April 15, 2010
AOCL (Unrealized Losses) on Corporate One’s Student Loan Asset-Backed Securities (ABS) Portfolio
With the release of our recent financials, I wanted to bring one area of these financials to your attention – Accumulated Other Comprehensive Loss (AOCL), which can be found on Corporate One’s balance sheet under Members’ Equity. We believe it is important for our members to understand how our AOCL is derived as well as its make-up.
AOCL is where we account for the unrealized losses on our available-for-sale (AFS) securities portfolio, and is indicative of the difference between the amortized cost of the securities within our AFS securities portfolio and their fair values, or the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In other words, AOCL is the difference between the unpaid balance of a security and what someone will pay for that same security today.
Many of our members may not know that our AOCL has shown significant improvement over the last twelve months. In fact, since February 2009, our AOCL number has dropped dramatically, from $539.2 million to the current figure, $218.6 million. With liquidity beginning to return to the markets, we are seeing improved fair values in most of our portfolios.
Because we focus on managing a diversified investment portfolio, our AOCL is not all associated with our mortgage-related securities, as many might have assumed. We have a sizable portion of our total investable assets in student loan ABS. While we have seen liquidity come back for certain sectors, the student loan ABS sector has not yet experienced the same levels of active trading, which has held the fair values down on this ABS sector. Despite the AOCL on these securities, we are very comfortable with our student loan holdings, and in fact, our Risk Management department recently performed an in-depth review of the entire student loan portfolio. Their conclusions state that our student loan securities portfolio is of very high quality and Risk Management does not believe that we will recognize any credit losses from these securities. To help our members better understand this analysis, and in our continued effort to be transparent, we are presenting the Risk Management department’s full, in-depth reports for your review:
We believe that our members can benefit from reviewing our specific holdings and gaining in-depth insight into the make-up of our AOCL. We are comfortable with our holdings and we want you to be comfortable as well. I hope you find this information valuable. After reviewing our analysis, should you have additional questions regarding this information please contact our Chief Risk Officer, Joseph Ghammashi at 866/MyCorp1 ext. 9331 or, as always, please contact me if you have additional questions regarding our financial condition.
Melissa A. Ashley
VP, Chief Financial Officer
866/MyCorp1, ext. 9351