COLUMBUS, Ohio – Corporate One FCU last week issued a statement reassuring members on its large position in asset-backed securities supported by student loans, saying that even with almost $100 million in unrealized losses on its $740.1 million portfolio of student loan-backed bonds, the loans are of high quality and it does not expect to realize any credit losses on the securities.
In a letter to members, Melissa Ashley, chief financial officer for the $4.2 billion corporate, acknowledged that the value of bonds backed by student loans has been wracked by the disruptions in the student loan market, which has been slow to recover. “While we have seen liquidity come back for certain sectors, the student loan ABS sector has not yet experienced the same levels of active trading, which has held the fair values down on this ABS sector,” said Ashley, “Despite the [unrealized losses] on these securities, we are very comfortable with our student loan holdings.”
The letter came as Corporate One was issuing its audited financials for 2009 – which showed a loss of $42.3 million, compared to a loss of $72.6 million for 2008. In both years most of the losses were caused by the write-down of its capital in U.S. Central FCU. Despite the losses, Corporate One reported it still holds positive retained and undivided earnings of $26.3 million and $145 million of paid-in-capital and membership capital shares that it does not expect to have to deplete.
The turmoil in the secondary markets, including those for student loans, has dried up liquidity and caused the value of student loan ABS to fall across the board over the past three years. Newly passed legislation that will abolish the federally guaranteed Federal Family Education Loan Program has roiled the markets even more.
But a nascent recovery in the markets has reduced unrealized losses on Corporate One’s student loan portfolio: to $96.3 million as of Feb. 28 from $134.5 million in September. Unrealized losses on the corporate’s mortgage-backed securities also have declined, to $128.5 million from $179.8 million. In fact, the recovery in the bond markets has reduced unrealized losses on all of Corporate One’s investments during that period to $218.6 million from $340.6 million.
“With liquidity beginning to return to the markets, we are seeing improved fair values in most of our portfolios,” wrote Ashley.
According to a March review of the portfolio, Corporate One held 34 lots of private student loans with a book value of $297.8 million, and 56 lots of federally guaranteed student-loan backed bonds valued at $453.5 million. Loans originated previous to October 1993 are 100% guaranteed and loans originated until July 2006 are 98% guaranteed.
