UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______________________________________________
Commission file number 333-08929
NELNET STUDENT LOAN CORPORATION-1
(Exact name of registrant as specified in its charter)
NEVADA 86-0817755
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1801 CALIFORNIA STREET, SUITE 3920, DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
(303) 292-6930
(Registrant's telephone number, including area code)
UNION FINANCIAL SERVICES-1, INC.
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
CLASS OF STOCK AMOUNT OUTSTANDING
Common Stock, No par value 1,000 Shares of Common Stock
as of November 1, 1999
1
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NELNET STUDENT LOAN CORPORATION-1
INDEX
PAGE NO.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1999 and
December 31, 1998...............................................3
Statements of Operations for the three months ended and nine
months ended September 30, 1999 and 1998........................4
Statements of Stockholder's Equity for the nine months
ended September 30, 1999........................................5
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998.....................................6
Note to Financial Statements......................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......12
PART II. - OTHER INFORMATION
Item 1.Legal Proceedings................................................ 13
Item 2.Changes in Securities............................................ 13
Item 3.Defaults upon Senior Securities.................................. 13
Item 4.Submission of Matters to a Vote of Security Holders.............. 13
Item 5.Other Information................................................ 14
Item 6.Exhibits and Reports on Form 8-K................................. 15
2
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<TABLE>
<CAPTION>
NELNET STUDENT LOAN CORPORATION-1
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
-------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 53,145,790 $ 664,815,085
Student loans receivable including net premiums
net of allowance for loan losses 1,499,542,611 639,740,073
Accrued interest receivable 31,249,117 11,110,808
Debt issuance cost, net of accumulated amortization 7,589,576 6,698,845
Other assets 577,910 199,506
-------------- ------------
Total assets $1,592,105,004 $1,322,564,317
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes payable $1,579,300,000 $1,316,500,000
Accrued interest payable 4,810,384 3,725,622
Income taxes payable -- 146,270
Other liabilities 2,150,723 1,139,945
------------- --------------
Total liabilities $1,586,261,107 $1,321,511,837
-------------- --------------
Stockholder's equity:
Common stock, no par value. Authorized 1,000
shares; issued 1,000 shares $ 1,000 $ 1,000
Additional Paid in Capital 1,920,000 --
Retained earnings 3,922,897 1,051,480
------------- ------------
Total stockholder's equity 5,843,897 1,052,480
-------------- -------------
Total liabilities and
stockholder's equity $1,592,105,004 $1,322,564,317
============== ==============
See accompanying note to financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
NELNET STUDENT LOAN CORPORATION-1
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues:
Loan interest $30,449,714 $11,157,078 $80,585,275 $32,895,881
Investment interest 634,988 194,230 2,936,680 847,751
Other 224,072 12,950 385,078 59,233
----------- ---------- ------------ ----------
Total revenues $31,308,774 $11,364,258 $83,907,033 $33,802,865
=========== =========== =========== ===========
Expenses:
Interest on notes $21,827,117 $ 8,250,067 $55,584,113 $24,789,830
Loan servicing 3,929,133 1,375,053 9,321,397 4,061,437
Financing fees to parent 1,145,165 241,237 2,839,445 711,400
Trustee and broker fees 721,598 234,825 1,733,078 695,820
Amortization of debt issuance costs 273,973 124,387 918,641 373,160
Amortization of loan premiums 1,079,916 496,958 3,638,684 1,457,143
Other general and administrative 1,937,131 510,543 5,288,407 1,356,813
---------- ---------- ---------- ----------
Total expenses $30,914,033 $11,233,070 $79,323,765 $33,445,603
=========== =========== =========== ===========
Income before income taxes 394,741 131,188 4,583,268 357,262
Income tax expense 147,435 51,533 1,711,851 134,051
----------- ------------ ------------ -----------
Net Income $ 247,306 $ 79,655 $ 2,871,417 $ 223,211
============ ============ ============ ============
See accompanying note to financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
NELNET STUDENT LOAN CORPORATION-1
STATEMENT OF STOCKHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
ADDITIONAL TOTAL
COMMON PAID IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $1,000 $1,051,480 $1,052,480
Capital contribution from Parent ------- 1,920,000 --------- 1,920,000
---------
Net income, nine months ended
September 30, 1999 - - 2,871,417 2,871,417
------- --------- --------- ---------
Balance at September 30, 1999 $1,000 $1,920,000 $3,922,897 $5,843,897
======= ========== ========== ==========
See accompanying note to financial statements.
</TABLE>
5
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<TABLE>
<CAPTION>
NELNET STUDENT LOAN CORPORATION-1
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
<S> <C> <C>
Net income $ 2,871,417 $ 223,211
Adjustments to reconcile net income to net cash from
operating activities:
Amortization 4,557,325 1,830,303
Provision for loan losses, net of charge offs 787,815 307,910
(Increase) in accrued interest receivable (20,138,309) (2,301,099)
(Increase) decrease in other assets 47,412 (103,387)
Increase in accrued interest payable 1,084,762 183,952
Increase in other liabilities 1,010,778 435,465
Decrease in income tax payable (572,086) (190,310)
------------ ----------
Net cash (used in) provided by operating activities (10,350,886) 386,045
------------ ---------
Cash flows from investing activities:
Purchase of student loans, including premiums (993,882,589) (71,602,789)
Proceeds from student loan principal sales 16,532,990 656,556
Net proceeds from student loan principal payments and loan
consolidations 113,120,562 46,582,619
----------- ----------
Net cash used in investing activities (864,229,037) (24,363,614)
------------- ------------
Cash flows from financing activities:
Capital contribution from parent 1,920,000 --
Payments on debt (15,900,000) -
Debt issuance costs (1,809,372) -
Proceeds from issuance of notes Payable 278,700,000 -
----------- -----------
Net cash provided by financing activities 262,910,628 -
----------- -----------
Net decrease in cash and cash equivalents (611,669,295) (23,977,569)
Cash and cash equivalents, beginning of period 664,815,085 39,542,392
----------- ----------
Cash and cash equivalents , end of period $53,145,790 $15,564,813
=========== ===========
See accompanying note to financial statements.
</TABLE>
6
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NELNET STUDENT LOAN CORPORATION-1
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
(1) BASIS OF PRESENTATION
The accompanying financial statements of NELNET Student Loan
Corporation-1 (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, include all adjustments necessary for a fair statement of
income for each period shown. All such adjustments made are of a normal
recurring nature, except when noted as extraordinary or nonrecurring. The
balance sheet at December 31, 1998 is derived from the audited balance sheet as
of that date. All other financial statements are unaudited. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations. Management believes that the
disclosures made are adequate and that the information is fairly presented. The
results for the interim periods are not necessarily indicative of the results
for the full year. These financial statements should be read in conjunction with
the financial statements and notes thereto in the Company's Annual Report on
Form 10-K, which are incorporated by reference.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The Company was formed on February 28, 1996 under the name Union Financial
Services-1, Inc., solely for the purpose of acquiring, holding and selling from
time to time student loans originated under the Federal Family Education Loan
Program created by the Higher Education Act of 1965, as amended. The Company is
a wholly owned subsidiary of National Education Loan Network, Inc. (NELNET),
formerly known as Union Financial Services, Inc. On November 4, 1999, the
Company changed its name to NELNET Student Loan Corporation-1. The Company
finances its purchases of student loans through the issuance of student loan
asset-backed notes (the "Notes"). The Notes are limited obligations of the
Company secured solely by the student loans and other assets in the trust estate
created by the Indenture of Trust governing the issuance of the Notes.
The assets of the Company consist primarily of student loans. At
September 30, 1999, the Company held approximately $1.473 billion in student
loans.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
REVENUES. Revenues for the three months ended September 30, 1999, consisted
primarily of interest earned on student loans. Revenues from interest on student
loans increased by $19,292,636 from $11,157,078 for the three months ended
September 30, 1998 to $30,449,714 for the three months ended September 30, 1999.
The increase in revenues is attributable to the acquisition of additional
student loans by the Company in the fourth quarter of 1998 and the first, second
and third quarters of 1999. The amount of interest reported for the three months
ended September 30, 1999 was derived from student loans in an aggregate
principal amount of approximately $1,473,180,000. The Company's average net
investment in student loans during the three months ended September 30, 1999 and
September 30, 1998 was approximately $1,467,540,000 and $536,297,000
respectively (excluding funds held by the Trustee) and the average effective
annual interest rate of interest income on student loans during the three months
ended September 30, 1999 and September 30, 1998 was approximately 8.30% and
8.32% respectively. The Company also earned investment income and other income
in the amounts of $634,988 and $224,072, respectively, for the three months
ended September 30, 1999 and $194,230 and $12,950, respectively, for the three
months ended September 30, 1998.
EXPENSES. The Company's expenses consisted primarily of interest due on the
Company's outstanding Notes. Expenses from interest due on the Company's
outstanding Notes increased by $13,577,053 from $8,250,064 for the three months
ended September 30, 1998 to $21,827,117 for the three months ended September 30,
1999. This increase in expenses is attributable to the issuance of additional
Notes in the fourth quarter of 1998 and the third quarter of 1999. For the three
months ended September 30, 1999 and September 30, 1998, the Company's average
debt outstanding was approximately $1,582,933,000 and $571,500,000,
respectively, and the average annual cost of borrowings was approximately 5.52%
and 5.78% respectively. The Company also incurred loan servicing fees to Union
Bank and Trust Company and its parent company, NELNET, and financing fees to
NELNET in the amount of $3,929,133 and $1,145,165, respectively, for the three
months ended September 30, 1999 as compared to $1,375,053 and $241,237,
respectively, for the three months ended September 30, 1998. The increase
8
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in loan servicing fees is directly related to the servicing of additional
student loans and the increase in financing fees is directly related to
increased financing activity. Trustee and broker fees, amortization of debt
issuance costs and amortization of loan premiums amounted to $721,598, $273,973,
and $1,079,916, respectively, for the three months ended September 30, 1999 as
compared to $234,825, $124,387 and $496,958, respectively, for the three months
ended September 30, 1998. Other general and administrative expenses amounted to
$1,937,131 for the three months ended September 30, 1999 as compared to $510,543
for the three months ended September 30, 1998. Approximately $1,186,000 of this
increase is due to an increase in lender consolidation fees for all consolidated
loans disbursed subsequent to October 1, 1993, based upon an increase in the
consolidation loans owned by the Company. The remainder of the increase of
approximately $241,000 is directly attributable to the increased activity of the
Company's business. Income tax expense amounted to $147,435 for the three months
ended September 30, 1999 compared to $51,533 for the three months ended
September 30, 1998. The increase in tax expense was a result of higher net
income before income taxes for the three months ended September 30, 1999.
NET INCOME. The Company had net income of $247,306 the three months
ended September 30, 1999 and $79,655 for the three months ended September 30,
1998.
For the three months ended September 30, 1999, there were no unusual or
infrequent events or transactions or any significant economic dangers that
materially affected the amount of reported income.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES. Revenues for the nine months ended September 30, 1999,
consisted primarily of interest earned on student loans. Revenues from interest
on student loans increased by approximately $47,689,000 from $32,895,881 for the
nine months ended September 30, 1998 to $80,585,275 for the nine months ended
September 30, 1999. The increase in revenues is directly attributable to the
acquisition of additional student loans by the Company in the fourth quarter of
1998, and the first, second and third quarters of 1999. The amount of interest
reported for the nine months ended September 30, 1999 was derived from student
loans in an aggregate principal amount of approximately $1,473,180,000. The
Company's average net investment in student loans during the nine months ended
September 30, 1999 and September 30, 1998 was approximately $1,228,451,000 and
$529,519,000, respectively (excluding funds held by the Trustee) and the average
effective annual interest rate of interest income on student loans during the
nine months ended September 30, 1999 and September 30, 1998 was approximately
8.34% and 8.28%, respectively. The Company also earned investment income and
other income in the amounts of $2,936,680 and $385,078, respectively, for the
nine months ended September 30, 1999 and $847,751 and $59,233, respectively, for
the nine months ended September 30, 1998.
EXPENSES. The Company's expenses consisted primarily of interest due on
the Company's outstanding Notes. Interest expense on the Company's outstanding
Notes increased by $30,794,283, from $24,789,830 for the nine months ended
September 30, 1998 to $55,584,113 for the nine months ended September 30, 1999.
This increase in expenses is directly attributable to the issuance of additional
Notes in the fourth quarter of 1998 and the third quarter of 1999. The Company's
average debt outstanding was approximately $1,404,322,000 and the average annual
cost of borrowings was approximately 5.28% for the nine months ended September
30, 1999. The Company also made payments for loan servicing fees to Union Bank
and Trust Company and NELNET, and financing fees to NELNET in the amount of
$9,321,397 and $2,839,445, respectively, for the nine months ended September 30,
1999 as compared to $4,061,437 and $711,400, respectively, for the nine months
ended September 30, 1998. The increase in loan servicing fees is directly
related to the servicing of additional student loans and the increase in
administration and financing fees is directly related to increased financing
activity. Trustee and broker
9
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fees, amortization of debt issuance costs and amortization of loan premiums
amounted to $1,733,078, $918,641, and $3,638,684, respectively, for the nine
months ended September 30, 1999 as compared to $695,820, $373,160 and
$1,457,143, respectively, for the nine months ended September 30, 1998. Other
general and administrative expenses amounted to $5,288,407 for the nine months
ended September 30, 1999 as compared to $1,356,813 for the nine months ended
September 30, 1998. Approximately $3,264,000 of this increase is due to an
increase in lender consolidation fees for all consolidated loans disbursed
subsequent to October 1, 1993, based upon an increase in the consolidation loans
owned by the Company. The remainder of the increase of approximately $668,000 is
directly attributable to the increased activity of the Company's business.
Income tax expense amounted to $1,711,851 for the nine months ended September
30, 1999 as compared to $134,051 for the nine months ended September 30, 1998.
The increase in tax expense was a result of higher net income before income
taxes for the nine months ended September 30, 1999.
NET INCOME. The Company had net income of $2,871,417 for the nine months
ended September 30, 1999 as compared to $223,211 for the nine months ended
September 30, 1998.
For the nine months ended September 30, 1999, there were no unusual or
infrequent events or transactions or any significant economic dangers that
materially affected the amount of reported income.
LIQUIDITY AND CAPITAL RESOURCES
Student loans held by the Company are pledged as collateral for the
Notes under an Indenture of Trust, the terms of which provide for the retirement
of all Notes from the proceeds of the student loans. Cash flows from payments on
the student loans, together with proceeds of reinvestment of the income earned
on student loans, are intended to provide cash sufficient to make all required
payments of principal and interest on each outstanding series of the Notes. If
current revenues are insufficient to pay principal and interest due on the
Notes, money in the Reserve Fund created under the Indenture is available for
payment of amounts due. The Reserve Fund is fully funded under the terms of the
Indenture.
It is anticipated that regular payments under the terms of the student
loans, as well as early prepayment, will reduce the number of student loans held
in the trust estate created under the Indenture. The Company is authorized under
the Indenture to use principal receipts from student loans to purchase
additional student loans until April 1, 2002. Thereafter, principal receipts
from student loans will be used to redeem Notes.
YEAR 2000 COMPLIANCE
The Company cannot determine whether the Year 2000 issue will have a
material adverse effect on its business operations. The conduct of the Company's
business in relationship to purchasing loans or administering the loans it owns
is not significantly dependent on the Company's own computer programs. However,
the Company's loan servicers, the trustee under the indenture for the Notes, the
guarantee agencies guaranteeing the Company's student loans, and the Department
of Education all rely heavily on computer programs and systems for processing
transactions related to student loans.
The Company has made inquiry of the trustee and the servicer and
subsubservicers of its loans concerning the Year 2000 issue, and has received
assurances that they are, or are working to become, Year 2000 compliant. The
Company, however, has not independently verified the accuracy of these
assurances. The Company is aware that the guarantee agencies and Department of
Education are working to address the Year 2000 issue. The Department of
Education has indicated that all of its data systems are Year 2000 compliant.
However, the Company cannot provide any assurance that the Department of
Education, the guarantee agencies, the trustee or the servicer or subservicers
will not be adversely affected
10
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by the arrival of the Year 2000. The Company cannot influence or control the
efforts of third parties to address the Year 2000 issue, nor can the Company
terminate its dependence on the servicer, subservicers, guarantee agencies or
Department of Education. Under the reasonably likely worst case scenario, the
arrival of the Year 2000 could delay the Company's receipt of principal and
interest payments on its student loans and the receipt of claims payments from
the guarantee agencies. If that delay continues for a prolonged period, the
Company may be unable to make timely payments of principal and interest due on
its Notes.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for the Company January
1, 2001. Management does not believe that adoption of this Statement will have a
material impact on the Company's financial position, results of operations or
cash flows.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's assets consist almost entirely of student loans. Those
student loans are subject to market risk in that the cash flows generated by the
student loans can be affected by changes in interest rates. The student loans
generally bear interest at a rate equal to the average bond equivalent rates of
weekly auctions of 91-day Treasury bills (the "91 day Treasury Bill Rate") plus
a margin specified for each student loan. Thus, if interest rates generally
increase, the Company would expect to earn greater interest on its student
loans, and if interest rates generally decrease, the Company would expect the
interest that it earns to be reduced. The Company does not hold any of its
assets for trading purposes.
The Company attempts to manage its interest rate risk by funding its
portfolio of student loans with variable rate debt instruments. The majority of
the Notes bear interest at a rate that is reset periodically by means of auction
procedures, or by reference to the London Interbank Offered Rate ("LIBOR") or a
specified Treasury rate plus an applicable margin. By funding its student loans
with variable rate Notes, the Company attempts to maintain a positive "spread"
between the interest earned on its student loans and its interest payment
obligations under the Notes. Thus, in an environment of generally declining
interest rates, the Company should earn less interest on its student loans, but
the interest expense on the Notes should also be lower.
The interest rates on each series of Auction Rate Notes is based
generally on the outcome of each auction of such series of Notes. The interest
rates on each series of LIBOR Rate Notes and Treasury Rate Notes is based
generally on the LIBOR Rate or Treasury Rate then in effect for the applicable
interest rate period. The student loans, however, generally bear interest at the
91-day Treasury Bill Rate plus margins specified for such student loans. As a
result of the differences between the indices used to determine the interest
rates on student loans and the interest rates on the Notes, there could be
periods of time when the rates on student loans are inadequate to generate
sufficient cash flow to cover the interest on the Notes and the expenses
required to be paid under the Indenture. In a period of rapidly rising interest
rates, LIBOR or auction rates may rise more quickly than the 91-day Treasury
Bill Rate. If there is a decline in the rates on student loans, the funds
deposited into the trust estate created under the Indenture may be reduced and,
even if there is a similar reduction in the variable interest rates applicable
to any series of Notes, there may not necessarily be a similar reduction in the
other amounts required to be paid out of such funds (such as administrative
expenses).
As shown by the chart below, the Company has conducted a sensitivity
analysis to determine what effect different changes in the interest rates on
student loans and the Notes would have on its cash flows and its resulting
ability to pay the principal and interest due on the Notes. Historically, the
majority of the Company's Notes have borne interest at a rate that approximates
1 Month LIBOR. Generally, student loans bear interest at a rate based on the 91
Day Treasury Rate. Thus, the Company's analysis of the effect of different
interest rates on its cash flows was prepared assuming spreads of 30, 40, 60, 80
and 100 basis points between 91 Day Treasury Bills and 1 Month LIBOR (the
"NelNet-1 Ted Spread"). The NelNet-1 Ted Spreads were then applied at different
rates of interest to determine their effect on the "spread" between the interest
the Company earns on its student loans and its interest payment obligations
under the notes (the "NelNet-1 Net Spread").
12
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T-BILL* NELNET-1 NET SPREAD
- ------------ ------------------------------------------------------------------
7.00% .76% .70% .58% .45% .32%
6.50% .65% .59% .47% .34% .22%
6.00% .53% .47% .35% .22% .10%
5.50% .52% .47% .34% .22% .09%
5.00% .56% .51% .38% .26% .13%
4.50% .67% .61% .48% .36% .23%
============ ===================================================================
NELNET-1
TED SPREAD** 30 40 60 80 100
===============================================================================
* 91-Day T-Bill (Yield)
** 1 Month LIBOR vs. 91 Day T-Bill (Yield)
Generally, increases in the NelNet-1 Ted Spread and decreases in
interest rates have the effect of reducing the NelNet-1 Net Spread, and
correspondingly, the Company's cash flows. For example, as of November 11, 1999,
the 1 Month LIBOR rate was 5.410% and the 91 Day Treasury Bill Rate was 5.096%.
Thus, the NelNet-1 Ted Spread was approximately 31 basis points (5.410-5.096)
and the NelNet-1 Net Spread was approximately 56 basis points. If, at the same
interest rate (approximately 5.00%), the NelNet-1 Ted Spread is increased to
100, the Company's cash flows are significantly reduced, as evidenced by a
NelNet-1 Net Spread of thirteen basis points. The Company, however, believes
that a NelNet Ted Spread of 100 is unlikely to occur.
13
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In July 1999, the Company offered its Taxable Student Loan Asset-Backed
Auction Rate Certificate Notes (the "Series 1999 Notes") in the aggregate
principal amount of $278,700,000. The Company offered the Series 1999 Notes
pursuant to its shelf registration statement filed with the Securities and
Exchange Commission on Form S-3, under Commission file number 333-28551 (the
"Registration Statement"). The effective date of the Registration Statement is
October 23, 1997. The offering commenced on June 17, 1999. All of the securities
offered were sold on July 1, 1999. The managing underwriter of the offering was
PaineWebber Incorporated. The offering consisted of the following classes:
Aggregate Price Aggregate
of the Offering Offering Price
Amount Amount AMOUNT of Amount Sold
CLASS REGISTERED REGISTERED SOLD TO DATE
----- ---------- ---------- ---- -------
1999A - 13 $70,000,000 $70,000,000 100% $69,734,000
1999A - 14 $70,000,000 $70,000,000 100% $69,734,000
1999A - 15 $70,000,000 $70,000,000 100% $69,734,000
1999A - 16 $68,700,000 $68,700,000 100% $68,438,940
In connection with the offering, the Company incurred total expenses in the
amount of $883,000 not including underwriting discounts. The net offering
proceeds to the Company after deducting the total expenses were approximately
$276,750,000. The Company used the offering proceeds to purchase student loans.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
On November 4, 1999 the Company changed its name from Union Financial
Services-1, Inc. to NELNET Student Loan Corporation-1.
14
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following is a complete list of exhibits filed as part of this Form
10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601
of Regulation S-K.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation of the Company (Incorporated by reference
herein to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
3.2 Certificate of Amendment to the Articles of Incorporation of Union
Financial Services-1, Inc. (Filed herewith.)
3.3 Bylaws of the Company (Incorporated by reference herein to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
4.1 Second Amended and Restated Indenture by and between the Company and
Norwest Bank Minnesota, N.A. (Incorporated by reference herein to the
Company's current report on Form 8-K, filed January 7, 1997.)
4.2 Series 1996C Supplemental Indenture by and between the Company and
Norwest Bank Minnesota, N.A. (Incorporated by reference herein to the
Company's current report on Form 8-K, filed January 7, 1997.)
4.2.1 1998 Supplemental Indenture by and between the Company and Zions
First National Bank (Incorporated by reference herein to the Company's
current report on Form 8-K, filed January 6, 1999.)
4.2.2 Series 1999 Supplemental Indenture of Trust by and between the Company
and Zions First National Bank (Incorporated by reference herein to the
Company's current report on Form 8-K, filed July 8, 1999.)
10.1 Administrative Services Agreement, dated as of August 1, 1996, by and
between Union Financial Services, Inc. and the Company (Incorporated
by reference herein to the Company's Registration Statement on Form
S-3 (File No. 333-28551).)
10.1.1 Amendment to Administrative Services Agreement, dated as of November
1, 1996, by and between Union Financial Services, Inc. and the Company
(Incorporated by reference herein to the Company's Registration
Statement on Form S-3 (File No. 333-28551).)
10.2 Amended and Restated Servicing Agreement, dated as of June 19, 1996,
by and between Union Bank and Trust Company and the Company
(Incorporated by reference herein to the Company's Registration
Statement on Form S-3 (File No. 333-28551).)
10.2.1 Second Amended and Restated Servicing Agreement, dated as of
December 18, 1998 by and between Union Bank and Trust Company and the
Company (Incorporated by reference herein to the Company's current
report on Form 8-K, filed January 6, 1999.)
15
<PAGE>
10.2.2 Servicing Agreement, dated as of July 1, 1999, by and between the
Company and National Education Loan Network Inc. (Incorporated by
reference herein to the Company's Registration Statement on Form S-3
(File No. 333-75693).)
27. Financial Data Schedule (Filed herewith.)
REPORTS ON FORM 8-K
The Company filed reports on Form 8-K during the three months covered by
this report.
o Current report on Form 8-K, filed July 8, 1999, containing copies
of an Underwriting Agreement between NELNET Student Loan
Corporation-2 and PaineWebber Incorporated dated June 30, 1999
and the Series 1999 Supplemental Indenture of Trust by and
between NELNET Student Loan Corporation-2 and Zions First
National Bank dated July 1, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NELNET STUDENT LOAN CORPORATION-1
By: /s/ Stephen F. Butterfield
------------------------------
Stephen F. Butterfield, President
(Principal Executive Officer)
By: /s/ Ronald W. Page
------------------------------
Ronald W. Page, Vice President
(Principal Financial and Accounting Officer)
Date: November 15, 1999
17
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
3.2 20
18
CERTIFICATE OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
UNION FINANCIAL SERVICES-1, INC.
Secretary of State File No: 4177.96
Secretary of State File Date:February 28, 1996
Union Financial Services-1, Inc., (the "Corporation"), a corporation
organized and existing under the laws of the State of Nevada, whose articles of
incorporation were filed on February 28, 1996, does hereby certify that the
Articles of Incorporation of the Corporation shall be and hereby are amended as
follows:
Section 1. Article I of the Articles of Incorporation is hereby
amended in its entirety to read as follows:
The name of the corporation is:
NELNET Student Loan Corporation-1
Section 2. Section 13 of Article X of the Articles of
Incorporation is hereby amended in its entirety to read as follows:
13. The Corporation shall not permit nor register the
transfer of any of the shares of its capital stock, except that
this restriction shall not apply to the transfer of shares of the
capital stock of the Corporation to any affiliate of the holder
of such shares. For these purposes, the term "affiliate" shall
mean any person directly or indirectly controlling, controlled by
or under common control with another person.
Section 3. The remaining articles of the Articles of
Incorporation of the Corporation are affirmed as previously in existence.
Section 4. Pursuant to Article X of the Articles of Incorporation
and Section 4.14 of the Second Amended and Restated Indenture of Trust, as
amended, by and between Union Financial Services-1, Inc. and Zions First
National Bank, as successor trustee, dated as of November 1, 1996, the
Corporation has provided notice to each Rating Agency of its intent to amend its
Articles of Incorporation and each Rating Agency has provided written
confirmation that such amendments will not adversely affect the rating on any of
the Corporation's outstanding Notes.
1
<PAGE>
The undersigned does hereby execute this Certificate of Amendment to the
Articles of Incorporation of Union Financial Services-1, Inc., and verifies that
the sole stockholder of the Corporation voted in favor of the amendment by
written consent.
UNION FINANCIAL SERVICES-1, INC.
/s/ Stephen F. Butterfield
----------------------------
Stephen F. Butterfield
President
/s/ Ronald W. Page
----------------------------
Ronald W. Page
Secretary
On this 30th day of September, 1999, before me, a notary public for the
State of Colorado and the City and County of Denver, Stephen F. Butterfield
appeared and acknowledged that he is President of Union Financial Services-1,
Inc., and Ronald W. Page appeared and acknowledged that he is Secretary of Union
Financial Services-1, Inc., and they each executed the foregoing instrument.
Notary Public
2
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 58,145,790
<SECURITIES> 0
<RECEIVABLES> 1,473,179,613
<ALLOWANCES> (1,204,616)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,592,105,004
<CURRENT-LIABILITIES> 6,325,486
<BONDS> 1,579,300,000
0
0
<COMMON> 1,000
<OTHER-SE> 5,842,897
<TOTAL-LIABILITY-AND-EQUITY> 1,592,105,004
<SALES> 0
<TOTAL-REVENUES> 83,907,033
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,739,652
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<INTEREST-EXPENSE> 55,584,113
<INCOME-PRETAX> 4,583,268
<INCOME-TAX> 1,711,851
<INCOME-CONTINUING> 2,871,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,871,417
<EPS-BASIC> 2,871.42
<EPS-DILUTED> 2,871.42
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