Student-loan company Brazos Group Inc. is $12 billion in debt, $7 billion of which it is unable to purchase back, refinance, or restructure. The company, which is the largest municipal borrower in the auction-rate securities market, wants Citigroup, Bank of America, and other banks to find a solution.
During the fiscal years of 2005-2007, Brazos used bonds to increase lending to $11.19 billion. However, Brazos and over 100 student lenders stopped making government-backed loans earlier this year when 98% of auctions to set rates on their debt did not attract enough bidders.
Brazos stopped making any more loans after the auction-rate securities market fell and currently pays about 5% on auction bond rates while getting 4% back on loans behind the securities.
It wasn’t until after the US Department of Education said it would purchase guaranteed student loans that Brazos said it would start lending again. This still will not allow the student lender to refinance or restructure its auction rate securities because funds for this new plan will go to new loans.
Brazos, like other student lenders, had to let go of many of its employees in the wake of the auction-rate securities market crisis and Congress’s approval of legislation to reduce subsidies to providers by $20.9 billion over the next five years.
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Brazos
Brazos Auction-Rate Yields Exceed Loan Interest Rates, Bloomberg.com, June 2, 2008