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Old 07-24-2009, 06:49 AM   #361
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I understand that the current admin and congress wishes the program of subsidizing loans made by private lenders to end and future loans to be made directly by the govt. But I don't understand what will happen to the outstanding loans SLM already has on the books and is currently collecting. Even if SLM is out of the new loan business, wouldn't a skeleton staff still continue to collect the loans and apply that revenue against SLM outstanding debt (bonds issued)?

Assuming that the bulk of the PAR value of SLM issued bonds was converted to student loans, wouldn't collecting 50% or so of those loans result in being able to redeem outstanding bonds at about today's market value? That is, SLM stock might go to zero since there is no ongoing business, but wouldn't there be ongoing revenue from collecting existing loans to service debt, at least to the extent that the govt allows them to continue collecting their already outstanding loans?

Or better, might the govt, under it's new program, buy the outstanding SLM loans paying SLM and then collecting from the borrowers?

I'm optimistic that even if/when the govt puts SLM out of the ongoing student loan business, the value of already outstanding loans will be applied to debt and we'd receive some percentage of PAR at maturity. This is different than the GM case where bond holders got totally screwed.

Comments on my optimistic specualtion?
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Old 08-14-2009, 10:16 AM   #362
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Based on today's CPI-U report for July (-2.1% over the past 12 months), it looks like there will be no interest payment in November.

A few months back this is what we feared (for different reasons ).
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Old 10-21-2009, 09:05 PM   #363
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Wow! SLM, OSM and ISM all up big time today. Any observations other than the favorable earnings announcement?
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Old 10-22-2009, 01:08 PM   #364
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Not sure why the big pop in SLM ISM OSM. Maybe people think the likelihood of SLM staying solvent is real?

On a different note, anyone holding ISM can currently arbitrage into OSM by only paying commissions. ISM bid is at $13.35 and OSM ask is at $13.35 as I write. I just did my arb trade, so I figured someone else with relatively small holdings might want to upgrade their SLM bond holdings.
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Old 10-23-2009, 01:44 PM   #365
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On a different note, anyone holding ISM can currently arbitrage into OSM by only paying commissions. ISM bid is at $13.35 and OSM ask is at $13.35 as I write. I just did my arb trade, so I figured someone else with relatively small holdings might want to upgrade their SLM bond holdings.
Which did we decide is more valuable (OSM I presume), and by how
much per share ?
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Old 10-23-2009, 01:57 PM   #366
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Which did we decide is more valuable (OSM I presume), and by how
much per share ?
Yes, OSM. You'd have to do the calcs on YTM and also accept that Yield to Maturity is the best way to value these things. OSM is worth somewhere in the neighborhood of $0.50 more per share than ISM at the share prices we are seeing now. The cheaper it gets, the more OSM is worth relative to ISM.
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Old 10-26-2009, 01:42 AM   #367
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Originally Posted by FIRE'd@51 View Post
Based on today's CPI-U report for July (-2.1% over the past 12 months), it looks like there will be no interest payment in November.

A few months back this is what we feared (for different reasons ).

As inept as Sallie Mae's management has proven to be. Even they are not stupid enough to default on bonds where they have to pay no or virtual no interest.
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Old 10-26-2009, 10:27 PM   #368
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Based on today's CPI-U report for July (-2.1% over the past 12 months), it looks like there will be no interest payment in November.
Mathematically (since it's inflation + 2% or 2.05%, I can't keep the
two straight), the interest rate and payment should be negative.

I can't see this happening, but I wonder if they're allowed to recoup
this once the interest rate goes positive again ?
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Old 10-27-2009, 09:15 PM   #369
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Mathematically (since it's inflation + 2% or 2.05%, I can't keep the
two straight), the interest rate and payment should be negative.

I can't see this happening, but I wonder if they're allowed to recoup
this once the interest rate goes positive again ?
According to the prospectus, the minimum interest rate is zero, and there is no recoup.
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Old 01-08-2010, 03:31 PM   #370
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Soooooo...... Why have ISM and OSM popped up to over $16? Still BBB-. No news I've noticed.

Anyone have any ideas?
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Old 01-08-2010, 06:26 PM   #371
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No specific idea, but I would point out the capital appreciation from 16 to 25 over the next 7 years when OSM is due is around 6.2% and the current yield for Jan is 1.14%. So even with mild deflation 7.3% current YTM is pretty decent and if inflation picks up and Sallie Mae actually pays us back, these bonds are likely to have low double digit returns.
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Old 01-08-2010, 07:03 PM   #372
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Cannot specifically comment on the issuer, but go look at BBB spreads in general. I bought wads of corporate debt in the first quarter of 2009. The higher rated stuff (single A rated) got to par 3 or 4 months ago and I sold. The high BBB stuff got to par in November or so (and I sold). What I have left is some BBB-, some BB+ and some real junk. The BBB- is finally knocking on the door of par now. The junk is a touch over par (due to the enormous coupon) and the jury is out on the BB+ bonds because the last trade was a month ago. I think the low BBB stuff is rallying again, so ISM is getting a bid.
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Old 01-09-2010, 09:38 AM   #373
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Thanks.

I DCA'd into ISM "way back when" as it was falling in price. I've riden it down into the pits and now back to where I'm about at break-even. That, of course, leaves me with the question as to whether to get out or side with the folks who are buying at these prices and hold on.

It's not an important part of my RE portfolio. And it's been very interesting to own. Still, I know my feelings will be hurt if SLM takes a dump and defaults.

Guess I'll noodle it for awhile.........
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Old 01-11-2010, 03:55 PM   #374
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There was a TIPS auction today. It was a re-issue of the ten yr bond maturing 1/15/2020 and today's results were 1.43%

Based on today's closing price of $16.15, ISM (matures 1/16/2018) is at 3.17%.

So, the difference between BBB- ISM and govt guaranteed TIPS with similar maturities is 1.74%

I have no clue what that means....... Just saying.......
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Old 01-11-2010, 04:26 PM   #375
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Based on today's closing price of $16.15, ISM (matures 1/16/2018) is at 3.17%.
That seems low to me; I get an annual return of 5.6% even without
any coupon payment (in other words, the 8th root of 25/16.15 is 1.056).

With the coupon, the yield is so high that the money bond calculator:

Bond Yield Calculator

... can't handle it (but it'd be in excess of 5% even if price were 20).

Are we talking about the same thing ?!?
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Old 01-11-2010, 04:43 PM   #376
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There was a TIPS auction today. It was a re-issue of the ten yr bond maturing 1/15/2020 and today's results were 1.43%

Based on today's closing price of $16.15, ISM (matures 1/16/2018) is at 3.17%.

So, the difference between BBB- ISM and govt guaranteed TIPS with similar maturities is 1.74%

I have no clue what that means....... Just saying.......
You are looking at the coupon yield with no inflation going forward. As Rusty says, even if inflation were to be zero over the next 8 years, you would gain 5.6% per year as the price appreciates to par (25) at maturity in March of 2018 (assuming SLM doesn't go belly-up). In addition, the current yield is enhanced by about 1.5 times the inflation rate, resulting in a 0.5 x inflation enhancement to the real coupon yield.
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Old 01-11-2010, 05:30 PM   #377
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So you're saying that the number most appropriate to compare to today's ten year TIPS yld outcome of 1.43% is 5.6% ?

I meant the 3.17% to be the ISM equivalent of the Current 10 yr TIPS fixed component which came out at 1.43% at today's auction.

Appreciate your help.
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Old 01-11-2010, 05:43 PM   #378
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In addition, the current yield is enhanced by about 1.5 times the inflation rate, resulting in a 0.5 x inflation enhancement to the real coupon yield.
Could you explain that a little further please? I can't picture where you would multiply the yoy inflation rate by 1.5. Multiply the 2.05% fixed component by 1.5 and then add that to the yoy inflation rate I understand. But not multiplying the yoy inflation rate by 1.5.

Thanks!
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Old 01-11-2010, 05:55 PM   #379
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Could you explain that a little further please? I can't picture where you would multiply the yoy inflation rate by 1.5. Multiply the 2.05% fixed component by 1.5 and then add that to the yoy inflation rate I understand. But not multiplying the yoy inflation rate by 1.5.

Thanks!
As you know, the 1.5 factor comes from the ratio of par to the current price. Since the price is 16.15, ISM is selling at 64.6% of par, or $64.60 per $100. Since the coupon is (2.05% + inflation), the inflation rate gets multiplied by 1.5 as well.

Mathematically,

coupon yield = (2.05 + inflation) / 0.646 = 1.5 x (2.05 + inflation) = 1.5 x 2.05 + 1.5 x inflation
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Old 01-11-2010, 06:06 PM   #380
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So you're saying that the number most appropriate to compare to today's ten year TIPS yld outcome of 1.43% is 5.6% ?

I meant the 3.17% to be the ISM equivalent of the Current 10 yr TIPS fixed component which came out at 1.43% at today's auction.

Appreciate your help.
It's the real coupon yield plus 5.6%
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