage of that, in order to add value to the base here. And we will continue that process.

We do expect to utilize our remaining authority in this year. We were a little front-loaded in the first quarter, taking advantage of what we saw as a very low, or ridiculously low stock price. And we bought back more shares than the pro rata portion there.

On OpEx, the first quarter's OpEx are always a little elevated because of -- basically taxes and compensation, and taxes on compensation, and compensation paid expenses that take place for the annual programs in February. So, we do expect those numbers to come down, and as I said, we fully expect to exit the year on a lower run rate than where we were, where we entered the year for 2016. When we look at OpEx, some of the things that we do look at, we take a look at, it is not just the absolute levels, but where we are spending, what it costs us to perform different levels of activity.

So that we're working to become more efficient in that side of the equation. I will say, some of the areas that we are operating in have the fee income side of the equation, have different ratios of OpEx to revenues than what you would see, say in FFELP loan ownership, versus FFELP, versus federal loan servicing, as examples. But, there is no question, we are working to try and become -- and continue our process and our success rate of becoming more efficient here, and as the FFELP and private loan portfolios amortize, you will see those expenses decline.

Just a housekeeping question. Currently, is this 330 million shares outstanding, or less than 330 million? The actual shares outstanding at the present time?

On a common share equivalent, I think it's about 338 at the end of the quarter.

Okay, so if we execute the program, we're going to buyback 13% of the company by the end of the year?

At these prices, yes.

Okay, thank you. Good luck. Thank you very much.

(Operator Instructions)

Michael Tarkan, Compass West.

On the servicing side, regarding that single servicer portal RFP, I'm just curious if you have a sense for what kind of impact that could have on the business? And is that a contract that you could theoretically bid on, or would be interested in, even though you're still one of Ed servicers?

So the Department of Ed is interested in having all of its loans serviced on a single platform, and the RFP at this stage in the game I would say is round one here, is initial proposals and concepts. So, terms and conditions are not set forth, yet. And even the final business requirements are not established. So it is premature to say what kind of impact this might have.

Are we interested? Yes. We are the largest servicer of federal loans, we have a system that is highly efficient, highly scalable, probably more importantly, highly automated. So that it's just not the IT operating infrastructure components. But what it means for the back office servicing as well, and we look forward to responding to the RFP.

Okay, thanks. And from a prepayment perspective, are you seeing any major changes in loans that are getting consolidated away from you? It seems like that may have picked up a little bit this quarter.

So as you know, the repayee program was launched last quarter, fourth quarter. And there was a small increase in prepayments for customers who needed to move into the direct loan program, in order to be eligible for that income-driven repayment solution. But for borrowers who are eligible for some of the other repayment income-based repayment solutions, they are usually better programs because they have shorter repayment terms for the larger balance accounts. We don't expect to see any more significant increase here.

We already have a higher percentage of our customers that are in repayments signed up for income-driven repayment solutions as well. We've been actively marketing and promoting these programs for a number of years, and for borrowers who have signed up to those programs, they generally are better off persisting in them, rather than converting to a new one.

Okay, thanks. A last couple of modeling ones. Are you still expecting NIM on FFELP in the low to mid 80s, and then private in the mid 350s for the year?

And one more in OpEx. I think previously you had guided to a number of less than $930 million for the year, ex regulatory expenses? Is that still the case? Thanks.

Mike, this is Somsak. We are not changing any of those guidance from what we provided the last quarter.

Thank you.

Mark DeVries, Barclays.

Just to follow up on the Department of Ed RFP, is that part of a move for them to eventually move servicing in-house, or are they just looking to get all their outsource servicers on the same platform?

It is not clear what they would want to do long-term on this side of the equation, on that front. But they've made no indications of any desire to bring operations in-house to date.

Okay. And sorry if I missed this, could you remind us on what your total capacity is in terms of unencumbered assets, that you could securitize, whether that would be the OC, or just unencumbered loans?

Let me provide a breakdown, of unencumbered assets and OC is two different things. Today, we have got a little over $700 million of unencumbered FFELP, a little under $4 billion of unencumbered private, but in terms of our private credit OCs that are tied to our turbo deal, today, we have got $2.1 billion of balance that we can continue to finance. But that balance is expected to grow over time, and is expected to grow to about $3.1 billion, by the time we've reached the call date for those particular deals.

Okay. And is that the primary source of liquidity you'll look to tap, as you look towards smoothing out the kind of chunky 2017 unsecured debt maturity coming up?

Well, yes those are the primary sources we've been tapping. And remember that we've been accessing these resources of liquidity, that we haven't accessed in the past and there were some questions about whether we could access them. The activities we've entered into over the last few quarters clearly demonstrates that we've been able to access those.

And I think between that and the cash flows that we generate from our operations should give everyone confidence that we are going to be able to service our unsecured debt. And obviously, we want to be able to access unsecured debt going forward, to provide the flexibility to continue to grow our business going forward.

Okay, great. And just one more. Have your spreads gotten tight enough on the latest FFELP deals that you have done, that it would be economic to look to securitize some of the FFELP loans that you have acquired, or do you need to see more tightening?

Well, I think we have done so with the second FFELP deal we just completed. So the second FFELP deal we did, was the securitization that came out of our Blue Ridge ABCP facilities, so those are securitizations of loans that acquired, as well as the first deal that we did.

Okay. So you are already at levels that enables you to still get your IRRs on those loans?

Yes, and remember, as Jack mentioned, the loans that we have acquired to date reflect, they are priced to reflect current funding.

Yes sure, but the Wells deals that you acquired before the market blew out, but you are already at levels now where it still attractive enough to fund those margins in the FFELP market?

Yes.

Okay, got it. All right, thanks.

Mark Hammond, Bank of America Merrill Lynch.

On the private student loan repurchase facility, I was wondering what OC was pledged to get the $478 million? I'm looking to get some sort of an advance rate.

So you are looking for the particular deals, Mark?

That would be helpful as well, yes.

Sure, so the deals that we did with the 2012-A trusts, the 2012-B trusts, and 2013-A trusts? And -- I'm sorry?

I was going to say collectively. How much OC was that?

A little over $1 billion.

Okay. Thanks. And then, a follow-up question. So Moody's has written about a $4 billion unencumbered asset threshold, that if gone below, could prompt a ratings downgrade on the unsecureds. At the end of the quarter, unencumbered student loans totaled about $3.8 billion, S&P has seen to flag something like this as well. Have you had any recent conversations with the rating agencies not on the FFELP ABS, but actually just on unsecured ratings?

Look, I think the issues here are what are your cash flows look like in your debt maturities, to ensure that you can repay your -- meet your obligations without financing activities. And one of the things that we've been clear in our comments and analysis that we provided to the rating agencies, is that we have sufficient cash flows to service our debt maturities as they occur, and that is the critical component here.

So if one were to encumber the unencumbered loans, and use the proceeds for something other than debt service, I could see where that might be a concern. But if you were to encumber the loans and pay down the debt, I'm not sure why that changes the credit profile of the Company. I know it would not change the credit profile.

As a matter of fact, going through that exercise actually improves our net tangible assets on coverage ratios.

All right. Thank you, that is all.

There are no further questions at this time, I turn the call back over to the presenters.

Thank you, Jessa. I would like to thank everyone for joining us on today's call. If you have any other follow-up questions, feel free to contact me directly. Thank you.

This concludes today's conference call. You may now disconnect.