FMD is pissed at the press releases. S&P has gotten it right; others have not. Forbes and WSJ have reported that FMD now has exposure to student loan defaults now that TERI is in bankruptcy. THIS IS NOT TRUE. CALL INVESTOR RELATIONS AT FMD. FMD PROCESSES THE STUDENT LOAN AND GETS PAID A FEE. TERI INSURED THE LOAN AGAINST DEFAULT. FMD WOULD SELL THE LOAN TO A BANK CLIENT (JP MORGAN, BANC OF AMERICA, CITIZENS, ETC.) ONCE SOLD, FMD HAS NO EXPOSURE. PERIOD. END OF STORY. THE BANK THAT BOUGHT THE LOAN HAS TO GO AFTER TERI AND THE DEFAULTING STUDENT. IT'S AKIN TO YOUR BANK SELLING YOUR MORTGAGE TO ANOTHER ENTITY THE DAY YOU CLOSE. THAT 2ND PARTY CAN'T SUE YOUR CLOSING BANK IF YOU DEFAULT. FMD HAS 350 MILLION IN CASH AND ZERO DEBT. THEY COULD LITERALLY SIT THERE AND LAY OFF EMPLOYEES AND DO NOTHING, AND WAIT FOR A BUYER TO REALIZE THEY ARE THE MASTERCARD OF STUDENT LOAN PROCESSING, NOT EXPOSED TO THE DEBT AT ALL, BUT RECEIVING 1/3 OF A BILLION DOLLARS PROFIT IN '07 FOR SIMPLY PROCESSING THE LOANS AND SELLING IT TO A BANK CLIENT, OR ALTERNATIVELY, LINE UP ANOTHER INSURER, AND RESUME OPERATIONS. THE COMPANY IS A GOLD MINE. Sorry for screaming. The inaccuracies in the press articles about FMD piss me off because they certainly forced a lot of shareholders who relied on those inaccuracies to sell their shares for as little as $3.12 this morning. I hate the press. They are lazy in their reporting.
All good points but just to play devil's advocate for a minute it seems that the issue with FMD is whether the seconday market for private student loans rematerializes. Right now it is essentially non functioning and big players like Citi have said they are getting out of that game, so if FMD has no one to sell the loan packages on to their business is done and student loans will go the way of mortgages and will rely on GSEs like SallieMae to get done. My guess is that we will see the same thing that has happened in RMBS, private equity and small banks will step in to fill the void/opportunity left open by the cash strapped big banks. They will take the risks and get the market started again and eventually the big banks will come back in when they see the little fish making money. That said, it looks to me like FMD would be a great candidate for a PE takeout, especially with the cash it is sitting on.
FMD is the go to lender if income requirements exceed those established by government agencies, which are pretty low. They charge a higher interest rate to process such loans than what a strictly government lender would charge. A lot of loans are 'stacked,' too, meaning a government lender like Sallie Mae will provide so much, and then a processor like FMD or Bank of America (also one of FMDs main client banks they sell loans to) will provide the necessary additional monies needed to the student.
Thanks for the explanation of how it works. Given the expansion of the housing GSEs there probably isn't much enthusiasm in congress for expanding the student loan GSE purview as well and that should work in FMDs favor.
Don't think he got the memo. Looks like it will taper off. This baby needs a MASSIVE pump job to see and hold $5
Best news EVER (probably why Goldman will buy FMD if Bank of America doesn't; they'll get even more profitable now): http://www.bloomberg.com/apps/news?pid=20601087&sid=akSswb8yONKs&refer=home "A House committee yesterday approved legislation that would allow students to increase their borrowing for college and let private lenders sell the debt to the government for a profit. The measure -- sponsored by Democrat George Miller and Republican Howard McKeon, both of California -- is intended to ensure that turmoil in the credit markets doesn't prevent students from financing their educations, they said."
Regarding the GS investment: According to a Marblehead press release filed with the SEC , the GS Capital investment, which was announced in December, would be affected by the write-downs because the deal caps the total investment, including its initial $59.8 million investment, at 25% of the company's total market value based on share price. The company's stock value has fallen 68.0% from its January stock price of $13.59, leaving it with a current market value of $443.8 million. (See "First Marblehead Turns To Goldman") Don't think it matters as this stock is going to be moved by a catalyst like a new insurer, a buy out, or some congressional action as Bylo pointed out, not some bet by GS. http://www.washingtonpost.com/wp-dy...04/09/AR2008040904278.html?hpid=moreheadlines
Mvic, that is correct. I ran the numbers. Using today's closing price, and market cap of FMD, GS would be obligated to pay approximately 125 million, rather than 200.7 million, in additional funds to FMD, without exceeding the 25% ownership of FMD that would require them to register as a securities holding company, through the Office of Thrift Supervision. Of course, that amount is subject to change, depending on whether FMDs share price rises or falls prior to the deadline Goldman Sachs has to purchase preferred, convertible shares of FMD stock. The higher the market cap of FMD prior to such date, the closer to that 200.7 million Goldman Sachs will have to pay. The lower, the less. In order for Goldman Sachs to be required to tender the additional full 200.7 million, FMD shares would need to rise to 7.60 each (735 million market cap) by the pay out date. One thing is very interesting: FMD declined to take advantage of a 1 Billion Line of Credit Goldman Sachs had agreed to extend to it. This may not be surprising, given that FMD has no exposure to any loans that have defaulted, and has amassed enough cash to certainly ride out this credit crisis at a time when they are not incurring any expenses other then the residual writedowns they already took. I hate to make assumptions, but I do interpret this as a very confident decision on the part of FMD, because they just don't need access to that money, as they have no debt nor exposure to recurring debt. A very interesting confluence of events, indeed.