NELNET INC, 10-Q filed on 11/7/2013
Quarterly Report
Document and Entity Information Document (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Oct. 31, 2013
Common Class A [Member]
Oct. 31, 2013
Common Class B [Member]
Document Information [Line Items]
 
 
 
 
Entity Registrant Name
NELNET INC 
 
 
 
Document Type
10-Q 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
34,872,451 
11,495,377 
Entity Public Float
 
$ 604,976,291 
 
 
Amendment Flag
false 
 
 
 
Entity Central Index Key
0001258602 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Filer Category
Accelerated Filer 
 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
 
Document Period End Date
Sep. 30, 2013 
 
 
 
Document Fiscal Year Focus
2013 
 
 
 
Document Fiscal Period Focus
Q3 
 
 
 
Consolidated Balance Sheets (unaudited) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Assets:
 
 
Student loans receivable (net of allowance for loan losses)
$ 24,701,112 
$ 24,830,621 
Non-federally insured student loans receivable - held for sale
28,480 
Cash and cash equivalents:
 
 
Cash and cash equivalents - not held at a related party
6,421 
7,567 
Cash and cash equivalents - held at a related party
44,970 
58,464 
Total cash and cash equivalents
51,391 
66,031 
Investments
232,663 
83,312 
Restricted cash and investments
674,926 
815,462 
Restricted cash - due to customers
93,695 
96,516 
Accrued interest receivable
303,350 
307,518 
Accounts receivable (net of allowance for doubtful accounts)
62,951 
63,638 
Goodwill
117,118 
117,118 
Intangible assets, net
6,932 
9,393 
Property and equipment, net
33,013 
31,869 
Other assets
103,021 
88,976 
Fair value of derivative instruments
128,276 
97,441 
Total assets
26,536,928 
26,607,895 
Liabilities:
 
 
Bonds and notes payable
24,858,455 
25,098,835 
Accrued interest payable
14,218 
14,770 
Other liabilities
171,134 
161,671 
Due to customers
93,695 
96,516 
Fair value of derivative instruments
21,513 
70,890 
Total liabilities
25,159,015 
25,442,682 
Nelnet, Inc. shareholders' equity:
 
 
Preferred stock
Common stock:
 
 
Additional paid-in capital
24,068 
32,540 
Retained earnings
1,347,609 
1,129,389 
Accumulated other comprehensive earnings
5,722 
2,813 
Total Nelnet, Inc. shareholders' equity
1,377,863 
1,165,208 
Noncontrolling interest
50 
Total equity
1,377,913 
1,165,213 
Commitments and contingencies
 
 
Total liabilities and equity
26,536,928 
26,607,895 
Common Class A [Member]
 
 
Common stock:
 
 
Common stock
349 
351 
Common Class B [Member]
 
 
Common stock:
 
 
Common stock
115 
115 
Variable Interest Entity, Primary Beneficiary [Member]
 
 
Assets:
 
 
Student loans receivable (net of allowance for loan losses)
24,755,486 
24,920,130 
Cash and cash equivalents:
 
 
Restricted cash and investments
673,304 
753,511 
Other assets
305,546 
306,454 
Fair value of derivative instruments
101,819 
82,841 
Liabilities:
 
 
Bonds and notes payable
25,017,110 
25,209,341 
Other liabilities
311,541 
348,364 
Commitments and contingencies
 
 
Net assets of consolidated variable interest entities
507,504 
505,231 
held for investment [Member]
 
 
Assets:
 
 
Student loans receivable (net of allowance for loan losses)
$ 24,701,112 
$ 24,830,621 
Consolidated Balance Sheets (unaudited) (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2013
Dec. 31, 2012
Allowance for loan losses
$ 54,197 
$ 51,902 
Allowance for doubtful accounts
$ 2,510 
$ 1,529 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, authorized shares
50,000,000 
50,000,000 
Preferred stock, issued shares
Preferred stock, outstanding shares
Common Class A [Member]
 
 
Par Value (in dollars per share)
$ 0.01 
$ 0.01 
Shares Authorized
600,000,000 
600,000,000 
Shares Issued
34,876,145 
35,116,913 
Shares Outstanding
34,876,145 
35,116,913 
Common Class B [Member]
 
 
Par Value (in dollars per share)
$ 0.01 
$ 0.01 
Shares Authorized
60,000,000 
60,000,000 
Shares Issued
11,495,377 
11,495,377 
Shares Outstanding
11,495,377 
11,495,377 
Consolidated Statements of Income (unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Interest income:
 
 
 
 
Loan interest
$ 158,675 
$ 150,528 
$ 472,277 
$ 454,574 
Investment interest
1,562 
1,140 
4,662 
3,290 
Total interest income
160,237 
151,668 
476,939 
457,864 
Interest expense:
 
 
 
 
Interest on bonds and notes payable
55,315 
66,402 
171,800 
203,175 
Net interest income
104,922 
85,266 
305,139 
254,689 
Less provision for loan losses
5,000 
5,000 
15,000 
18,000 
Net interest income after provision for loan losses
99,922 
80,266 
290,139 
236,689 
Other income (expense):
 
 
 
 
Loan and guaranty servicing revenue
64,582 
53,285 
180,261 
155,164 
Tuition payment processing and campus commerce revenue
19,927 
17,928 
61,694 
56,675 
Enrollment services revenue
22,563 
30,661 
76,343 
92,035 
Other income
8,613 
12,699 
30,317 
32,453 
Gain on sale of loans and debt repurchases
2,138 
195 
10,900 
1,130 
Derivative market value and foreign currency adjustments and derivative settlements, net
(16,648)
(31,275)
24,612 
(68,073)
Total other income (expense)
101,175 
83,493 
384,127 
269,384 
Operating expenses:
 
 
 
 
Salaries and benefits
48,712 
46,395 
144,049 
144,193 
Cost to provide enrollment services
14,668 
20,151 
51,097 
62,203 
Depreciation and amortization
4,340 
8,402 
13,037 
24,764 
Other
39,887 
29,989 
109,193 
93,160 
Total operating expenses
107,607 
104,937 
317,376 
324,320 
Income before income taxes
93,490 
58,822 
356,890 
181,753 
Income tax expense
(30,444)
(21,870)
(123,637)
(59,978)
Net income
63,046 
36,952 
233,253 
121,775 
Net income attributable to noncontrolling interest
216 
124 
1,101 
412 
Comprehensive income attributable to noncontrolling interest
216 
124 
1,101 
412 
Net income attributable to Nelnet, Inc.
$ 62,830 
$ 36,828 
$ 232,152 
$ 121,363 
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$ 1.35 
$ 0.78 
$ 4.98 
$ 2.56 
Weighted average common shares outstanding - basic and diluted
46,496,612 
47,460,308 
46,593,241 
47,399,207 
Consolidated Statements of Comprehensive Income (unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Net income
$ 63,046 
$ 36,952 
$ 233,253 
$ 121,775 
Available-for-sale securities:
 
 
 
 
Unrealized holding gains (losses) arising during period, net
5,689 
133 
6,875 
1,745 
Less reclassification adjustment for gains recognized in net income, net
(730)
(2,618)
(2,246)
(4,848)
Income tax effect
(1,834)
961 
(1,720)
1,170 
Total other comprehensive loss
3,125 
(1,524)
2,909 
(1,933)
Comprehensive income
66,171 
35,428 
236,162 
119,842 
Comprehensive income attributable to noncontrolling interest
216 
124 
1,101 
412 
Net income attributable to noncontrolling interest
216 
124 
1,101 
412 
Comprehensive income attributable to Nelnet, Inc.
$ 65,955 
$ 35,304 
$ 235,061 
$ 119,430 
Consolidated Statements of Shareholders' Equity (unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Preferred Stock [Member]
Common Class A [Member]
Common Class B [Member]
Additional paid-in capital [Member]
Retained earnings [Member]
Accumulated other comprehensive earnings [Member]
Employee notes receivable [Member]
Noncontrolling interest [Member]
Balance at Jun. 30, 2012
$ 1,144,898 
$ 0 
$ 358 
$ 115 
$ 52,194 
$ 1,092,715 
$ (409)
$ (368)
$ 293 
Balance (in Shares) at Jun. 30, 2012
 
35,847,801 
11,495,377 
 
 
 
 
 
Net income attributable to Nelnet, Inc.
36,828 
 
 
 
 
36,828 
 
 
 
Net income attributable to noncontrolling interest
124 
 
 
 
 
 
 
 
(124)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
Net income
36,952 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
(1,524)
 
 
 
 
 
(1,524)
 
 
Cash dividend on Class A and Class B common stock
(4,737)
 
 
 
 
(4,737)
 
 
 
Issuance of common stock, net of forfeitures
271 
 
271 
 
 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
(180)
 
 
 
 
 
Compensation expense for stock based awards
584 
 
 
 
584 
 
 
 
 
Repurchase of common stock
(206)
 
(206)
 
 
 
 
Repurchase of common stock (in Shares)
 
 
(8,545)
 
 
 
 
 
Balance at Sep. 30, 2012
1,176,238 
358 
115 
52,843 
1,124,806 
(1,933)
 
417 
Balance (in Shares) at Sep. 30, 2012
 
35,839,076 
11,495,377 
 
 
 
 
 
Balance at Dec. 31, 2011
1,066,205 
356 
115 
49,245 
1,017,629 
(1,140)
Balance (in Shares) at Dec. 31, 2011
 
35,643,102 
11,495,377 
 
 
 
 
 
Net income attributable to Nelnet, Inc.
121,363 
 
 
 
 
121,363 
 
 
 
Net income attributable to noncontrolling interest
412 
 
 
 
 
 
 
 
(412)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
Issuance of minority membership interest
 
 
 
 
 
 
 
Net income
121,775 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
(1,933)
 
 
 
 
 
(1,933)
 
 
Distribution to noncontrolling interest
 
 
 
 
 
 
 
 
Cash dividend on Class A and Class B common stock
(14,186)
 
 
 
 
(14,186)
 
 
 
Issuance of common stock, net of forfeitures
3,548 
 
3,545 
 
 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
255,538 
 
 
 
 
 
Compensation expense for stock based awards
1,573 
 
 
 
1,573 
 
 
 
 
Repurchase of common stock
(1,521)
 
(1)
(1,520)
 
 
 
 
Repurchase of common stock (in Shares)
 
 
(59,564)
 
 
 
 
 
Reduction of employee stock notes receivable
772 
 
 
 
 
 
 
772 
 
Balance at Sep. 30, 2012
1,176,238 
358 
115 
52,843 
1,124,806 
(1,933)
(368)
417 
Balance (in Shares) at Sep. 30, 2012
 
35,839,076 
11,495,377 
 
 
 
 
 
Balance at Dec. 31, 2012
1,165,213 
351 
115 
32,540 
1,129,389 
2,813 
Balance (in Shares) at Dec. 31, 2012
 
35,116,913 
11,495,377 
 
 
 
 
 
Net income attributable to Nelnet, Inc.
232,152 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interest
1,101 
 
 
 
 
 
 
 
(1,101)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
Issuance of minority membership interest
 
 
 
 
 
 
 
Net income
233,253 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
2,909 
 
 
 
 
 
2,909 
 
 
Distribution to noncontrolling interest
(1,061)
 
 
 
 
 
 
 
1,061 
Cash dividend on Class A and Class B common stock
(13,932)
 
 
 
 
(13,932)
 
 
 
Issuance of common stock, net of forfeitures
2,233 
 
2,231 
 
 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
149,608 
 
 
 
 
 
Compensation expense for stock based awards
2,308 
 
 
 
2,308 
 
 
 
 
Repurchase of common stock
(13,015)
 
(4)
(13,011)
 
 
 
 
Repurchase of common stock (in Shares)
 
 
(390,376)
 
 
 
 
 
Balance at Sep. 30, 2013
1,377,913 
349 
115 
24,068 
1,347,609 
5,722 
50 
Balance (in Shares) at Sep. 30, 2013
 
34,876,145 
11,495,377 
 
 
 
 
 
Balance at Jun. 30, 2013
1,319,595 
350 
115 
27,004 
1,289,416 
2,597 
113 
Balance (in Shares) at Jun. 30, 2013
 
34,988,110 
11,495,377 
 
 
 
 
 
Net income attributable to Nelnet, Inc.
62,830 
 
 
 
 
62,830 
 
 
 
Net income attributable to noncontrolling interest
216 
 
 
 
 
 
 
 
(216)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
Net income
63,046 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
3,125 
 
 
 
 
 
3,125 
 
 
Distribution to noncontrolling interest
(279)
 
 
 
 
 
 
 
279 
Cash dividend on Class A and Class B common stock
(4,637)
 
 
 
 
(4,637)
 
 
 
Issuance of common stock, net of forfeitures
264 
 
264 
 
 
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
(745)
 
 
 
 
 
Compensation expense for stock based awards
824 
 
 
 
824 
 
 
 
 
Repurchase of common stock
(4,025)
 
(1)
(4,024)
 
 
 
 
Repurchase of common stock (in Shares)
 
 
(111,220)
 
 
 
 
 
Balance at Sep. 30, 2013
$ 1,377,913 
$ 0 
$ 349 
$ 115 
$ 24,068 
$ 1,347,609 
$ 5,722 
$ 0 
$ 50 
Balance (in Shares) at Sep. 30, 2013
 
34,876,145 
11,495,377 
 
 
 
 
 
Consolidated Statements of Shareholders' Equity (unaudited) (Parentheticals)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Common Class A [Member]
 
 
 
 
Dividends paid per common share
$ 0.10 
$ 0.10 
$ 0.30 
$ 0.30 
Common Class B [Member]
 
 
 
 
Dividends paid per common share
$ 0.10 
$ 0.10 
$ 0.30 
$ 0.30 
Consolidated Statements of Cash Flows (unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Net income attributable to Nelnet, Inc.
$ 232,152 
$ 121,363 
Net income attributable to noncontrolling interest
1,101 
412 
Net income
233,253 
121,775 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs
58,330 
85,370 
Student loan discount accretion
(26,333)
(31,693)
Provision for loan losses
15,000 
18,000 
Derivative market value adjustment
(73,743)
67,349 
Foreign currency transaction adjustment
25,902 
(6,186)
Payments to terminate and/or amend derivative instruments
(6,469)
(6,430)
Gain on sale of loans
(34)
(80)
Gain from debt repurchases
(10,866)
(1,050)
Gain from sales of available-for-sale securities, net
(2,246)
(4,848)
Payments for Origination and Purchases of Loans Held-for-sale
(28,480)
Deferred income tax expense (benefit)
13,279 
(29,141)
Other
2,557 
763 
Decrease in accrued interest receivable
4,168 
40,545 
Increase in accounts receivable
687 
(7,745)
(Increase) decrease in other assets
(2,445)
2,330 
Decrease in accrued interest payable
(552)
(2,998)
Decrease in other liabilities
598 
14,636 
Net cash provided by operating activities
202,606 
260,597 
Cash flows from investing activities:
 
 
Purchases of student loans
(1,696,253)
(875,556)
Purchases Of Student Loans From Related Party
(466,941)
(299)
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
2,269,253 
2,500,005 
Proceeds from sale of student loans
11,287 
92,149 
Purchases of available-for-sale securities
(196,657)
(155,057)
Proceeds from sales of available-for-sale securities
52,733 
112,854 
Payments to Acquire Other Investments
(8,316)
Purchases of property and equipment, net
(11,720)
(7,370)
Decrease (increase) in restricted cash
140,536 
(291,239)
Net cash provided by investing activities
93,922 
1,375,487 
Cash flows from financing activities:
 
 
Payments on bonds and notes payable
(4,159,079)
(2,795,019)
Proceeds from issuance of bonds and notes payable
3,888,772 
1,232,250 
Payments of debt issuance costs
(13,295)
(7,630)
Dividends paid
(13,932)
(14,186)
Repurchases of common stock
(13,015)
(1,521)
Proceeds from issuance of common stock
437 
349 
Payments received on employee stock notes receivable
772 
Issuance of noncontrolling interest
Distribution to noncontrolling interest
(1,061)
Net cash used in financing activities
(311,168)
(1,584,980)
Net increase in cash and cash equivalents
(14,640)
51,104 
Cash and cash equivalents, beginning of period
66,031 
 
Cash and cash equivalents, end of period
51,391 
93,674 
Supplemental disclosures of cash flow information:
 
 
Interest paid
148,482 
179,007 
Income taxes paid, net of refunds
$ 114,744 
$ 86,798 
Basis of Financial Reporting
Basis of Financial Reporting
Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2012 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results for the year ending December 31, 2013. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the "2012 Annual Report").

Student Loans Receivable and Allowance for Loan Losses
Financing Receivables [Text Block]
Student Loans Receivable and Allowance for Loan Losses

Student loans receivable consisted of the following:
 
As of
 
As of
 
September 30, 2013
 
December 31, 2012
 
Held for investment
 
Held for sale
 
Held for investment
Federally insured loans
 
 
 
 
 
Stafford and other
$
6,884,348

 

 
7,261,114

Consolidation
17,908,229

 

 
17,708,732

Total
24,792,577

 

 
24,969,846

Non-federally insured loans
66,283

 
28,480

 
26,034

 
24,858,860


28,480

 
24,995,880

Loan discount, net of unamortized loan premiums and deferred origination costs
(103,551
)
 

 
(113,357
)
Allowance for loan losses – federally insured loans
(42,406
)
 

 
(40,120
)
Allowance for loan losses – non-federally insured loans
(11,791
)
 

 
(11,782
)
 
$
24,701,112

 
28,480

 
24,830,621

Allowance for federally insured loans as a percentage of such loans
0.17
%
 
 
 
0.16
%
Allowance for non-federally insured loans as a percentage of such loans
17.79
%
 
 
 
45.26
%


Activity in the Allowance for Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance appropriate to absorb losses, net of recoveries, inherent in the portfolio of student loans. Activity in the allowance for loan losses is shown below.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
51,611

 
49,657

 
51,902

 
48,482

Provision for loan losses:
 
 
 
 
 

 
 

Federally insured loans
5,000

 
5,000

 
16,000

 
18,000

Non-federally insured loans

 

 
(1,000
)
 

Total provision for loan losses
5,000

 
5,000

 
15,000

 
18,000

Charge-offs:
 

 
 

 
 

 
 

Federally insured loans
(3,142
)
 
(5,449
)
 
(12,472
)
 
(16,943
)
Non-federally insured loans
(906
)
 
(1,058
)
 
(2,270
)
 
(2,355
)
Total charge-offs
(4,048
)
 
(6,507
)
 
(14,742
)
 
(19,298
)
Recoveries - non-federally insured loans
363

 
399

 
1,173

 
1,104

Purchase (sale) of federally insured loans, net
700

 
(928
)
 
(1,243
)
 
(2,647
)
Transfer from repurchase obligation related to non-federally insured loans repurchased, net
571

 
588

 
2,107

 
2,568

Balance at end of period
$
54,197

 
48,209

 
54,197

 
48,209

 
 
 
 
 
 
 
 
Allocation of the allowance for loan losses:
 
 
 

 
 

 
 

Federally insured loans
$
42,406

 
35,614

 
42,406

 
35,614

Non-federally insured loans
11,791

 
12,595

 
11,791

 
12,595

Total allowance for loan losses
$
54,197

 
48,209

 
54,197

 
48,209


Repurchase Obligations

As of September 30, 2013, the Company had participated a cumulative amount of $98.5 million (par value) of non-federally insured loans to third parties. Loans participated under these agreements have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included in the Company’s consolidated balance sheets. Per the terms of the servicing agreements, the Company’s servicing operations are obligated to repurchase loans subject to the participation interests in the event such loans become 60 or 90 days delinquent.

In addition, in 2011, the Company sold a portfolio of non-federally insured loans for proceeds of $91.3 million (100% of par value).  The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent. As of September 30, 2013, the balance of this portfolio was $66.0 million (par value).

The Company’s estimate related to its obligation to repurchase these loans is included in “other liabilities” in the Company’s consolidated balance sheets. The activity related to this accrual is detailed below.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Beginning balance
$
14,594

 
17,243

 
16,130

 
19,223

Repurchase obligation transferred to the allowance for loan losses related to loans repurchased, net
(571
)
 
(588
)
 
(2,107
)
 
(2,568
)
Ending balance
$
14,023

 
16,655

 
14,023

 
16,655


Student Loan Status and Delinquencies

Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.  The percent of non-federally insured loans held for investment that were delinquent 31 days or greater as of September 30, 2013, December 31, 2012, and September 30, 2012 was 13.4 percent, 28.6 percent, and 26.0 percent, respectively. The table below shows the Company’s federally insured student loan delinquency amounts.

Rehabilitation Loans and Delinquent Loans Funded in FFELP Warehouse Facilities

Rehabilitation loans are student loans that have previously defaulted, but for which the borrower has made a specified number of on-time payments.  Although rehabilitation loans benefit from the same guarantees as other federally insured student loans, rehabilitation loans have generally experienced re-default rates that are higher than default rates for federally insured student loans that have not previously defaulted.  The Company has purchased a significant amount of rehabilitation loans during 2012 and 2013.  Upon purchase, these loans are recorded at fair value, which generally approximates the federal guarantee rate under the Federal Family Education Loan Program ("FFEL Program" or "FFELP").  As such, there is minimal credit risk related to rehabilitation loans purchased; therefore, these loans are presented separately in the following delinquency tables.

In addition, the Company has purchased delinquent federally insured loans that are funded in the Company's FFELP warehouse facilities. Upon purchase, these loans are recorded at fair value, which generally approximates the federal guarantee rate. As such, there is minimal credit risk related to these loans. Loans delinquent 121 days or greater and funded in the Company's FFELP warehouse facilities are included with rehabilitated loans purchased in the following delinquency tables.

 
As of September 30, 2013
 
As of December 31, 2012
 
As of September 30, 2012
Federally insured loans, excluding rehabilitation loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
2,780,442

 
 
 
$
2,949,320

 
 
 
$
3,163,918

 
 
Loans in forbearance
2,953,119

 
 
 
2,992,023

 
 
 
2,868,168

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
14,157,330

 
87.2
%
 
14,583,044

 
87.6
%
 
13,673,217

 
87.2
%
Loans delinquent 31-60 days
662,814

 
4.1

 
652,351

 
3.9

 
586,021

 
3.7

Loans delinquent 61-90 days
354,975

 
2.2

 
330,885

 
2.0

 
308,377

 
2.0

Loans delinquent 91-120 days
235,681

 
1.5

 
247,381

 
1.5

 
237,941

 
1.5

Loans delinquent 121-270 days
624,042

 
3.8

 
603,942

 
3.6

 
628,697

 
4.0

Loans delinquent 271 days or greater
195,853

 
1.2

 
220,798

 
1.4

 
253,438

 
1.6

Total loans in repayment
16,230,695

 
100.0
%
 
16,638,401

 
100.0
%
 
15,687,691

 
100.0
%
Total federally insured loans, excluding rehabilitation loans
$
21,964,256

 
 

 
$
22,579,744

 
 

 
$
21,719,777

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rehabilitation loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
259,377

 
 
 
$
150,317

 
 
 
$
90,836

 
 
Loans in forbearance
443,629

 
 
 
330,278

 
 
 
129,257

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
1,078,730

 
50.7
%
 
670,205

 
35.1
%
 
418,584

 
61.9
%
Loans delinquent 31-60 days
188,583

 
8.9

 
113,795

 
6.0

 
52,053

 
7.7

Loans delinquent 61-90 days
125,310

 
5.9

 
79,691

 
4.2

 
35,104

 
5.2

Loans delinquent 91-120 days
137,016

 
6.4

 
186,278

 
9.8

 
33,931

 
5.0

Loans delinquent 121-270 days
354,192

 
16.7

 
633,001

 
33.1

 
99,041

 
14.7

Loans delinquent 271 days or greater
241,484

 
11.4

 
226,537

 
11.8

 
37,025

 
5.5

Total loans in repayment
2,125,315

 
100.0
%
 
1,909,507

 
100.0
%
 
675,738

 
100.0
%
Total rehabilitation loans
2,828,321

 
 
 
2,390,102

 
 
 
895,831

 
 
Total federally insured loans
$
24,792,577

 
 
 
$
24,969,846

 
 
 
$
22,615,608

 
 
Bonds and Notes Payable
Bonds and Notes Payable
 Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:
 
As of September 30, 2013
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
22,632,522

 
0.27% - 6.90%
 
11/25/15 - 8/26/52
Bonds and notes based on auction or remarketing
890,500

 
0.08% - 2.13%
 
5/1/28 - 5/25/42
Total variable-rate bonds and notes
23,523,022

 
 
 
 
FFELP warehouse facilities
1,277,650

 
0.18% - 0.28%
 
1/17/16 - 6/12/16
Unsecured line of credit
75,000

 
1.68%
 
3/28/18
Unsecured debt - Junior Subordinated Hybrid Securities
99,232

 
3.62%
 
9/15/61
Other borrowings
61,828

 
1.68% - 5.10%
 
11/14/13 - 11/11/15
 
25,036,732

 
 
 
 
Discount on bonds and notes payable
(178,277
)
 
 
 
 
Total
$
24,858,455

 
 
 
 
 
As of December 31, 2012
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
21,185,140

 
0.32% - 6.90%
 
11/25/15 - 8/26/52
Bonds and notes based on auction or remarketing
969,925

 
0.15% - 2.14%
 
5/1/28 - 5/25/42
Total variable-rate bonds and notes
22,155,065

 
 
 
 
FFELP warehouse facilities
1,554,151

 
0.21% - 0.29%
 
1/31/15 - 6/30/15
Department of Education Conduit
1,344,513

 
0.82%
 
1/19/14
Unsecured line of credit
55,000

 
1.71%
 
2/17/16
Unsecured debt - Junior Subordinated Hybrid Securities
99,232

 
3.68%
 
9/15/61
Other borrowings
62,904

 
1.50% - 5.10%
 
11/14/13 - 11/11/15
 
25,270,865

 
 
 
 
Discount on bonds and notes payable
(172,030
)
 
 
 
 
Total
$
25,098,835

 
 
 
 


FFELP Warehouse Facilities

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.

As of September 30, 2013, the Company had four FFELP warehouse facilities as summarized below.
 
 
NHELP-I (a)
 
NHELP-III (b)
 
NHELP-II (c)
 
NFSLW-I (d)
 
Total
Maximum financing amount
 
$
500,000

 
750,000

 
500,000

 
500,000

 
2,250,000

Amount outstanding
 

 
637,770

 
373,258

 
266,622

 
1,277,650

Amount available
 
$
500,000

 
112,230

 
126,742

 
233,378

 
972,350

Expiration of liquidity provisions
 


 
January 16, 2014

 
February 28, 2014

 
June 12, 2014

 
 
Final maturity date
 


 
January 17, 2016

 
February 28, 2016

 
June 12, 2016

 
 
Maximum advance rates
 
 
 
92.2 - 95%

 
84.5 - 94.5%

 
92 - 98%

 
 
Minimum advance rates
 
 
 
92.2 - 95%

 
84.5 - 94.5%

 
84 - 90%

 
 
Advanced as equity support
 
$

 
36,926

 
33,863

 
11,647

 
82,436


(a)
On October 1, 2013, the Company terminated this facility. All loans previously financed in this facility were financed in other warehouse facilities during the third quarter of 2013.
(b)
The Company entered into this facility on January 16, 2013. On September 16, 2013, the Company amended this facility to increase the maximum financing amount from $500 million to $750 million.
(c)
On June 3, 2013, the Company amended this facility to change the terms of the advance rates.

(d)
On June 13, 2013, the Company amended this facility to change the terms of the advance rates and extend the expiration of the liquidity provisions and its final maturity date.

Each FFELP warehouse facility is supported by 364-day liquidity provisions, which are subject to the respective expiration date shown in the previous table. In the event the Company is unable to renew the liquidity provisions by such date, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date. The NFSLW-I warehouse facility provides for formula-based advance rates, depending on FFELP loan type, up to a maximum of the principal and interest of loans financed as shown in the table above. The advance rates for collateral may increase or decrease based on market conditions, but they are subject to minimums as disclosed above. The NHELP-III and NHELP-II warehouse facilities have static advance rates that require initial equity for loan funding, but do not require increased equity based on market movements.

The FFELP warehouse facilities contain financial covenants relating to levels of the Company’s consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash. Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facilities.

Asset-backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the nine months ended September 30, 2013.
 
 
2013-1
 
2013-2 (a)
 
2013-3
 
2013-4
 
2013-5 (a)
 
Total
Date securities issued
 
1/31/13
 
2/28/13
 
4/30/13
 
6/21/13
 
9/30/13
 
 
Total original principal amount
 
$
437,500

 
1,122,000

 
765,000

 
453,000

 
399,000

 
$
3,176,500

 
 
 
 
 
 
 
 
 
 
 
 
 
Class A senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
Total original principal amount
 
$
428,000

 
1,122,000

 
745,000

 
440,000

 
399,000

 
3,134,000

Bond discount
 

 
(3,325
)
 

 
(1,690
)
 
(4,881
)
 
(9,896
)
Issue price
 
$
428,000

 
1,118,675

 
745,000

 
438,310

 
394,119

 
3,124,104

Cost of funds (1-month LIBOR plus:)
 
0.60
%
 
0.50
%
 
0.50
%
 
0.50
%
 
0.63
%
 
 
Final maturity date
 
6/25/41

 
7/25/40

 
2/25/37

 
12/26/42

 
1/25/37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class B subordinated notes:
 
 
 
 
 
 
 
 
 
 
 
 
Total original principal amount
 
$
9,500

 
 
 
20,000

 
13,000

 
 
 
42,500

Bond discount
 
(1,525
)
 
 
 
(1,762
)
 
(1,804
)
 
 
 
(5,091
)
Issue price
 
$
7,975

 
 
 
18,238

 
11,196

 
 
 
37,409

Cost of funds (1-month LIBOR plus:)
 
1.50
%
 
 
 
1.50
%
 
1.50
%
 
 
 
 
Final maturity date
 
3/25/48

 
 
 
7/25/47

 
1/25/47

 
 
 
 

(a)
Total original principal amount excludes the Class B subordinated tranches for the 2013-2 and 2013-5 transactions totaling $34.0 million and $9.0 million, respectively, that were retained at issuance. As of September 30, 2013, the Company has a total of $85.5 million (face amount) of its own Class B subordinated notes remaining from prior completed asset-backed securitizations that are not included in the Company's consolidated balance sheet.

Department of Education Conduit

In May 2009, the U.S. Department of Education (the "Department") implemented a program under which it financed eligible FFELP loans in a conduit vehicle established to provide funding for student lenders (the "Conduit Program").  As of December 31, 2012, the Company had $1.3 billion borrowed under this facility. On February 28, 2013, all student loans funded in the Conduit Program were refinanced in the 2013-2 asset-backed securitization and the Company's FFELP warehouse facilities. After these transactions, no loans remained financed by the Company in the Conduit Program and the facility was paid down in full. No additional loans can be financed in this facility, and the Conduit Program has expired for future use by the Company.

Unsecured Line of Credit

On February 17, 2012, the Company entered into a $250.0 million unsecured line of credit. On March 28, 2013, the facility was amended to increase the line of credit to $275.0 million and extend the maturity date from February 17, 2016 to March 28, 2018. There were no significant financial covenant changes made as part of this amendment. As of September 30, 2013, $75.0 million was outstanding on the unsecured line of credit and $200.0 million was available for future use.

Debt Repurchases

The Company repurchased $15.4 million (face amount) and $4.1 million (face amount) of its own asset-backed debt securities during the three months ended September 30, 2013 and 2012, respectively, and recognized gains on such purchases of $2.1 million and $0.2 million, respectively. During the nine months ended September 30, 2013 and 2012, the Company repurchased $84.7 million (face amount) and $21.7 million (face amount) of its own asset-backed debt securities and recognized gains of $10.9 million and $1.1 million, respectively.
Derivative Financial Instruments
Derivative Financial Instruments
Derivative Financial Instruments

The Company uses derivative financial instruments primarily to manage interest rate risk and foreign currency exchange risk.

Interest Rate Risk

The Company is exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company's assets do not match the interest rate characteristics of the funding for those assets. The Company has adopted a policy of periodically reviewing the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company's outlook as to current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy. Derivative instruments used as part of the Company's interest rate risk management strategy currently include basis swaps and interest rate swaps.

Basis Swaps

Interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate.  Meanwhile, the Company funds the majority of its assets with three-month LIBOR indexed floating rate securities.  The different interest rate characteristics of the Company's loan assets and liabilities funding these assets results in basis risk.

The Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occur daily. As of September 30, 2013, the Company had $23.7 billion and $1.0 billion of FFELP loans indexed to the one-month LIBOR rate and the three-month treasury bill rate, respectively, the indices for which reset daily, and $15.2 billion of debt indexed to three-month LIBOR, the indices for which reset quarterly, and $8.1 billion of debt indexed to one-month LIBOR, the indices for which reset monthly.

The Company has used derivative instruments to economically hedge its basis and repricing risk.  The Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the 1:3 Basis Swaps).

The following table summarizes the Company’s 1:3 Basis Swaps outstanding:
 
 
 
 
 
As of September 30, 2013
 
As of December 31, 2012
 
 
Maturity
 
Notional amount
 
Notional amount
 
 
2021
 
 
$
250,000

 
250,000

 
 
2022
 
 
1,900,000

 
1,900,000

 
 
2023
 
 
3,650,000

 
3,150,000

 
 
2024
 
 
250,000

 
250,000

 
 
2026
 
 
800,000

 
800,000

 
 
2028
 
 
100,000

 
100,000

 
 
2036
 
 
700,000

 
700,000

 
 
2039
(a)
 
150,000

 
150,000

 
 
2040
(b)
 
200,000

 
200,000

 
 
 
 
 
$
8,000,000

(c)
7,500,000

(c)
(a)This derivative has a forward effective start date in 2015.
(b)This derivative has a forward effective start date in 2020.
(c)
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2013 and December 31, 2012, was one-month LIBOR plus 3.5 basis points and one-month LIBOR plus 3.3 basis points, respectively.
Interest Rate Swaps – Floor Income Hedges

FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the Special Allowance Payments ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its student loan portfolio with variable rate debt. In low and/or certain declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.

Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for those loans to the Department.

Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.

As of September 30, 2013 and December 31, 2012, the Company had $11.2 billion and $11.3 billion, respectively, of student loan assets that were earning fixed rate floor income. The weighted average estimated variable conversion rate for these loans, which is the estimated short-term interest rate at which the loans would convert to a variable rate, was 1.82%.

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
 
 
As of September 30, 2013
 
As of December 31, 2012
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
 
 
 
2013
 
$

 
%
 
$
3,150,000

 
0.71
%
2014
 
1,750,000

 
0.71

 
1,750,000

 
0.71

2015
 
1,100,000

 
0.89

 
1,100,000

 
0.89

2016
 
750,000

 
0.85

 
750,000

 
0.85

2017
 
1,250,000

 
0.86

 
750,000

 
0.99

 
 
$
4,850,000

 
0.81
%
 
$
7,500,000

 
0.78
%

(a)
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
Interest Rate Swaps – Unsecured Debt Hedges

As of both September 30, 2013 and December 31, 2012, the Company had $99.2 million of unsecured Junior Subordinated Hybrid Securities debt outstanding. The interest rate on the Hybrid Securities through September 29, 2036 is equal to three-month LIBOR plus 3.375%, payable quarterly. The Company had the following derivatives outstanding that are used to effectively convert the variable interest rate on a portion of the Hybrid Securities to a fixed rate of 7.7%.
 
 
 
As of September 30, 2013
 
As of December 31, 2012
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
2036
 
$
25,000

 
4.28
%
 
$
75,000

 
4.28
%
(a)
For all interest rate derivatives, the Company receives discrete three-month LIBOR.

Foreign Currency Exchange Risk

In 2006, the Company issued €420.5 million and €352.7 million of student loan asset-backed Euro Notes with interest rates based on a spread to the EURIBOR index. As a result of these transactions, the Company is exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. dollar and Euro. The principal and accrued interest on these notes are re-measured at each reporting period and recorded in the Company’s consolidated balance sheet in U.S. dollars based on the foreign currency exchange rate on that date. Changes in the principal and accrued interest amounts as a result of foreign currency exchange rate fluctuations are included in the Company’s consolidated statements of income.

The Company entered into cross-currency interest rate swaps in connection with the issuance of the Euro Notes. Under the terms of these derivative instrument agreements, the Company receives from a counterparty a spread to the EURIBOR index based on notional amounts of €420.5 million and €352.7 million and pays a spread to the LIBOR index based on notional amounts of $500.0 million and $450.0 million, respectively. In addition, under the terms of these agreements, all principal payments on the Euro Notes will effectively be paid at the exchange rate between the U.S. dollar and Euro in effect as of the issuance of the notes.

The following table shows the income statement impact as a result of the re-measurement of the Euro Notes and the change in the fair value of the related derivative instruments.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Re-measurement of Euro Notes
$
(39,974
)
 
(20,799
)
 
(25,902
)
 
6,186

Change in fair value of cross-currency interest rate swaps
39,074

 
24,586

 
18,978

 
(24,934
)
Total impact to consolidated statements of income - income (expense) (a)
$
(900
)
 
3,787

 
(6,924
)
 
(18,748
)
(a)
The financial statement impact of the above items is included in "Derivative market value and foreign currency adjustments and derivative settlements, net" in the Company's consolidated statements of income.
The re-measurement of the Euro-denominated bonds generally correlates with the change in fair value of the cross-currency interest rate swaps. However, the Company will experience unrealized gains or losses related to the cross-currency interest rate swaps if the two underlying indices (and related forward curve) do not move in parallel.

Consolidated Financial Statement Impact Related to Derivatives

The following table summarizes the fair value of the Company’s derivatives as reflected in the consolidated balance sheets:
 
Fair value of asset derivatives
 
Fair value of liability derivatives
 
As of
 
As of
 
As of
 
As of
 
September 30,
2013
 
December 31,
2012
 
September 30,
2013
 
December 31,
2012
1:3 basis swaps
$
20,425

 
12,239

 

 
1,215

Interest rate swaps - floor income hedges
6,032

 

 
18,186

 
45,913

Interest rate swaps - hybrid debt hedges

 

 
3,327

 
23,762

Cross-currency interest rate swaps
101,819


82,841

 

 

Other

 
2,361

 

 

Total
$
128,276

 
97,441

 
21,513

 
70,890



During the three and nine months ended September 30, 2013, the Company terminated certain derivatives for net payments of $2.7 million and $6.5 million, respectively. During the three and nine months ended September 30, 2012, the Company paid $6.4 million to terminate certain derivatives. Any proceeds received or payments made to terminate a derivative in advance of its expiration date are accounted for as a change in fair value of such derivative.

Offsetting of Derivative Assets/Liabilities

The Company records derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at its fair value. Certain of the Company's derivative instruments are subject to right of offset provisions with counterparties. The following tables include the gross amounts related to the Company's derivative portfolio recognized in the consolidated balance sheets, reconciled to the net amount when excluding derivatives subject to enforceable master netting arrangements and cash collateral received/pledged:
 
 
 
 
Gross amounts not offset in the consolidated balance sheets
 
 
Derivative assets
 
Gross amounts of recognized assets presented in the consolidated balance sheets
 
Derivatives subject to enforceable master netting arrangement
 
Cash collateral received (a)
 
Net asset (liability)
Balance as of September 30, 2013
 
$
128,276

 
(17,991
)
 
(73,734
)
 
36,551

Balance as of December 31, 2012
 
97,441

 
(13,234
)
 
(19,993
)
 
64,214


 
 
 
 
Gross amounts not offset in the consolidated balance sheets
 
 
Derivative liabilities
 
Gross amounts of recognized liabilities presented in the consolidated balance sheets
 
Derivatives subject to enforceable master netting arrangement
 
Cash collateral pledged (b)
 
Net asset (liability)
Balance as of September 30, 2013
 
$
(21,513
)
 
17,991

 
4,000

 
478

Balance as of December 31, 2012
 
(70,890
)
 
13,234

 
63,128

 
5,472



(a)
As of September 30, 2013 and December 31, 2012, the trustee for certain of the Company's asset-backed securitization transactions held $73.7 million and $20.0 million, respectively, of collateral from the counterparty on the cross-currency interest rate swaps.

(b)
As of September 30, 2013 and December 31, 2012, the Company had $4.0 million and $63.1 million, respectively, posted as collateral to derivative counterparties, which is included in “restricted cash and investments” in the Company's consolidated balance sheet.

The following table summarizes the effect of derivative instruments in the consolidated statements of income.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Settlements:
 

 
 

 
 

 
 

1:3 basis swaps
$
781

 
1,100

 
2,474

 
3,651

Interest rate swaps - floor income hedges
(7,178
)
 
(5,595
)
 
(24,017
)
 
(12,237
)
Interest rate swaps - hybrid debt hedges
(256
)
 
(733
)
 
(1,413
)
 
(1,479
)
Cross-currency interest rate swaps
(35
)
 
227

 
(273
)
 
3,390

Other

 
(50
)
 

 
(235
)
Total settlements - income (expense)
(6,688
)
 
(5,051
)
 
(23,229
)
 
(6,910
)
Change in fair value:
 

 
 

 
 

 
 

1:3 basis swaps
(2,161
)
 
(4,578
)
 
9,402

 
(2,005
)
Interest rate swaps - floor income hedges
(9,599
)
 
(29,903
)
 
33,231

 
(41,681
)
Interest rate swaps - hybrid debt hedges
2,700

 
1,695

 
11,790

 
(890
)
Cross-currency interest rate swaps
39,074

 
24,586

 
18,978

 
(24,934
)
Other

 
2,775

 
342

 
2,161

Total change in fair value - income (expense)
30,014

 
(5,425
)
 
73,743

 
(67,349
)
Re-measurement of Euro Notes (foreign currency transaction adjustment) - income (expense)
(39,974
)
 
(20,799
)
 
(25,902
)
 
6,186

Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense)
$
(16,648
)
 
(31,275
)
 
24,612

 
(68,073
)
Investments
Investments
Investments

A summary of the Company's investments and restricted investments follows:
 
As of September 30, 2013
 
As of December 31, 2012
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses (a)
 
Fair value
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loan asset-backed and other debt securities (b)
$
211,548

 
8,535

 
(968
)
 
219,115

 
64,970

 
3,187

 
(179
)
 
67,978

Equity securities
1,550

 
1,519

 
(5
)
 
3,064

 
3,449

 
1,604

 
(180
)
 
4,873