Student-Loan Bond Prices Suffer a Record Decline on Concern over Defaults

[marmar]

from Bloomberg:



Student Loan Debt Prices Tumble, Lenders Stop Extending Credit

By Sarah Mulholland

April 4 (Bloomberg) -- Bonds backed by student loans are losing value for the first time since at least 1999 as investors flee the debt on concern defaults may rise as the economy enters a recession.

Securities with student loans as collateral have fallen 4.2 percent this year after recording their first back-to-back monthly decline in February and March, according to a Merrill Lynch & Co. index of 186 issues from Reston, Virginia-based SLM Corp. that began nine years ago.

The lack of investor demand has made it harder for student lenders to raise money to finance their operations. CIT Group Inc. and NorthStar Education Finance Inc. this week said they will stop making new loans to U.S. students because lending costs have soared. Only two student loan companies sold debt in the asset- backed securities market last month.

``The market was superheated for a while and the pendulum has swung in the other direction where it is hard to find a correlation between the risk and what the market is doing,'' said Gary Santo, a managing director of consumer asset-backed securities at Fitch Ratings in New York.

The Merrill index of student loans, which includes benchmark offerings from Sallie Mae, the largest student lender, dropped 1.5 percent in February and 3.1 percent in March. The only other monthly decline in the past nine years was last October when private-equity firm J.C. Flowers & Co. lowered its buyout offer for the company. .....(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=a1FMk25rTocw&refer=home