Wednesday, May 27, 2015

Sallie Mae rattles S&P with loan sales

But shares rise

Sallie Mae rattles S&P with loan sales

The Standard & Poor's credit rating agency on Thursday threatened to cut SLM Corp. (student lender Sallie Mae, based just south of Wilmington) to junk-bond status (which is where Moody's already rates the company) after longtime boss Al Lord said the company had sold nearly $4 billion of its $126 billion in old government student loans, and plans to sell a lot more to raise cash.

The sale caught S&P analyst Adom Rosengarten off balance because he had expected a "gradual" runoff of loans as they are repaid, not sudden sales, he told investors in a note. The "shift in the company's strategy" will hurt future cash flow as Sallie scrambles to develop private loans and other products to replace the government-guaranteed loans that the Obama administration has taken over from for-profit lenders, Rosengarten warned.

But shareholders don't seem worried; on Friday they bid Sallie shares up almost to $19, the highest since the spring of 2008. Indeed, "we are surprised" by S&P's threat, wrote analyst Sameer Gokhale in a note to clients at Janney Capital Markets.

Gokhale recommends the stock even after its recent rise. He thinks S&P's warning has made it less likely that Lord will keep selling loans. A Kensington native, Lord has announced plans to step down, and the company is searching for a replacement.

About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano