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ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEARS ENDED JUNE 30, 2018 AND 2017
ACCESS TO LOANS FOR LEARNING STUDENT LOAN
CORPORATION
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 2018 AND 2017
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION TABLE OF CONTENTS
YEARS ENDED JUNE 30, 2018 AND 2017
INDEPENDENT AUDITORS’ REPORT 1
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION 3
STATEMENTS OF ACTIVITIES 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION 19
SUPPLEMENTARY INFORMATION
SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION 20
SUPPLEMENTAL STATEMENT OF ACTIVITIES 21
SUPPLEMENTAL STATEMENT OF CASH FLOWS 22
CliftonLarsonAllen LLPCLAconnect.com
(1)
INDEPENDENT AUDITORS’ REPORT
Board of Directors Access to Loans for Learning Student Loan Corporation Manhattan Beach, California We have audited the accompanying financial statements of Access to Loans for Learning Student Loan Corporation (a nonprofit corporation), which comprise the statement of financial position as of June 30, 2018, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting principles in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Board of Directors Access to Loans for Learning Student Loan Corporation
(2)
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Access to Loans for Learning Student Loan Corporation as of June 30, 2018, and the results of its operations and its cash flows for the year then ended in accordance with generally accepted accounting principles in the United States of America. Other Matter The 2017 financial statements were audited by other auditors, whose report dated December 15, 2017, expressed an unmodified opinion on those statements.
CliftonLarsonAllen LLP
Pasadena, California December 5, 2018
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2018 AND 2017 (IN THOUSANDS OF DOLLARS)
See accompanying Notes to Financial Statements. (3)
2018 2017
ASSETS
Cash and Cash Equivalents 18,437$ 26,653$ Investments - Indenture Reserve Cash 2,496 2,581 Student Loans, Net of Allowance for Loan Losses of $374 and $419 622,525 704,149 Accrued Interest Receivable 18,652 17,350 Other Assets 1,157 1,786
Total Assets 663,267$ 752,519$
LIABILITIES AND NET ASSETS
Accounts Payable and Accrued Expenses 2,608$ 3,866$ Note Payable to Affiliate 3,602 3,496 Interest Payable 1,380 1,017 Bonds and Notes Payable, Net of Unamortized Bond Discount and Issue Costs of $17,441 and $18,388 593,776 681,498 Other Liabilities 198 223
Total Liabilities 601,564 690,100
Unrestricted Net Assets 61,703 62,419
Total Liabilities and Net Assets 663,267$ 752,519$
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION STATEMENTS OF ACTIVITIES
YEARS ENDED JUNE 30, 2018 AND 2017 (IN THOUSANDS OF DOLLARS)
See accompanying Notes to Financial Statements. (4)
2018 2017
INTEREST INCOMEStudent Loan Interest, Net of Special Allowance 22,376$ 20,291$ Investments, Net 249 88
Total Interest Income 22,625 20,379
INTEREST EXPENSEInterest 17,732 14,178 Liquidity Facility and Other Fees 151 158 Amortization of Bond Financing Costs 232 1,394 Amortization of Bond Discount 714 720
Total Interest Expense 18,829 16,450
NET INTEREST INCOME 3,796 3,929
OTHER INCOMESettlement Proceeds - 850 Early Extinguishment of Debt 559 -
Total Other Income 559 850
OTHER EXPENSESManagement Fees to Affiliate 370 1,219 Student Loan Servicing Fees 1,241 1,529 Portfolio Management Fees to Affiliate 2,469 2,785 Other 991 914
Total Other Expenses 5,071 6,447
CHANGE IN NET ASSETS (716) (1,668)
Net Assets - Beginning of Year 62,419 64,087
NET ASSETS - END OF YEAR 61,703$ 62,419$
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2018 AND 2017 (IN THOUSANDS OF DOLLARS)
See accompanying Notes to Financial Statements. (5)
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIESChange in Net Assets (716)$ (1,668)$ Adjustments to Reconcile Change in Net Assets to Net Cash Used by Operating Activities:
Amortization of Deferred Bond Financing Costs, Bond Discount, and Loan Premiums and Fees 1,269 2,457 Capitalization of Interest (10,829) (13,006) Provision for Loan Loss Principal and Interest 260 306 Early Extinguishment of Debt (559) - Changes in Operating Assets and Liabilities:
Indenture Reserve Cash 85 100 Accrued Interest Receivable (1,302) 17 Other Assets 629 (90) Accounts Payable and Accrued Expenses (1,258) (1,067) Interest Payable 363 238 Other Liabilities (25) (30)
Net Cash Used by Operating Activities (12,083) (12,743)
CASH FLOWS FROM INVESTING ACTIVITIESNet Decrease in Loans 91,871 109,050
CASH FLOWS FROM FINANCING ACTIVITIESRetirement of Bonds Payable (88,110) (96,097) Note Payable to Affiliate 106 104
Net Cash Used by Financing Activities (88,004) (95,993)
CHANGE IN CASH AND CASH EQUIVALENTS (8,216) 314
Cash and Cash Equivalents - Beginning of Year 26,653 26,339
CASH AND CASH EQUIVALENTS - END OF YEAR 18,437$ 26,653$
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash Paid During the Year for Interest 17,369$ 13,837$
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Access to Loans for Learning Student Loan Corporation (ALL Student Loan Corporation, or the Entity), is a nonprofit member public benefit corporation incorporated in California on June 23, 1980. The Entity operates exclusively to provide financing for post-secondary education by providing loans to students and their parents that are guaranteed and reinsured under the Higher Education Act of 1965, as amended (the Act).
ALL Management Corporation (ALL Management), an unconsolidated affiliated nonprofit public benefit corporation, provides administrative, management and marketing services to the Entity, in exchange for negotiated management and administrative fees. ALL Management is the sole member and shares with the Entity a board of directors and certain key management personnel.
The Health Care and Education Reconciliation Act of 2010 (HCERA) was signed into law on March 30, 2010 (P.L. 11-152). Among other provisions, the HCERA prohibits any new federal education loans (including Stafford, PLUS, Grad PLUS, and Consolidation loans) from being originated or insured under the Federal Family Education Loan (FFEL) program after June 30, 2010. Starting July 1, 2010, all new federal education loans will be originated through the William D. Ford Federal Direct Loan Program. This law effectively eliminated any further student loan portfolio growth by loan originations.
The Entity has historically relied on the issuance of tax-exempt and taxable asset-backed revenue bonds as a source of funding for student loans on a long-term basis. Beginning with the failure of the auction rate securities market in February 2008 and the subsequent severe disruptions in the credit and financial markets, asset-backed revenue bond financing for student loans has been generally unavailable until recently where the market is showing signs of revitalizing. The Entity is actively pursuing restructuring opportunities and utilized the proceeds of its Series 2013-1 bonds to refund a substantial portion of its Series IV indenture to provide cost-effective financing for these assets. The Entity is currently exploring options for its remaining Series IV indenture that would restructure or refund the remainder of this indenture and provide the Entity with cost-effective future financing for these assets.
Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting following accounting guidance for nonprofit entities.
Under accounting guidance for nonprofit entities, net assets, revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. At June 30, 2018 and 2017, the net assets of the Entity are not subject to any donor-imposed restrictions and are reported as "Unrestricted Net Assets." The only limits on unrestricted net assets are broad limits resulting from the nature of the Entity and the purposes specified in its articles of incorporation or bylaws and limits resulting from contractual agreements.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of Presentation (Continued) The financial statements of the Entity include all of the accounts of the bond indentures and the general corporate management fund (general fund). All inter-account balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of demand deposits in banks, money market funds and other short-term investments that are readily convertible to known amounts of cash with original maturities of 90 days or less. Investments The Entity’s investments are held in variable rate investment contracts. These investments are carried at cost, which approximates fair value due to the short maturity of these instruments. The Entity records investment revenue net of related trustee fees, if any, charged for managing investments and cash equivalent money market funds. For the fiscal years ended June 30, 2018 and 2017, the trustee for the indentures retained approximately $90,000 and $90,000, respectively, in investment management fees. Student Loans Student loans are presented at their unpaid principal balances, adjusted for net unamortized direct loan origination costs, premiums and transfer fees and allowance for loan losses. The payment of interest on unsubsidized Stafford loans that accrues while the student is enrolled in school and during the post-graduation repayment grace period may be deferred throughout such period. This deferred and unpaid interest is capitalized and added to loan principal upon the student entering repayment status. Interest on student loans is recognized as it is earned, net of amortization of premiums, capitalized direct loan obligation costs, and deferred fee income. The Entity defers premiums paid to acquire loans and loan origination costs and amortizes them over the average life of a student loan on a method that approximates the effective yield method.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for Loan Losses The Entity’s provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred losses, net of recoveries, inherent in the held-for-investment student loan portfolios. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. The evaluation of the allowance for loan losses is subjective, as it requires material estimates that may be susceptible to significant changes. Estimated losses are based on historical delinquency and credit loss experience adjusted for expected market conditions and aging of the portfolios. Management believes that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolio. Deferred Bond Financing Costs Costs incurred in preparation for and connection with the original issuance of debt are deferred and amortized over the life of the bonds or the original credit facility, as appropriate, on a method that approximates the effective interest method. Bond Discount Bonds and notes payable are recorded as liabilities at their nominal value. Discounts connected with the issuance of these bonds are recorded separately and amortized utilizing the effective interest method. Direct Loan Origination Costs and Fee Income In accordance with applicable accounting guidance, direct loan origination costs, and fee income attributable to education loans being held for investment are deferred and the related amortization is recognized over the expected life of the related loans as an adjustment of yield using the effective interest method. Such items include costs incurred in evaluating the prospective borrower’s financial condition, preparing and processing loan documents, closing the loan transactions, borrower benefits, certain origination fees paid to the Department of Education (the Department), and third-party services. These costs are amortized over the average life of the student loan on a method that approximates the effective interest method with appropriate adjustments being made when differences are material. Other lending related costs are charged to expense as incurred, including costs incurred by the lender for advertising, servicing existing loans, supervision, and administration. Fair Value of Financial Instruments The estimated fair values have been determined by the Entity using available market information and recognized valuation methodologies. The fair value approximates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. These estimates are subjective and involve uncertainties and matters of significant judgment. Accordingly, the estimates set forth in Note 7 may not be indicative of the amounts that the Entity could realize in a current market exchange. Changes in assumptions could materially affect the estimates.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes The Entity is a California nonprofit corporation that has been recognized by the Internal Revenue Service and the California Franchise Tax Board as exempt from federal and state income and franchise taxes, respectively, under the provisions of Internal Revenue Code (IRC) Section 501(c)(3) and the corresponding provisions of the California Revenue and Taxation Code. The Entity is subject to income taxes for unrelated business income realized in connection with its unrelated business activities, of which presently there are none. Accordingly, no provision for income taxes is required for the Entity. In addition, the Entity has been determined by the Internal Revenue Service to not be a "private foundation" within the meaning of IRC Section 509(a)(2). The Entity evaluated whether it had uncertain tax positions that should be recognized in the Entity’s financial statements based on a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The accounting for uncertain tax positions also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosures, and transition. Based on management’s evaluation of the Entity’s tax positions for the open tax years, which are generally tax years 2014 to 2016 for federal and state tax jurisdictions except for California, which has open tax years of 2013 through 2016, management concluded that there are no significant uncertain tax positions requiring recognition in the Entity’s financial statements at June 30, 2018 and 2017, respectively. Interest and penalties related to uncertain tax positions will be recognized in income tax expense when incurred. As of June 30, 2018 and 2017, the Entity had no interest and penalties related to uncertain tax positions. Functional Expense Allocation Management’s estimate of the functional allocation of expenses shared between programs and management and general is based on a reasonable and consistent basis using factors such as direct payroll allocation, square footage, full time equivalents within each department, and total direct expenses. New Accounting Pronouncements Effective in Future Accounting Periods In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in the ASU will be applied using one of two retrospective methods. The new guidance is effective for years beginning after December 15, 2018, and management is still evaluating the impact of adoption on the financial statements.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements Effective in Future Accounting Periods (Continued) In August 2016, the FASB issued ASU 2016-14, Not-For-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. This standard was issued to improve the information presented in financial statements and notes about a nonprofit entity’s liquidity, financial performance, and cash flows. ASU 2016-14 is effective for fiscal year beginning after December 15, 2017, with early adoption permitted. Management will be evaluating the effects of this new standard.
NOTE 2 STUDENT LOANS
The Entity originates and purchases student loans, which are made to finance attendance at post-secondary institutions. Such loans are made under the provisions of the Federal Family Education Loan Program (FFELP) which was authorized by the Higher Education Act of 1965, as amended, (the Act) and is administered by the Department. The HCERA prohibits any new federal education loans (including Stafford, PLUS, Grad PLUS, and consolidation loans) from being originated or insured under the FFEL program after June 30, 2010. Starting July 1, 2010, all new federal education loans will be originated through the William D. Ford Federal Direct Loan Program. This law effectively eliminated any further student loan portfolio growth by loan originations by the Entity. FFELP loans are subsidized federal Stafford loans and unsubsidized federal Stafford loans that are available to eligible students; federal PLUS loans that are available to parents of undergraduate students and eligible graduate and professional students; and federal consolidation loans that are available to FFELP borrowers who want to combine their loans into a single loan. Generally, Stafford and PLUS loans provide for repayment in monthly installments over a period of 10 years. Consolidation loans have repayment periods ranging from 12 to 30 years based on the principal amount of the loan at the time of consolidation.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 2 STUDENT LOANS (CONTINUED)
Borrowers pay interest at a stated fixed rate or an annually reset variable rate that has a cap. Substantially all of the student loans held by the trust indentures currently bear interest at rates ranging from 2.8% to 10%. However, the student loan yield to the Entity is determined in part by the application of special allowance payment (SAP) adjustments on a quarterly basis. For loans first disbursed before April 1, 2006, the Entity’s yield is the higher of the borrower rate or the rate determined by application of the SAP formula. Beginning with loans first disbursed on or after April 1, 2006, the Entity’s yield is limited to the rate determined by applying the special allowance formula; if the borrower interest rate exceeds the SAP rate, the difference is remitted to the Department. SAP is paid whenever the average of all 91-day Treasury bill auctions during the quarter, plus a spread of between 2.2% and 3.5%, depending on loan status and origination date, exceeds the borrowers' rate of interest for loans made prior to January 1, 2000. For loans made on or after that date to September 30, 2007, SAP are based on the average daily one month LIBOR rates, determined quarterly, plus a spread of between 1.74% and 2.64%, depending on loan type and status. Thereafter, the SAP margins for eligible nonprofit lenders range from 1.34% to 2.24% depending on loan type and status. The SAP adjustments for the years ended June 30, 2018 and 2017, resulted in a decrease in interest income of $6,679,000 and $12,454,000, respectively. The Entity has historically relied upon the issuance of tax-exempt and taxable asset-backed revenue bonds as a source of funding for student loans. These bonds are primarily collateralized by the student loans and held in a series of trusts governed by associated trust indentures. The trust indentures are contracts between the Entity and the trustee for the benefit of the bondholders that establishes the rights, duties, responsibilities, and remedies of the Entity and the trustee. The following table reflects the distribution of the Entity's student loan portfolio by program as of June 30 (dollars in thousands):
2018 2017Stafford Loans 117,482$ 137,875$ PLUS/Grad PLUS Loans 17,670 21,294 Consolidated Loans 484,450 541,838 Deferred Loan Premiums, Consolidation Fees, Origination Costs, and Transfer Fees (Net of Accumulated Amortization of $71,048 and $70,726, Respectively) 3,307 3,561 Allowance for Loan Losses (374) (419)
Total Student Loans, Net 622,535$ 704,149$
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JUNE 30, 2018 AND 2017
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NOTE 2 STUDENT LOANS (CONTINUED)
Student loans financed by the Entity, and accrued interest thereon, are guaranteed against default, death, disability, and bankruptcy by certain state or nonprofit guarantee agencies (Guarantee Agencies) established under the Act’s Guaranty Agency Program regulations. The guarantee percentage depends on when the loan was first disbursed. A majority of the Entity’s loans were first disbursed after October 31, 2007, and guaranteed 97%, substantially all of the other loans were first disbursed on or after October 1, 1993, and guaranteed 98%. The Guarantee Agencies are reinsured by the U.S. Secretary of Education (the Secretary), under the Act, provided applicable program requirements have been met. For student loans purchased by the Entity, the selling lenders have warranted that the student loans are guaranteed and valid obligations of the borrowers. The seller is required to repurchase any student loans that are found not to be guaranteed or otherwise do not meet the purchase criteria. These guarantees are also conditioned upon the performance of certain due diligence and loan servicing procedures in accordance with applicable program requirements. The loan of a student who defaults in repayment might not be covered by the guarantee or reinsurance if such due diligence and servicing procedures were not followed. The Entity contracts with two servicing corporations that act as agents for the Entity, performing loan billing and collection, accounting, reporting, due diligence and administrative duties. Under the terms of the servicing agreements, the servicers are generally held liable for any losses that occur due to improper loan servicing performed by the servicers.
NOTE 3 ALLOWANCE FOR LOAN LOSSES
The following table summarizes changes in the allowance for loan losses as of June 30 (dollars in thousands):
2018 2017Allowance - Beginning of Year 419$ 509$ Provision for Loan Losses 260 306 Charge-Offs, Net (305) (396) Allowance - End of Year 374$ 419$
The provision for loan losses is included in other expenses in the statements of activities in the provision for loan loss principal and interest in operating activities in the statements of cash flows.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 4 BONDS AND NOTES PAYABLE
The following table summarizes the outstanding bonds and notes payable at June 30, the weighted average interest rates at the end of the period, and maturity dates (dollars in thousands):
WeightedPrincipal Average Final
Outstanding Interest Rate MaturityAuction Rate Securities Bonds:
Tax-Exempt 23,000$ 3.17 % 2033 – 2037Taxable 87,480 5.10 % 2037 – 2042
Floating Rate Notes - Taxable 370,557 2.92 % 2037 – 2043Floating Rate Notes - Tax-Exempt 130,180 3.16 % 2037Unamortized Issuance Costs (54) Unamortized Bond Discount (17,387)
Total 593,776$
WeightedPrincipal Average Final
Outstanding Interest Rate MaturityAuction Rate Securities Bonds:
Tax-Exempt 23,000$ 1.74 % 2033 – 2037Taxable 98,730 4.22 % 2037 – 2042
Floating Rate Notes - Taxable 421,261 2.03 % 2024 – 2043Floating Rate Notes - Tax-Exempt 153,895 1.96 % 2037Fixed Rate Bonds - Tax-Exempt 3,000 5.88 % 2018Unamortized Issuance Costs (286) Unamortized Bond Discount (18,102)
Total 681,498$
2018
2017
Bonds and notes (gross) outstanding as of June 30, 2018, are due, based on legal maturity date or targeted amortization payments, in varying amounts as shown below (dollars in thousands).
Year Ending June 30, Amount2019 -$ 2020 - 2021 - 2022 - 2023 -
2024 and Thereafter 614,819 Total 614,819$
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JUNE 30, 2018 AND 2017
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NOTE 4 BONDS AND NOTES PAYABLE (CONTINUED)
Outstanding senior bonds and any additional bonds on parity therewith are secured by and payable from the pledged assets held under the applicable indenture with rights to the payment of revenues and security pledged under the indenture and other matters senior to the rights of owners of senior subordinate bonds, subordinate bonds, and junior subordinate bonds. The bonds and notes are separately collateralized by, and payable from, trusts established under certain indentures pursuant to which the respective bonds and notes were issued. Such trusts hold student loans, investments, and cash as collateral. The indentures require the maintenance of various financial ratios and restrict the use of proceeds to the purchase of student loans and permitted investment securities. As of June 30, 2018 and 2017, the trusts established under the indentures are in compliance with these covenants. Auction Rate Securities Bonds Interest rates on auction rate securities (ARS) are set and periodically reset via a "Dutch auction." As of June 30, 2018 and 2017, the Entity had $110,480,000 and $121,730,000, respectively, in ARS bonds outstanding. For ARS, investors and potential investors submit orders through a broker-dealer for the principal amount of bonds they wish to buy, hold, or sell at various interest rates. The broker-dealers submit their client’s orders to the auction agent, who then determines the clearing interest rate for the upcoming period. Interest rates on these ARS are reset by the auction agent periodically, generally every 28 to 35 days; however, ARS with failed auctions described below are reset every seven days. During the first quarter of 2008, as part of the credit market crisis, ARS from various issuers, including the Entity, failed to receive sufficient orders from potential investors to successfully clear sell orders resulting in failed auctions. Under normal conditions, broker-dealer banks have historically stepped in when investor demand is weak. However, with the worsening financial markets, the banks have not been stepping in to cover shortfalls in buy orders and have allowed auctions to fail. As a result of a failed auction, the ARS will pay interest to the holder at a maximum rate as defined by the trust indenture. The Entity’s tax-exempt ARS have maximum rates of the Applicable Percentage (175% for Senior ARS and 200% for Subordinate ARS) of the greater of the After-Tax Equivalent Rate or the Securities Industry and Financial Markets Association (SIFMA) Municipal Index on such date. After-Tax Equivalent Rate means the interest rate per annum equal to the product of (i) the AA Financial Commercial Paper Rate and (ii) 1.00 minus the Statutory Corporate Tax Rate. Taxable ARS maximum rates are indexed to the London Interbank Offer Rate (LIBOR) plus a spread (300 basis points) at June 30, 2018 and 2017. The Entity cannot predict whether future ARS auctions will be successful, but management believes it is likely that auctions will continue to fail indefinitely. The Entity is currently seeking alternatives for reducing its exposure to the auction rate market, but may not be able to achieve alternate financing for some of or the entire ARS.
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NOTE 4 BONDS AND NOTES PAYABLE (CONTINUED)
ARS Bond Repurchases The Entity repurchased and retired $11.0 and $0.0 million of outstanding ARS bonds during the years ended June 30, 2018 and 2017, respectively, and recognized gains on early extinguishment of debt of $0.6 million and $0.0 million, respectively. Floating Rate Notes (FRN)
Series 2010-I On September 28, 2010, the Entity refunded the Series II Indenture and issued $458,319,000 of LIBOR floating rate notes (2010-I Bonds), utilizing the bond proceeds, net of required reserves and cost of issuance, to redeem the outstanding Series II bonds. The 2010-I bonds are secured by the pledge of the student loans and accrued interest previously pledged to secure the Series II bonds. Interest rates are based on various LIBOR indexed rates. As of June 30, 2018 and 2017, the Entity had $146,180,000 and $169,895,000, respectively, of 2010-I Bonds outstanding. Series 2012-I On December 1, 2012, the Entity issued $204,200,000 of Senior Taxable LIBOR Floating Rate Notes (2012-I Senior Notes), $5,760,000 of Subordinate Taxable LIBOR Floating Rate Notes (2012-I Subordinate Notes), and $3,054,000 of Junior Subordinate Capital Appreciation Note (2012-IJunior Subordinate Note), the proceeds of which were used to retire the Series V outstanding bonds and to pay related costs of issuance. The Notes have a maturity of 2036, 2039, and 2042, respectively. The 2012-I Junior Subordinate Note was purchased by ALL Management Corporation. Interest rates are based on various LIBOR indexed rates. As of June 30, 2018 and 2017, the 2012-I Senior Notes and 2012-I Subordinate Notes had an aggregate balance outstanding of $88,243,000 and $103,485,000, respectively. As of June 30, 2018 and 2017, the 2012-I Junior Subordinate Note outstanding was $3,602,000 and $3,496,000, respectively, which are included in note payable to affiliate in the statements of financial position. Series 2013-I On December 1, 2013, the Entity issued $435,800,000 of Senior Taxable LIBOR Floating Rate Notes (2013-I Senior Notes), and $11,000,000 of Subordinate Taxable LIBOR Floating Rate Notes (2013-I Subordinate Notes), the proceeds of which are to be used to retire certain Series IV outstanding bonds. The Notes have a maturity of 2041 and 2043, respectively. As of June 30, 2018 and 2017, the 2013-I Senior Notes and 2013-I Subordinate Notes had an aggregate balance outstanding of $266,314,000 and $301,776,000, respectively.
Required Reserve Accounts The Entity is required to maintain reserve funds for the Series IV, Series 2010-I, Series 2012-I, and Series 2013-I trust indentures. These reserves aggregate to $2,496,000 and $2,581,000 in restricted funds as of June 30, 2018 and 2017, respectively, and are included as indenture reserve cash in the statements of financial position. The funds equal 0.75% of the Series IV bonds outstanding at each date and the greater of 0.25% of the loan pool outstanding for Series 2010-I or $500,000; the greater of 0.25% of the loan pool outstanding for Series 2012-I or $316,520; and the greater of 0.25% of the loan pool outstanding for 2013-I bonds or $675,165.
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NOTE 5 RELATED PARTY TRANSACTIONS
The management and administrative fees paid to ALL Management of approximately $2,840,000 and $4,004,000 are included in other expenses in the statements of activities for the fiscal years ended June 30, 2018 and 2017, respectively; and $1,240,000 and $979,000 of these amounts remain payable as of June 30, 2018 and 2017, respectively. ALL Management purchased a Junior Subordinate Note in the amount of $3,054,000 issued in December 2012 as part of the Series 2012-I transaction. This note was issued as a capital appreciation note and is included in the statements of financial position at its accreted value of $3,602,000 and $3,496,000 as of June 30, 2018 and 2017, respectively. Financial information for ALL Management as of or for the years ended June 30, 2018 and 2017 are summarized as follows (in thousands):
2018 2017Total Assets 18,821$ 18,929$ Total Liabilities 357 733 Net Assets 18,464 18,196 Revenues 4,480 5,659 Expenses 4,212 5,395
NOTE 6 CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Entity to concentration of credit risk, consist primarily of cash and cash equivalents. The Entity has significant cash balances in excess of the amounts insured by the Federal Deposit Insurance Corporation as of June 30, 2018 and 2017. The Entity places cash and cash equivalents with major financial institutions in an attempt to mitigate exposure of risks related to uninsured balances.
NOTE 7 FAIR VALUE MEASUREMENTS
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The Entity follows the hierarchical framework set forth in generally accepted accounting principles in the United States of America which is associated with three levels of price transparency utilized in measuring financial instruments at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels are as follows:
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 7 FAIR VALUE MEASUREMENTS (CONTINUED)
Level 1 – Quoted prices in active markets for identical assets or liabilities that the Entity has the ability to access at the measurement date. Level 2 – Inputs from active markets, other than quoted price for identical assets or liabilities, are used to model fair value. Significant inputs are directly observable from active markets for substantially the full term of the asset or liability being valued. Level 3 – Pricing inputs significant to the valuation are unobservable. Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs.
Student Loans The fair value for defaulted loans has been estimated based on contractual recovery provisions. For other student loans, fair value was determined by modeling loan level cash flows using the stated terms of the assets and developed assumptions to determine aggregate portfolio yield, net present value, and average life. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, required return on investment and expected utilization of borrower rate reduction benefits. A number of significant inputs into the models are not observable. (Level 3). Cash, Cash Equivalents, and Investments Cash and cash equivalents are carried at cost, which approximates fair value. Investments consist of guaranteed income contracts and are carried at cost. The contracts are not transferable; consequently, an observable secondary market does not exist. These contracts bear variable interest indexed to LIBOR. This index feature adjusts the returns to relative market levels thus, carrying value reasonably approximates fair value. Bonds and Notes Payable Bonds and Notes Payable are carried at cost in the financial statements. The Entity pays interest on the variable rate debt based on LIBOR, SIFMA, or prime rates. Reset periods range from one day to every 35 days, depending on the terms of the borrowings. Credit spreads are fixed over the life of the individual instruments. There are no active markets for these liabilities and consequently, no observable quoted transaction prices. Estimates of fair value considered market conditions, ratings of the bonds, observable yield curves, and pricing info1mation provided by investment banks. A secondary market exists for failed ARS and data as to bid and ask prices and completed trades were utilized in estimating ARS fair values.
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2018 AND 2017
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NOTE 7 FAIR VALUE MEASUREMENT (CONTINUED)
Bonds and Notes Payable (Continued) The SLST Note associated with the Department’s Conduit financing program is estimated to have a fair value equivalent to the cost basis carrying value because of the relatively short-term and market-rate variable pricing.
Carrying Estimated Carrying EstimatedValue Fair Value Value Fair Value
Financial Assets:Student Loans Held for Investment 622,525$ 642,895$ 704,149$ 725,569$ Cash, Cash Equivalents, and Indenture Reserve Cash 20,933 20,933 29,234 29,234
Financial Liabilities:Bonds and Notes Payable, Gross 611,217$ 593,000$ 699,886$ 679,000$ Note Payable to Affiliate 3,602 3,602 3,496 3,496 Accrued Interest Payable 1,380 1,380 1,017 1,017
June 30, 2018 June 30, 2017
NOTE 8 SETTLEMENT AGREEMENT
The Entity resolved a dispute with a vendor that resulted in a settlement of $850,000, net of expenses of $150,000, which were paid to ALL Management Corporation, a related party, which was received in August 2017. The settlement was recorded as other income on the statement of activities and is included as a receivable in other assets on the statement of financial position as of June 30, 2017.
NOTE 9 FUNCTIONAL EXPENSES
The functional allocation of expenses for the years ended June 30, 2018 and 2017 were as follows (dollars in thousands):
2018 2017Program 22,976$ 20,384 Management and General 924 1,662
Total 23,900$ 22,046$
NOTE 10 SUBSEQUENT EVENTS
Under ASC 855, Subsequent Events, the Entity evaluates events that occur after the date of the statement of financial position but before financial statements are issued or are available to be issued for recognition or disclosure, the Entity has evaluated subsequent events through December 5, 2018, which is the date these financial statements were available to be issued. The Entity is not aware of any subsequent events, which would require recognition or disclosure in these financial statements.
CliftonLarsonAllen LLPCLAconnect.com
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INDEPENDENT AUDITORS’ REPORT
ON SUPPLEMENTARY INFORMATION Board of Directors Access to Loans for Learning Student Loan Corporation Manhattan Beach, California We have audited the financial statements of Access to Loans for Learning Student Loan Corporation as of and for the year ended June 30, 2018, and our report thereon dated December 5, 2018, which expressed an unqualified opinion on those financial statements, appears on pages 1 and 2. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplemental statement of financial position, supplemental statement of activities, and supplemental statement of cash flows are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The 2017 supplementary information was subjected to the auditing procedures applied in the 2017 audit of the basic financial statements by other auditors, whose report on such information stated that it was fairly stated in all material respects in relation to the 2017 consolidated financial statements as a whole.
CliftonLarsonAllen LLP
Pasadena, California December 5, 2018
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION
JUNE 30, 2018 (SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
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Series IV Series VI Series VII Series VIII Gen Fund I/C Elim Total
ASSETS
Cash and Cash Equivalents 4,583$ 7,155$ 1,665$ 3,206$ 1,828$ -$ 18,437$ Investments - Indenture Reserve Cash 1,000 500 317 679 - - 2,496 Student Loans, Net of Allowance 103,359 159,611 91,627 267,928 - - 622,525 Accrued Interest Receivable 2,680 5,263 2,630 8,079 - - 18,652 Intercompany Due to/from (142) (4) 5 - 141 - - Other Assets 64 196 100 324 473 - 1,157
Total Assets 111,544$ 172,721$ 96,344$ 280,216$ 2,442$ -$ 663,267$
LIABILITIES AND NET ASSETS
LIABILITIESAccounts Payable and Accrued Expenses 246$ 565$ 209$ 547$ 1,041$ -$ 2,608$ Note Payable to Affiliate - - 3,602 - - - 3,602 Loan Purchase Discount - - 522 2,822 - (3,344) - Interest Payable 386 835 39 132 (12) - 1,380 Bonds and Notes Payable, Net of Unamortized Bond Discount and Financing Costs 110,441 134,056 87,550 261,729 - - 593,776 Other Liabilities 42 20 21 115 - - 198
Total Liabilities 111,115 135,476 91,943 265,345 1,029 (3,344) 601,564
NET ASSETSUnrestricted Net Assets 429 37,245 4,401 14,871 1,413 3,344 61,703
Total Liabilities and Net Assets 111,544$ 172,721$ 96,344$ 280,216$ 2,442$ -$ 663,267$
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION SUPPLEMENTAL STATEMENT OF ACTIVITIES
YEAR ENDED JUNE 30, 2018 (SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
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Series IV Series VI Series VII Series VIII Gen Fund I/C Elim Total
INTEREST INCOMEStudent Loan Interest, Net of Special Allowance 3,470$ 5,676$ 4,489$ 11,667$ -$ (2,926)$ 22,376$ Investments, Net 78 73 29 65 4 - 249
Total Interest Income 3,548 5,749 4,518 11,732 4 (2,926) 22,625
INTEREST EXPENSEInterest 4,872 3,721 2,246 6,893 - - 17,732 Liquidity Facility and Other Fees 150 - - - - - 150 Amortization of Bond Financing Costs 108 124 - - - - 232 Amortization of Bond Discount 7 503 16 189 - - 715
Total Interest Expense 5,137 4,348 2,262 7,082 - - 18,829
NET INTEREST INCOME (1,589) 1,401 2,256 4,650 4 (2,926) 3,796
OTHER INCOMEGain on Early Extinguishment of Debt 559 - - - - - 559
OTHER EXPENSESManagement Fees to Affiliate - - - - 370 - 370 Student Loan Servicing Fees 146 357 346 392 - - 1,241 Portfolio Management Fees to Affiliate 530 260 248 1,431 - - 2,469 Other 230 133 93 269 266 - 991
Total Other Expenses 906 750 687 2,092 636 - 5,071
CHANGE IN NET ASSETS (1,936) 651 1,569 2,558 (632) (2,926) (716)
Net Assets - Beginning of Year 2,365 36,594 2,832 12,313 2,045 6,270 62,419
NET ASSETS - END OF YEAR 429$ 37,245$ 4,401$ 14,871$ 1,413$ 3,344$ 61,703$
ACCESS TO LOANS FOR LEARNING STUDENT LOAN CORPORATION SUPPLEMENTAL STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2018 (SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
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Series IV Series VI Series VII Series VIII Gen Fund I/C Elim Total
CASH FLOWS FROM OPERATING ACTIVITIESChange in Net Assets (1,936)$ 651$ 1,569$ 2,558$ (632)$ (2,926)$ (716)$ Adjustments to Reconcile Change in Net Assets to Net Cash Used by Operating Activities:
Amortization of Deferred Bond Financing Costs, Bond Discount, and Loan Premiums and Fees 438 627 (1,028) (1,694) - 2,926 1,269 Capitalization of Interest (1,687) (3,096) (1,741) (4,305) - - (10,829) Provision for Loan Loss Principal and Interest 48 51 33 128 - - 260 Gain on Early Extinguishment of Debt (559) - - - - - (559) Changes in Operating Assets and Liabilities:
Indenture Reserve Cash - - - 85 - - 85 Accrued Interest Receivable (273) (342) (144) (543) - - (1,302) Other Assets 373 163 161 (68) - - 629 Accounts Payable and Accrued Expenses (229) (460) (226) (628) 285 - (1,258) Interest Payable 66 241 11 45 - - 363 Other Liabilities (5) (3) (3) (14) - - (25)
Net Cash Used by Operating Activities (3,764) (2,168) (1,368) (4,436) (347) - (12,083)
CASH FLOWS FROM INVESTING ACTIVITIESPurchases of Student Loans (519) (157) - - - - (676) Net Decrease in Loans 13,724 24,882 15,858 38,083 - - 92,547
Net Cash Provided by Investing Activities 13,205 24,725 15,858 38,083 - - 91,871
CASH FLOWS FROM FINANCING ACTIVITIESRetirement of Bonds Payable (13,691) (23,715) (15,242) (35,462) - - (88,110) Note Payable to Affiliate - - 106 - - - 106
Net Cash Used by Financing Activities (13,691) (23,715) (15,136) (35,462) - - (88,004)
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,250) (1,158) (646) (1,815) (347) - (8,216)
Cash and Cash Equivalents - Beginning of Year 8,833 8,313 2,311 5,021 2,175 - 26,653
CASH AND CASH EQUIVALENTS - END OF YEAR 4,583$ 7,155$ 1,665$ 3,206$ 1,828$ -$ 18,437$
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest 4,806$ 3,480$ 2,235$ 6,848$ -$ -$ 17,369$
