Navient Corporation (NAVI) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Taihana and I will be your conference operator today. At this time, I would like to welcome everyone to the Navient's 2017 earnings conference call. All lines have been placed on mute to prevent any background nose. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Joe Fisher. You may begin your conference.

Thank you, Taihana. Good morning. And welcome to Navient's second quarter earnings call. With me today are Jack Remondi, our CEO, and Chris Lown, our CFO. After their prepared remarks, we will open up the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, and forward-looking statements. Actual results in the future may be materially different from those discussed here. This could be a variety of factors. Listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of core earnings, a full reconciliation to GAAP measures and our GAAP results can be found in the second quarter 2017 supplemental earnings disclosure. This is posted on the Investors page at Navient.com. Thank you. And now, I'll turn the call over to Jack.

Thanks, Joe. Good morning, everyone, and thank you for joining us today, and thank you for your interest in Navient. This morning, my opening comments will cover my perspective on this quarter's results and our outlook for future growth. Our adjusted core earnings of $0.44 was better than we had forecasted. The results reflect solid performance across the board as our net interest margin, credit performance, fee revenue and operating costs combined to contribute to this quarter's strong results. Net interest income from our student loan portfolios was down as a result of the amortization of the seasoned portfolio and the spread relationship primarily between our prime-indexed private loans and our LIBOR-indexed cost of funds, partially offset by the addition of the acquired loan portfolios. While Chris will provide more details here, as a reminder, our prime-indexed assets lag the rise in short-term rates by as much as a quarter. As a result, in periods where rates are rising, our private student loan net interest margin is lower, but it increases the following quarter. The credit performance of our federal and private student loan portfolios was strong and continues to improve. The portfolio trends are benefiting from strong increases in employment for millennials, rising pay and our continued efforts to deploy data-driven strategies that increase customer contact. We see these positive trends in both new to repayment customers as well as customers who have been in repayment for some time. For example, at June 30, our 90-day-plus delinquency rates were 6% and 2.8% for our FFELP and private portfolios respectively. Both are at or below 10-year historical lows and point to further improvements in future charge-offs. These positive trends are often surprising to folks as a self-reinforcing availability cascade has created the impression of excessive debt balances and pervasive struggles. When I speak with reporters or policymakers, they're often surprised that the actual statistics vary so significantly from the common narrative. For example, of those who borrow for college, 84% borrowed less than $40,000, not the $80,000-plus one typically reads about. And two-thirds of all defaults are from borrowers who borrowed less than $10,000. This statistic on defaults is particularly jarring as it is not the result of excessive debt, but it's the consequence of not graduating. The view that we have an excessive debt issue leads to a focus on alternative payment programs instead of the real driver of student loan defaults – students who borrow, but do not complete college. In fact, 40% of students who enroll do not complete within six years. Accurately diagnosing the problem is essential to developing appropriate solutions. One real and addressable challenge for some borrowers is the impact a prior delinquency has on their ability to rent an apartment, buy a car, purchase a home or even secure employment. As borrowers transition from school to repayment, some encounter payment struggles, life events or have difficulty establishing a rhythm of making monthly payments on time. Servicers are required by law to report delinquency to credit bureaus. And these delinquency events remain on the credit bureau for several years even after a strong pattern of on-time payment. We continue to advocate for changes that would allow servicers to grant limited and justified relief when borrowers have reestablished a positive payment record. In fact, the number one request I receive from borrowers is for a courtesy credit bureau retraction. The ability to grant this request would be beneficial to both borrowers and the economy. We also saw strong performance in our Business Services segment in the second quarter. For the quarter, we earned $185 million in fee-related revenue, a 5% increase year-over-year, with non-education loan related revenue growing 16%. We see significant opportunities to grow in this area, which I'll discuss in a moment. Finally, even with new investments and growth in business process services, we held operating expenses flat at $227 million for the quarter. While this is in line with our plans, we are increasing our focus on improving our operating efficiency. As we started 2017, we identified opportunities to create value in all three of our areas of focus – legacy student loans, business services and asset generation. We're executing on these opportunities and see our pipeline continuing to grow. In our legacy student loan business, we're focused on maximizing the cash flow from our existing portfolios and adding to these cash flows with high-value portfolio acquisitions. We are executing on this strategy. And last month, we had closed the previously announced acquisition of $6.5 billion in federal and private student loans. Year-to-date, we have acquired $8 billion in student loan assets and we continue to see opportunities to purchase additional portfolios this year. In Business Services, we provide loan servicing, business processing and revenue management services to clients in federal, state and municipal markets, and in the healthcare provider markets. Here, we added a number of new clients in 2017, including new contracts with the IRS, Pennsylvania, New Jersey and others. Our goal this year is to organically grow our non-education fee revenue by 20%, a target we fully expect to achieve. One of the largest opportunities is the re-compete of the federal student loan servicing contract. The process has seen some delays, but final bids were submitted earlier this month. We believe our proposal meets or exceeds the deliverables set out in the RP. Our strengths include our proven track record of high quality customer-centric account conversions, systems integrity, positive customer experience and, of course, exceptional default prevention skills. Further, we would bring our superior track record of innovation and leveraging data analytics to drive customer success. For example, we recently piloted new technology that substantially eases the process and increases the completion rate for borrowers enrolling and re-enrolling in federal income-driven repayment plans. This is an example of the innovation and improved outcomes that they gave [ph] to help us achieve and what we would bring to the proposal. We're excited about this opportunity and the merits of the proposal. Earlier this year, we discussed our plans to play a larger role in the student loan refi market. Year-to-date, we have acquired over $210 million in refi loans and we will ramp up our acquisitions over the balance of the year. We believe our deep insights into borrower performance is a source of distinct comparative advantage. In addition, our operating scale, customer solution set and access to funding and capital and a strong compliance control environment will allow us to capture a significant share of the market opportunity in this area. The combined opportunities in acquiring legacy student loans, loan servicing, business processing and asset generation are both meaningful and executable. Our performance to date demonstrates our ability to create value in each of these areas. We're excited about the opportunities to create additional value going forward. The results this quarter reflect the strength of our business model and the ability to capture and create value through growth. With the $6.5 billion portfolio acquisition now complete, we've updated our earnings guidance for 2017 to $1.75 to $1.80 in adjusted core earnings per share. I’ll now turn the call over to Chris for a deeper discussion of this quarter's results and guidance. And I look forward to your questions later in the call. Chris?

Thank you, Jack. And thank you to everyone on today's call for your interest in Navient. Throughout this call, I will be referencing the earnings call presentation, which can be found on the company's website in the Investors section. Starting on slide three, we reported adjusted core EPS of $0.44 in the second quarter compared to $0.48 from the prior year. The decline from a year ago was mainly due to the reduction in net interest income, primarily resulting from the amortization of the total education loan portfolio. As we highlighted last quarter, we continue to experience higher-than-forecast amortization in both our FFELP and private credit portfolios, which is currently running around 15% excluding loan acquisitions, capitalized interest and premium and discount amortization. We expect this trend to continue into 2018. This was partially offset by the continued growth in our fee businesses and a lower average share count. During the second quarter, we purchased $7.1 billion of education loans. As a result of these acquisitions, during my prepared remarks, I’ll provide updated guidance on the impact to both our FFELP and private education loan portfolios, as well as updated 2017 EPS guidance. Let's now move into our segment reporting, beginning with FFELP on slide four. FFELP core earnings were $57 million for the second quarter of 2017 compared with $68 million in the second quarter of 2016. The net interest margin for the second quarter of 2017 was 80 basis points compared to 85 basis points a year ago. We have previously discussed how the dislocation between one month and three-month LIBOR rates was negatively impacting our FFELP portfolio's net interest margin. This quarter, however, we benefitted from the tightening of the spread and we continue to programmatically enter into swaps to hedge the portfolio to mitigate this risk going forward. Additionally, we have been actively hedging our eligible floor income, which is now 85% hedged through 2020 versus 68% a year ago. In the second quarter, we acquired $4 billion of FFELP loans. As a result of these acquisitions, we anticipate FFELP NIM for the third and fourth quarters to be in the mid to high 70s. FFELP credit quality improved meaningfully year-over-year as late stage delinquencies and forbearance rates both declined 17%. Let's now turn to slide five and our Private Education Loan segment. Core earnings in the segment declined by $18 million for the year-ago quarter to $39 million. In the second quarter, the net interest margin was 328 basis points. The higher-than-anticipated net interest margin was primarily due to the one-month contribution from the recent portfolio acquisition. We anticipate that the third and fourth quarter NIM will also benefit from incorporating a full quarter of interest income from this portfolio. We expect the NIM in the third quarter to be in the high 3.40s. With expectations of continued pressure on rates, we expect fourth-quarter NIM to be slightly lower in the low 3.40s. With 62% of our private loan assets indexed to prime, we continue to face headwinds from the rising rate environment as our assets reset after our liabilities, which are primarily indexed to LIBOR. Private education loan losses and delinquencies, excluding the recent acquisition, continued to decline as the portfolio amortizes. Charge-offs declined 4% from the prior year to $122 million and credit trends remain stable, as the total delinquency and forbearance rates slightly improved from the prior year. However, we did see a slight uptick in the charge-off rate year-over-year. The private educational loans we've purchased at a discount last quarter require that we report provisions for losses as charge-offs occur. As we migrate the portfolio from its former 120-day charge-off policy to our 212-day charge-off policy, the complete impact of charge-offs will not be fully reflected in our P&L until 2018. As a result of this transaction closing in June, we expect charge-offs and provision related to this portfolio to be approximately $30 million in the fourth quarter. We will now turn to slide six to review our Business Services segment. In this segment, core earnings were $81 million in the quarter compared with $81 million in the second quarter 2016. Non-education fee revenues in the second quarter grew 16% to $53 million. In the quarter, we began work on new federal, state and local contracts that contributed to this increase and our collections inventory rose due to work on estate tax amnesty program that began in the second quarter and will end in the third quarter. Let's turn to slide seven, which highlights our financing activity in the quarter. In the second quarter, we issued $500 million of unsecured debt maturing in 2025. This marks our longest-dated issuance since 2014 and was met with strong investor demand. We used a significant portion of these proceeds to reduce our 2018 maturities to below $1.5 billion. And in the past year have reduced our 2018 maturities by $1 billion or by over 40% from the prior year. In the quarter, we also issued a $1 billion FFELP ABS transaction, which was financed at an all-in cost of funds that represented a 10% improvement over our first transaction at the beginning of the year. We continue to see improvement as demonstrated by the additional $1 billion FFELP ABS transaction that priced yesterday. In addition, we close on a $2 billion private education asset-backed commercial paper facility maturing June 2020. We also increased the maximum financing amount in a FFELP ABCP facility from $6.75 to $7.75 billion and extended its maturity date to April 2019. During the quarter, we also purchased 10.9 million shares for $165 million at an average price of $15.10. In total, we returned $210 million to shareholders through share repurchases and dividends. Importantly, this activity was successfully executed, while maintaining a strong capital position in a tangible net asset ratio of 1.22 times. Before I turn to GAAP results, I’d like to review our 2017 guidance on slide eight. We expect core earnings per share between $1.75 and $1.80 excluding expenses associated with regulatory costs. For our FFELP portfolio, we expect NIM to be in the mid to high 70s for the third and fourth quarter. In our private education – in our private credit portfolio, we expect NIM to be in the high 3.40s for the third quarter. In the fourth quarter, we expect NIM to be in the low 3.40s along with a $30 million increase to private education loan charge-offs and provision as a result of the $3 billion portfolio acquisition. Finally, let's turn to GAAP results on slide nine. We reported second-quarter GAAP net income of $112 million or $0.39 per share compared with net income of $125 million or $0.38 per share in the second quarter of 2016. The primary differences between core earnings and GAAP results are the marks related to our derivative positions. I will now open the call for questions.

[Operator Instructions]. Your first question comes from the line of Mark DeVries of Barclays.

Yes, thanks. Would you expect to term finance more of the private student loans you acquired this quarter that looks like – at least some of which was funded in an ABCP facility. If so, kind of what would the impact on cost of funds be? And is that kind of contemplated in your NIM guidance?

Yes. Our expectation is to continue to securitize the ABCP facility on the private side. And our expectation is that – it is in our NIM guidance for 2017 and going forward.

Okay, great. And then, Jack, just an update on expected timing for decisions around the deal servicing contract?

So, the Department of Ed has indicated that they would make a decision in October, but that's a – there's no requirement to do so. It's just their indicated time.

Okay, great. And then just finally, Jack, I think you indicated you expect the refi opportunity to ramp more in the second half here. How big do you think that could be on an annualized basis?

Well, we think the market opportunity is pretty sizable. The real question is what makes economic sense for us. We believe that our data – the access to the deep history we have in terms of student loan performance really gives us some unique abilities to attract different types of customers and offer products that will create a better return than some of the super prime kind of borrowers that you’ve seen access this marketplace to date.

Okay. Is it reasonable to think that could be like $1 billion a year in loan originations?

We'll have to see in terms of when we actually get to kind of the full marketing stream that we plan to launch later this year.

Okay, thanks.

Your next question comes from the line of Rick Shane of J.P. Morgan.

Hey, guys. Thanks for taking my questions this morning. I just want to talk about the NCO guidance for the fourth quarter on the acquired portfolio. Implicitly, that’s roughly about a 4% loss rate in the first quarter. I'm curious how we should think about that trajectory into 2018. That seems like a pretty high number. And I'm wondering if there's a surge that then abates or if we should assume that on that $3 billion portfolio we should continue to assume that high loss rate.

By the fourth quarter, we should be feeling most of the full impact of the portfolio. It will slightly elevate going into the first quarter, but then it will start to tail off. So, from the perspective of modeling or thinking about it going into 2018, we're pretty close to run rate in the fourth quarter.

And one thing that we think we can bring to that over time, of course, is that these loans are serviced by third parties today. And what we have demonstrated over – consistently over time is that our strategies and approach to customer contact and account resolution help more borrowers to successfully manage their loan payments and we expect to push that number down over time.

Okay. So, I think I’m then getting confused a little bit on the risk-adjusted margin on this. You talk about a – obviously, you didn't give the NIM breakout for that specific portfolio, but we're talking NIMs in general in the 3.40 range. Walk me through the economics here.

Well, inevitably, obviously, we bought the company at a discount and obviously an attractive discount from a return perspective. And that will amortize through. It doesn't represent a huge portion of the portfolio. So, if you remember, last quarter, we had a NIM of 3.16. We continue to see pressure on the portfolio in a rising rate environment, which, obviously, contradicts – or interacts against the natural flows of the portfolio. So, I'm trying to understand where your question is going, but inevitably there is an uptick that we'll see that'll be a little bit assuaged by the rising rate environment. But, again, it's still a nice boost from where we were in the first quarter.

So, what would the long-term NIM on that be with the level of yield accretion and potentially higher rates?

So, I think the gap here is probably that the purchase price that we acquired the portfolio for effectively is covering the expected loss rates on the portfolio. And so, the net interest margin is less impacted by that because of that discount.

Okay. I think I’ll pick this up with you guys offline. Thank you.

Your next question comes from the line of Michael Tarkan of Compass Point.

Thanks for taking my question. On the FFELP NIM guidance, I guess I’m curious as to why we're going to be in the sort of mid-to-high 70 basis point range when one month, three-month LIBOR has collapsed to the 8 basis point range today. I guess, what is underlying the assumption on the one-month, three-month LIBOR spread in the back half of the year?

So, inevitably, with the last dislocation we saw, we decided to take a proactive view around starting to hedge the portfolio more actively and put in place a more programmatic hedging program to really assuage that risk going forward or mitigate that risk going forward inevitably. So, what you have is, you have those hedges from the elevation of the one-three spreads over the last couple of quarters still in the portfolio. And, obviously, we're now hedging at a very attractive one, three spreads. So, what we've looked to do is mitigate that volatility risk, so we don't have that dislocation that you saw last year. But inevitably, we don't see the immediate full impact as that spread contracts. So, what we hope is when we have that portfolio more fully hedged, we'll be able to provide more certainty or guidance around what the NIM looks like or the impact from the one, three spread. But it is – is that hedged portfolio [indiscernible] amortization coming through with that results in where we are today.

Okay. So, I guess, in the back half of this year, is that spread depressed for any reason or is that a decent run rate to think about as we think about 2018?

I will provide 2018 guidance at the end of the – in the early part of next year, but the guidance is good for 2017.

Okay, thanks. And last quarter, I think you mentioned that the J.P. Morgan portfolio was going to add around $0.09 in EPS this year. so, if I back that off of the full year guidance, there's a fairly significant delta between your standalone business versus your original guidance. And I’m just kind of curious if you can connect the dot there. Is it just NIMs being weaker given the rising rate environment to the higher operating expenses, just any kind of color there? Thank you.

Yeah. I think the two big things that result in that difference are, one, the portfolio is amortizing a little faster than we had thought at the beginning of the year, and I had mentioned that 15% annualized number earlier in my discussion. And in addition, the rising rate environment caused a little more dislocation. Oddly enough, the dates of when Fed meetings and when they reset rates can have an – impact us on the short term. And for us, it's actually been off by a day on the last couple of raises. So, it really has just been the upward pressure and the amortization of the portfolio, which have had the biggest impacts on the difference.

Okay. And then last question for me, any update on the USA Funds NELA collections business. I know [indiscernible]. Just wondering where we stand on that one.

We don't comment on ongoing contract negotiation type stuff.

Okay, thank you.

Your question comes from the line of Sanjay Sakhrani of KBW.

Thanks. Good morning. Maybe just following on to some of the questions that were asked earlier, when we think about the actual impact of the rate movements and the hedges that you mentioned, Chris, like how much do you get back as we go into the run rate next year, assuming things are more level set.

So, it's two different discussions, right? The one, three is different than the private portfolio. So, putting the one, three to the side, obviously, as LIBOR rises and we wait for the rate increase, we see a decrease in the NIM. And then depending on the resets when rates increase, we gain some of that back. The best case we can hope for is a stable or declining interest rate environment. We're clearly not in that environment today. I think your question is getting to is where are run rate NIMs in a stable environment. I think if you go back to a year-ago period, we actually have a chart that we put out that shows a little bit of the dislocation over time. And you can get a general sense of what you get back in that rate increase and where stability is. So, it really is a moving target. But you really need stability in rates and a view that rates aren't going up, are going to decline until we really maximize NIM in the portfolio.

And I want to clarify the comment you made about the hedges in the one-month/three-month LIBOR spreads. Basically, these hedges are costing you money this year. And therefore, you're not going to get the full benefit of the compression we've seen thus far. I'm just trying to understand that because it's a pretty significant compression we've seen that should benefit you.

So, the way we think about it, this is basis risk. And this is basis risk that we can remove from the volatility of the cash flows of the portfolio. And so, as you say, this may be costing us right now because hedges are rolling through that were maybe put in place when we saw an elevation in one, three spread. We also clearly didn't enjoy the massive expansion in that spread which really dislocated last year. And so, what we want to be able to do is put in place a constant hedge position in that portfolio to give you much more certainty, so you aren’t ever surprised when that spread widens. Or when it contracts, it doesn't have as much as impact either. The cost isn't really as much as you think from a portfolio perspective or from a NIM perspective or from a collateral perspective. So, it is a little bit of a change in how we manage the portfolio, but we do think it will create more certainty and less volatility for our investors and for our cash flows going forward.

Okay. And I guess one clarification, sorry. Does that then benefit you next year?

Well, remember, what you're really doing is you're locking in rates. And so, you're just locking in the hedge. It clearly benefits you around volatility around that one, three spread, but it's not as if we're manufacturing earnings. We are just creating certainty around the financing costs in the portfolio, which again we think is beneficial to our cash flows and forecasting our revenue streams.

Okay, great. And one last question for Jack. I mean, Jack, you seem to indicate that J.P. Morgan might have been the start of other banks considering a sale of their own loan portfolios. Have you had any progression in terms of discussions with other banks? Thanks.

So, we do see further opportunities to buy portfolios this year. And we would expect – we expect to be well-positioned in that space. So, that's probably the most I could say at this point.

Okay, thank you.

Your next question comes from the line of John Hecht of Jefferies.

Thanks very much, guys. Actually, most of my questions have been asked. A couple of, I guess, idiosyncratic ones. I can't remember it was Chris or Jack. One of you mentioned the state tax amnesty program ending in the third quarter. Can you give us a sense of how that's attributed to the second quarter?

Periodically, we get hired to run amnesty programs for states and municipalities. And we ran one. And they have, by definition, short time frames. And this took place primarily in the – revenue from this took place primarily in the second quarter. We'll see a bit of it in the third as well. But we don't break out individual contracts by revenue or margin in that way. But these are not – these are things that show up periodically on a somewhat regular basis, just different states run them at different times in their cycles.

Do you have anything in the pipeline that would replace this or it just comes up so fast that you can't hike those rates…?

Well, we ran one last year. We will run one this year. So, they are legislatively driven. So, the visibility of them is really watching kind of what the legislative cycles are in different states and municipalities.

Okay. Second question, you said it was a little bit – the pressure on margins from the elevated amortization of prepays, I’m wondering can you give us the specific impact on the margin from changes in the pre-pay rate from Q1 to Q2?

We don't have that specific guidance. But what we can tell you is we continue to see that higher amortization of portfolio. We saw it in the first quarter. We're seeing in the second quarter. It's been rising over the last couple of years. And so, you can see detail in our Q around loan activity and we get a deeper sense of how it's all playing out.

So, two things drive this. It's not a margin issue. It's a net interest income issue for us. But as the portfolio seasons and people are deeper into their repayment cycle, a larger percentage of their monthly payment goes to principal. And so, it's a natural kind of occurrence as the portfolio ages and seasons. That is a big driver here. And we're also, of course, benefiting by the fact that delinquency trends and needs for alternative payment programs are at all-time lows here. One of the things we track as an example is new to repayment borrowers and how they're doing in managing their payments. And so, the class of 2016 – so graduated a year ago – is kind of now fully seasoned as they entered repayment in kind of the December/January time frame. And the spot delinquency rates on that portfolio are the lowest we've ever seen in the 15-type-years that we've been tracking this statistic. And these are for federal loans, so non-credit underwritten loans. And when you have that kind of environment, you have faster payment speeds, but all in line with what we would expect to see based on a combination of factors there.

Great. Appreciate the color. Thank you.

[Operator Instructions] Your next question comes from the line of Moshe Orenbuch of Credit Suisse.

I know that you're not giving guidance for the margin in 2018 and you talked a little bit about the impact of the reduced volatility from the three, one spread, but what about the hedging of the floor income? Assuming that rates kind of continue to rise in a moderate way, would that be a benefit in 2018? Could you just talk about that?

I think a few things. One, clearly, we've taken the opportunity to hedge a lot of our floor income into 2020, which is important to create some certainty and visibility, but clearly also floor income is an amortizing asset as well to the portfolio. And so, we will be updating guidance next year, but there will be two countervailing factors that will be the benefit of the fact that we've locked it in. But also, the thing to keep in mind is also that this is an amortizing asset.

On the single servicer contract, could you maybe talk a little bit just about how the structure of that. Obviously, whoever it is that wins is going to have a lot of kind of business kind of thrown at them. Will it be done with kind of sub-servicing and maybe just, in broad strokes, kind of what that means for the structure of the bid and kind of the profitability of the contract?

Sure. So, the objectives, as we read the objectives of the RFP, is a desire to help reduce the cost to the taxpayers of the program by picking a single system platform for which servicing would take place. So, instead of paying for four platforms, the department effectively is paying for one. Branding it under the Department of Ed so that consumers understand the ownership of the loans and where the program terms and conditions are set and come from. And then what the winner would do would be to utilize a multi-subcontractor type structure to provide the call center, back-office kinds of functionality. The things that, we believe, stand out in terms of our proposal is our long and very, very successful track record of converting substantial numbers of accounts on to our platform in a very customer friendly way. We have a very detailed process that we follow there that involves how we communicate with the customer, educate them about the changes that are coming and then complete that conversion process. We run today in our call centers a distributed call center function today. So, this would be exactly what we do. And then, the big value add that we bring to the equation is we've got this very extensive kind of data analytics or data-driven strategies that we build over time that allow us to deliver substantially better performance. Our customers have consistently defaulted at 30-plus percent lower rates than all other servicers combined and that’s not – that’s all driven by the fact that we are using our data and our analytics to help us identify high-risk customers, communicate with them in effective ways, and educate them about their options, so that they can make better decisions. The new program that I described in my opening remarks about helping customers successfully enroll and reenroll in income-driven repayment plans is a huge change. The process is so complicated today that a significant number of customers who are prequalified for income-driven repayment plans don't actually complete the forms, and this is a process that is designed to substantially increase those rates and has substantially increased those rates. So, that's really where the – those combination of things is really where we deliver and would deliver high value in a future contract.

And, Jack, as you think about the criteria that they've set out, like how important to them is the platform cost, as you mentioned at the beginning, versus the other cost that would, obviously, be falling on the taxpayer that you would able to save them?

So, the contract, the RFP specifies the weighting of the different criteria. And, though, cost is one of them, it's about 20% weighting in the process. These other factors are the items that – in terms of customer experience, systems integrity capabilities of the platform are really the other components that they will weight. But we will have to wait and see how that process evolves over the next couple of months and what types of questions and comments we get from the reviewers.

Great. Just one quick other question. That is, you talked a lot about the changes in faster amortization of the portfolio, does that moderate, does that continue? How do we think about that as we go into 2018 and future years?

So, when you're acquiring or originating loans, as we have over the extensive period of time in the past, the amortization curves look fairly constant because your portfolio composition was relatively steady. But the portfolio seasons and you get customers who are in the fifth year of repayment versus the second year of repayment, the amortization rate is just faster because of how the payment – how the monthly payments get allocated between principal and interest. So, it's consistent with what we – it's certainly consistent with our cash flow expectations. We have a little bit of higher prepayments that has occurred as the refi marketplace has ramped up over the last couple of years, but it's not different so much this quarter than it was a year ago on that front. It's really more the aging and seasoning of the portfolio. And the lower delinquency rates, right? I mean, those are big factors as well.

Great. Thank you.

Your final question comes from the line of Mark Hammond of Bank of America.

Good morning, Jack and Chris. And thanks for taking my question. I wanted to follow-up on any details you can provide on the private OC repurchase facility that you executed during the quarter? Like, motivation. Why now effective advance [ph] rate and perhaps how much capacity is left to do more if you wanted?

So, we don't provide specific details on those transactions. But what we can tell you is that, obviously, we do it from a cost-effective basis. We see it as a very attractive form of financing for us to be able to tap into or utilize that underutilized asset on our balance sheet. We do have roughly $1.7 billion of OC that is available today to be utilized as well, and again at fairly attractive financing terms. And that clearly will continue to grow over the next couple of years. So, it is an asset that we continue to look to finance going forward.

Okay. So, in the past, you were able to provide the trusts that you used to provide the OC. Would you do that going forward and now?

We can certainly provide that you offline here. We added an additional trust, but essentially the same trusts that were in the previous facility are in the current facilities.

Okay, great. I'll follow up with some more details offline. Thanks, though.

There are no further questions at this time. I would like to turn the conference back over to Mr. Fisher for closing remarks. Okay. Thank you, Taihana. I’d like to thank everyone for joining us today. If you have any other follow-up questions, feel free to give me a call. And this concludes today's call.

Thank you for participating in today's conference. You may disconnect at this time.