XML 17 R12.htm IDEA: XBRL DOCUMENT v2.3.0.15
Securities Available For Sale
9 Months Ended
Sep. 30, 2011
Securities Available For Sale 
Securities Available For Sale

Note 7 – Securities Available For Sale

The Company's securities available for sale consist of auction-rate securities, which represent interests in pools of student loans guaranteed by the U.S. government under the Federal Family Education Loan Program and a structured finance security. The structured finance security has an attached credit default swap under which the principal value of the structured finance security would be partially or fully forfeited at net default rates on the underlying corporate debt obligations ranging from 8% to 9%. The actual net default rate as of September 30, 2011 was 4.89%. Both the structured finance security and the credit default swap are collateralized by investment grade credit-linked notes made up of floating rate international bank notes or credit card receivable notes.

In the second quarter of 2011, the issuer of one of the Company's student loan auction rate securities redeemed its security at its par value of $4.6 million. In connection with the redemption, $0.4 million of cumulative unrealized losses, and the corresponding tax impact of $0.1 million, were eliminated from other comprehensive income.

 

Due to liquidity issues in the auction rate securities market, there was insufficient observable market data to determine the fair value of the Company's auction rate securities as of September 30, 2011 or December 31, 2010. Therefore, their respective fair values were estimated by an independent valuation firm, Houlihan Capital Advisors, LLC, using a probability-weighted discounted cash flow model. This valuation is sensitive to market conditions and management's judgment and can change significantly based on the assumptions used. The following tables set forth the fair values of the Company's auction rate securities by type of security and underlying credit rating as of the dates indicated (in millions):

 

As of September 30, 2011

    Underlying Credit Rating (1)  
     AAA      CCC      Total  

Student loans

    $ 11.8       $ —         $ 11.8   

Structured finance securities

      —           1.8         1.8   
  

 

 

     

 

 

     

 

 

  

Total auction rate securities

    $ 11.8       $ 1.8       $ 13.6   
  

 

 

     

 

 

     

 

 

  

 

As of December 31, 2010

    Underlying Credit Rating (1)  
     A3/A-      CCC      Total  

Student loans

    $ 16.4       $ —         $ 16.4   

Structured finance securities

      —           2.6         2.6   
  

 

 

     

 

 

     

 

 

  

Total auction rate securities

    $ 16.4       $ 2.6       $ 19.0   
  

 

 

     

 

 

     

 

 

  

 

  (1) The Company's auction rate securities maintain split ratings. For purposes of this table, securities are categorized according to their lowest rating.  

As of September 30, 2011, the yields on the Company's auction-rate securities ranged from 1.70% to 2.46%. These yields represent the predetermined "maximum" reset rates that occur upon auction failures according to the specific terms within each security's governing documents. The issuers have been making interest payments when due. As of September 30, 2011, the weighted average yield for the Company's auction rate securities was 1.97%. Total interest earned on the Company's auction rate securities for the nine months ended September 30, 2011 and 2010 was $0.4 million and $0.5 million, respectively.

Auction Rate Securities – Other Than Temporary Losses

If unrealized losses on investments in securities are believed to be other-than-temporary, an impairment charge is recorded. For both the three and nine months ended September 30, 2011, the Company recognized $0.5 million of other-than-temporary impairment losses in earnings, with a corresponding reduction in the cost basis of the Company's structured finance auction rate security. For the three months and nine months ended September 30, 2010, the Company recognized $0.4 million and $0.8 million, respectively, of other-than-temporary impairment losses in earnings.

Structured Finance Auction Rate Securities

In the fourth quarter of 2009, the Company deemed its structured finance auction rate securities to be other-than-temporarily impaired due to ratings agency downgrades of the corresponding securities. During 2010, the Company sold two of its three structured finance auction rate securities. The Company's remaining structured finance security had a par value of $5.0 million and a cost basis of $1.8 million as of September 30, 2011. Cumulative credit and other losses of $3.2 million have been recognized in connection with this security, $0.5 million of which were recognized in earnings during the first nine months of 2011. In addition, $0.3 million of gross unrealized gains and the corresponding tax impact as of December 31, 2010 were eliminated from other comprehensive income during the nine months ended September 30, 2011. Following the sale of two of the Company's structured finance securities in the fourth quarter of 2010, management determined that the Company no longer met the criteria for intent to hold with respect to its remaining structured finance security. Accordingly, subsequent declines in this security's cost basis have been recognized in earnings. Increases will be recorded in other comprehensive income, net of applicable taxes. As of September 30, 2011, this security's cost basis equaled its carrying value.

Student Loan Auction Rate Securities

Cumulative gross unrealized losses on the Company's student loan auction rate securities, which are included as a component of other comprehensive income, total $1.1 million, or $0.7 million, net of applicable income taxes as of both September 30, 2011 and December 31, 2010.

 

Auction Rate Securities – Reconciliation of Cost Basis to Fair Value

The cost basis, gross cumulative unrealized (losses) gains and estimated fair values of the Company's auction rate securities for the periods indicated are as follows (in millions):

 

     September 30, 2011  
     Adjusted
Cost Basis  (1)		      Gross  Cumulative
Unrealized
(Losses) Gains		     Fair Value  

Auction rate securities – student loans

    $ 12.9       $ (1.1 )    $ 11.8   

Auction rate securities – structured finance securities

      1.8         —          1.8   
  

 

 

     

 

 

    

 

 

  

Total auction rate securities

    $ 14.7       $ (1.1 )    $ 13.6   
  

 

 

     

 

 

    

 

 

  

 

     December 31, 2010  
     Adjusted
Cost Basis  (1)		      Gross  Cumulative
Unrealized
(Losses) Gains		     Fair Value  

Auction rate securities – student loans

    $ 17.5       $ (1.1 )    $ 16.4   

Auction rate securities – structured finance securities

      2.3         0.3        2.6   
  

 

 

     

 

 

    

 

 

  

Total auction rate securities

    $ 19.8       $ (0.8 )    $ 19.0   
  

 

 

     

 

 

    

 

 

  

 

  (1) Adjusted cost basis reflects adjustments for credit and other losses recognized in earnings. Cumulative adjustments to the cost basis of securities held as of September 30, 2011 and December 31, 2010 totaled $3.2 million and $2.7 million, respectively. Par value of securities held as of September 30, 2011 was $17.9 million and as of December 31, 2010 was $22.5 million.  

As of September 30, 2011, contractual maturities of the Company's student loan auction rate securities range from 16 to 36 years, and for the structured finance security, 5 years.