Monday, April 29, 2013

Growing student loan defaults forces Sallie Mae to retract selling bonds

On April 29, Sallie Mae, the nation's largest student loan organization, was forced to pull back a bond offering of $225 million as investors refused interest in the lender due to the growing number of defaults taking place across the country.

Student-loan company Sallie Mae SLM -1.35% canceled a $225 million bond offering on Thursday after about two weeks on the market, according to people familiar with the deal. The move may mark a line in the sand: Investors whose thirst for yield has revived all manner of riskier asset classes decided they weren't getting paid enough to buy at the offered price amid rising student-loan defaults.

In the case of the canceled Sallie Mae offering, rising defaults could have crimped the cash flow of the federally backed loans supporting the new securities, because more defaults would mean less excess, or residual, income after holders of the original loans were paid. - Wall Street Journal

Even as central banks in Europe and the U.S. are willing to buy toxic assets like mortgage backed securities, which carry a risk threashold well above that of student loans, it appears the rubicon has been crossed by investors who no longer want to be fooled by the bubbles free money printing and quantitative easing provide, in an economy that is declining.


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