Sallie Mae ARM Unit Posts Profit in Q4; Divests Int?l Debt Buying Unit

Dominant student loan provider SLM Corporation, commonly called Sallie Mae, announced Wednesday night that its accounts receivable management unit swung to profit in the fourth quarter of 2008 as the company winds down its debt purchasing operations.

Reston, Va.-based Sallie Mae (NYSE: SLM) said that its Asset Performance Group (APG) unit posted core earnings net income of $10 million in the fourth quarter of 2008 on revenue of $104 million. This was up from a net loss of $124 million in the third quarter of 2008 on massive impairment and restructuring charges.

For the year, the APG unit posted a net loss of $106 million compared to net income of $116 million in 2007.

The APG unit consists of Sallie’s mortgage debt buying unit, non-mortgage debt buying unit and contingency collection business.

Sallie announced last summer that it would exit the debt buying business altogether and either divest or wind down the various business units that focus on purchasing (“Sallie Mae to Close Debt Purchasing Business, Focus on Contingency Work in ARM,” July 24, 2008). The company reiterated Wednesday that the “purchased paper businesses no longer produce a mutual strategic fit.”

In a conference call to discuss third quarter 2008 earnings, company officials said that a buyer had been identified for the international operations of the company’s non-mortgage debt buying unit Arrow Global. Sallie announced Wednesday that the transaction closed in the first quarter of 2009, although no details concerning the buyer or financial particulars were divulged. The company took a $51 million loss on the unit in Q4 2008.

The company also noted that it had tried to find buyers for its domestic debt purchasing business and mortgage buying unit, but that current economic conditions were not right for a sale. Sallie is currently in the process of winding down the units and “will continue to consider opportunities to sell these businesses at acceptable prices in the future.”

Sallie noted that its U.S. debt buying business has certain forward purchase obligations under which the company is committed to buy purchased paper from January 2009 through April 2009 at a purchase price of approximately $28 million. It will not buy any additional purchased paper in excess of these obligations.

In the fourth quarter, the company bought $978 million in non-mortgage face value debt for $99 million.

Sallie’s contingency collection operation had a total account balance totaling $11.58 billion at the end of 2008, up from $11.2 billion in the third quarter of 2008 and up from $9.7 billion at the end of 2007. Of the total at the end of 2008, $9.85 billion was in student loans with the remaining $1.73 billion consisting of “other” debt types.