Saturday, January 31, 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.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

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

Joseph N. DiStefano
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