Tuesday, June 22, 2010

Nelnet’s Rating Outlook Upgraded (BUY)

Student Lender Nelnet Inc.’s (NNI: 21.19 0.00 0.00%) ratings have been affirmed and its outlook has been upgraded to “Stable” from “Negative” by Moody’s Investors Service. The rating agency’s action is based on improved financial condition and the liquidity position of the company.
Nelnet is experiencing an increase in profitability from its student lending business and is reaping the positives of the efforts to diversify in recent years. The company continues to shift to a more fee-based business model and is currently one of the four servicers for the U.S. Department of Education’s Direct Lending Program.
With expectations for significant growth in the college-age population in the upcoming years, increasing tuition costs and high enrollment trends, Nelnet is poised to experience significant growth opportunities.
However, the recent legislation forbidding private sector companies from letting out fresh federal student loans after June 30 remains a serious concern. The new legislation would also eliminate the role of other major private lenders such as SLM Corporation (SLM: 12.00 0.00 0.00%), commonly known as Sallie Mae, in originating federal student loans under the Federal Family Education Loan Program effective July 1, 2010. However, the companies will service the loans for the Department of Education.
While Nelnet is expected to strategically expand its fee-based business, the transition from its traditional role of a lender to a provider of fee-based services will take reasonable time.
Hence, the rating agency sees limited likelihood for any upside revisions to Nelnet’s ratings of Ba1, a below investment grade rating. Additionally, there remains a risk related to the contract renewal for loan servicing with the U.S. Education Department following its expiry after four years.



Posted by suprastock at 6/22/2010 11:02:00 AM

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