Bond market looks past Navient’s $1.85 billion student loan settlement

Corporate bonds issued by Navient Corp. were the second most actively traded in the rotten US listed financial category on Friday, a day after the student loan giant agreed to a $1.85 billion deal to settle claims of abusive lending practices, according to BondCliq.

The settlement with 39 state attorneys general will provide more than $1.7 billion in relief to approximately 66,000 borrowers who will have their private student loans forgiven. It also includes $95 million in payments to 350,000 federal student borrowers, whom Navient allegedly directed into unnecessarily expensive repayment programs.

See: Navient cancels $1.7 billion in private student loans in settlement with 39 attorneys general

However, the active trade of the NAVI of the Navient,
debt does not mean a sale (see chart). Rather Friday, the price action of the loan managers’ most popular bonds was relatively flat.

Navient’s B+-rated bonds trade flat on heavy stock after big settlement


The chart shows Navient’s 6.125% coupon bond, with B+ ratings and maturing in March 2024, trading steadily at a price of around $106 and a spread, or premium, of around 212 basis points above the TMUBMUSD10Y Risk Free Treasury,

Bond spreads help compensate investors for default risk, but have also been low in the debt world after years of accommodative monetary policies.

However, not all bond trading stocks in the sector were flat on Friday. The large red circle on the right, referring to the attached graph, represents the trading pressure in Coinbase’s COIN,
3.375% coupon bond, which has BB+ ratings and matures in December 2049. It was the most active financial bond on Friday with below investment grade ratings.

This contrasts with Navient’s fixed-price action, which may stem from the fact that the settlement is hardly surprising to debt investors, given the “long-running” status of the US attorneys general’s investigation. States about Navient’s loan servicing practices, but also the “eminently manageable price.” tag: a $145 cash payment to states and $1.7 billion in private student loan collections,” according to Jesse Rosenthal, head of US finance at research firm CreditSights.

Notably, the $1.7 billion in student loans to be canceled by Navient have already defaulted and been charged to the company’s balance sheet, Rosenthal wrote, in a client note Wednesday. Nor was Navient required to admit wrongdoing under the GA settlement.

A spokesperson for Navient pointed out that the settlement is expected to result in a pretax expense of approximately $50 million, which is roughly what Navient expects to recover in the future from these forgiven loans.

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