Navient's Selloff Was An Overreaction, J.P. Morgan Says

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  • Shares of Navient Corp NAVI have declined 46.97 percent year to date, falling almost to their 52 week low on October 1, at $10.96.
  • J.P. Morgan’s Richard Shane has maintained an Overweight rating on the company.
  • Shane believes that the recent decline in the share price was an overreaction, reflecting the persisting concerns regarding the company’s funding profile.

Analyst Richard Shane mentioned that the company had announced on December 28 that “its credit facility through Federal Home Loan Bank of Des Moines (FHLB-DM) will be reduced from a maximum borrowing limit of $10.7B to $3.9B.”

Navient estimated that its aggregate borrowing capacity would be reduced from $25.6 billion to $18.8 billion, while $16.3 billion was currently drawn.

“NAVI believes that FHLB-DM changed the formula it uses to calculate a borrower's maximum facility to be a function of the borrower’s on balance sheet equity capital,” according to the J.P. Morgan report.

The company indicated that there was no need for any loans to be sold or moved due to this change. The largest impact of this change, according to Shane, is that it would limit the company’s ability to use FHLB funding for the acquisition of FFELP portfolios that might become available in future.

“However, NAVI believes that if a sizable FFELP portfolio were for sale, alternative financing (including seller) would likely be available,” the report said.

The change is not expected to impact Navient’s unsecured debt, while additional liquidity might be realized through “private loan over-collateralization.”

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Posted In: Analyst ColorLong IdeasReiterationAnalyst RatingsTrading IdeasJ.P. MorganRichard Shane
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