ISM/OSM yet again

[clifp]

It is strange last week there was a $.80 gap between ISM and OSM so I bought some at ISM 14.80 and sold the OSM at $15.60 now the gap is much smaller and the bonds have jumped up to 18.50.

At $15 I think it must be a buy, even if the management suceeds in bankrupting the company I got believe bond holders are going to get at least .50-.60 on the dollar.

BTW in case you missed..
"Sallie Mae Commemorates April as National Financial Literacy Month"

Quote:

RESTON, Va.--(BUSINESS WIRE)--Through a special U.S. Senate resolution, April has again been declared national Financial Literacy Month, and Sallie Mae, the nation’s leading saving- and paying-for-college company, reminds consumers that it is never too early – or too late – to learn the skills they need for effective money management.

I think there is a former CEO now Chairmen, who may needs refresher course. $60 to $15 in a less than a year is quite a trick in money management.

[FUEGO]

Mr. Deep Pockets is back at it again. 100,000 share buy limit orders for each of ISM, OSM, and JSM.

[youbet]

Congressional Action on Student Loans. Any thoughts on how this will impact ISM/OSM share price and/or survivability?

UPDATE 1-U.S. House backs student loan intervention bill | Markets | Markets News | Reuters

[haha]

Quote:

Originally Posted by youbet Congressional Action on Student Loans. Any thoughts on how this will impact ISM/OSM share price and/or survivability? UPDATE 1-U.S. House backs student loan intervention bill | Markets | Markets News | Reuters

I think it was widely expected; but overall and over time I would think it has to make these securities safer. Not much reaction by the SLM, ISM, or OSM price quotes today, which is a little odd to me.

Ha

[youbet]

The June 15 - July 14 rate for ISM will be 6.03% at par. At recent ISM prices of about 17.6, you'll get about 8.56%.

I think folks who grabbed ISM at recent $15 prices made a smart move. If it doesn't default, they're making 10% in July. And if it defaults, they'll only need a 60% recovery to get their money back, a likely outcome.

Probably not a good place to put next weeks grocery money though......

[cute fuzzy bunny]

So whats the big attraction for this vs something like the High Yield Corp fund that yields the same and has a lot more diversity? Well, except for the CPI indexing. Anyone think that if inflation shoots to 10 or 12% that they'll pay out those big checks for very long?

[FUEGO]

Quote:

Originally Posted by cute fuzzy bunny Anyone think that if inflation shoots to 10 or 12% that they'll pay out those big checks for very long?

My money says they will continue to pay out. The ISM/OSM CPI-linked issues amount to only a few hundred million in debt. A peek at their Dec 31, 2007 balance sheet shows $111 billion in total long term debt outstanding. It seems silly to bring all your debt into default and radically change the outlook for the future of your company just because you have to pay a little higher coupon on .1-.2% of your debt.

Maybe they have more CPI-linked debt on their balance sheet? Of course they may also have swap agreements in place to hedge some/all of the CPI risk. Hopefully Bear Stearns isn't the counterparty!

[FIRE'd@51]

Lots of volume in OSM so far this morning. Both ISM and OSM are extremely well bid at 18.25. I guess Mr. Deep Pockets is back again today.

[youbet]

Quote:

Originally Posted by FUEGO My money says they will continue to pay out. It seems silly to bring all your debt into default and radically change the outlook for the future of your company just because you have to pay a little higher coupon on .1-.2% of your debt.

Agreed, at least regarding whether SLM would/could pay a high inflation component for ISM/OSM. SLM is BBB+ which means risk. But I don't think they will go into default only over paying a high inflation component for ISM/OSM, a small part of their total debt.

Now.... having said that, I do note that Congress Critters are becoming involved in student loans again by establishing publicly funded loan sources should the private sources dry up (see my post on 4/17). And at least one of the current pres candidates has mentioned that investors need to be punished in retribution for all the wild profits they've been making, so no telling where that will wind up going.

So, risk in general at SLM? You betcha! But not over paying the inflation component of ISM/OSM. IMHO.

[clifp]

Quote:

Originally Posted by cute fuzzy bunny So whats the big attraction for this vs something like the High Yield Corp fund that yields the same and has a lot more diversity? Well, except for the CPI indexing. Anyone think that if inflation shoots to 10 or 12% that they'll pay out those big checks for very long?

Yes, I do because they have a lot of student loans which have variable interest rates so as long as real interest rates remain relatively constant, a rising inflation rate will increase SLMs income as well as the payments to OSM/ISM holders.

When I investigated SLM, before buying OSM/ISM, it looks like Sallie Mae did a pretty good job of matching their fixed income student loans with fixed income securitization and variable loans with variable interest rate bonds.

Also there is a lot of capital gains IF the bonds are paid back. At $17.50 the remaining 9+ years is worth an additional 4%/year add that to the 8.5% coupon and total return is over 12% at todays inflation rate.

Still I wish I had never heard of them much less bought them.

[youbet]

Quote:

Originally Posted by clifp Still I wish I had never heard of them much less bought them.

As long as you haven't gotten to the stage of regretting the day you were born, all will work out ok. I've learned more from this experience than I have since, as a child, I lost the nickle my dad had given me to buy a soda.........

[clifp]

LOL, BTW what did you learn from the lost nickel?

[youbet]

That dad doesn't replace lost nickles so when you get one you better take care of it!

[cute fuzzy bunny]

Aww, if Gabe loses money, I give him some more. But we talk about it.

I guess this is the difference between 2000- and the 1880's?

[haha]

SLM director buys 28,422 shares: Financial News - Yahoo! Finance

[youbet]

Quote:

Originally Posted by haha SLM director buys 28,422 shares: Financial News - Yahoo! Finance

Interesting. I'm also trying to keep up with potential legislation regarding student loans. It seems a number of lenders have dropped out of the game since the feds changed the rules and now loans are getting scarce and expensive. Will the eventual legislaton involve the Treasurey buying loan packages? New rules? Fed subsidies? The feds getting back into the business of making loans directly to students?

With the market demanding high yield type rates for student loan backed paper, it doesn't look good for students unless the feds step in. If I was a student looking for a loan today, seeing that the company making me the loan was paying 10% - 12% YTM to get the money would not be a good sign........

[youbet]

For the July 15 through August 14 period, ISM will pay 5.99% at par. At recent prices, that would be in the 8.2% range. For folks who chose to jump in at around a $15 price, it would be almost 10%.

Of course, if SLM goes belly-up, distributions might be a little less.......

[FIRE'd@51]

Quote:

Originally Posted by youbet Of course, if SLM goes belly-up, distributions might be a little less.......

Now let's not have any of that negativity! Believe it or not, by adding to my OSM position when it was trading with a 16 handle, I now actually have a capital gain on my entire position.

[youbet]

I noticed the latest inflation data popped out a few days ago and plugging that into the ISM yield calculator results in an Aug 15 through Sept 14 payout of 6.22% at PAR. At the current price of $18.19, that would result in a payout of 8.55%.

[haha]

Quote:

Originally Posted by youbet I noticed the latest inflation data popped out a few days ago and plugging that into the ISM yield calculator results in an Aug 15 through Sept 14 payout of 6.22% at PAR. At the current price of $18.19, that would result in a payout of 8.55%.

No doubt about it- these things are great if they hold together. And they likely will. Still, after the earlier missteps I won't put very much into them. Maybe no more than staying away from the stove that burned me.

Ha