Securities Available For Sale

The Company’s securities available for sale consist of auction rate securities, which represent i) interests in pools of student loans guaranteed by the U.S. government under the Federal Family Education Loan Program and ii) a structured finance security. The structured finance security has an attached credit default swap under which the principal value of the structured finance security would be partially or fully forfeited at net default rates on the underlying corporate debt obligations ranging from 8% to 9%. The net default rate as of December 31, 2012 was estimated to be 6.22%. The structured finance security is fully collateralized by investment grade credit-linked notes made up of floating rate international bank notes, which are alternatively available to cover potential claims under the credit default swap in case of forfeiture.

Due to liquidity issues in the auction rate securities market, there was insufficient observable market data to determine the fair values of the Company’s auction rate securities as of December 31, 2012 or 2011. Therefore, their respective fair values were estimated by an independent valuation firm, Houlihan Capital Advisors, LLC, using a probability weighted discounted cash flow model. The valuation of these securities is sensitive to market conditions and management’s judgment and can change significantly based on the assumptions used. The following tables set forth the fair values of the Company’s auction rate securities by type of security and underlying credit rating as of the dates indicated (in millions):



	Underlying Credit Rating (1)
As of December 31, 2012	AA-		BB		CCC		Total
Student loans	$	9.1	$	2.6	$	—	$	11.7
Structured finance securities	—		—		2.7		$	2.7
Total auction rate securities	$	9.1	$	2.6	$	2.7	$	14.4



	Underlying Credit Rating (1)
As of December 31, 2011	AAA		CCC		Total
Student loans	$	11.9	$	—	$	11.9
Structured finance securities	—		1.7		$	1.7
Total auction rate securities	$	11.9	$	1.7	$	13.6


(1)	The Company’s auction rate securities maintain split ratings. For purposes of this table, securities are categorized according to their lowest rating.

As of December 31, 2012, the yields on the Company’s auction-rate securities ranged from 1.68% to 2.37%. These yields represent the predetermined “maximum” reset rates that occur upon auction failures according to the specific terms within each security’s governing documents. The issuers have been making interest payments when due. Total interest earned for the years ended December 31, 2012, 2011 and 2010 was $0.4 million, $0.4 million and $0.7 million, respectively.

Structured Finance Auction Rate Securities

The Company’s structured finance security, for which cumulative credit losses of $3.3 million have been recognized through December 31, 2012, had a par value of $5.0 million and a cost basis of $1.7 million as of December 31, 2012. If unrealized losses are believed to be other-than-temporary, an impairment charge is recorded. Following the sale of two of the Company’s structured finance securities as discussed below, management determined that it no longer met the criteria for intent to hold with respect to its remaining structured finance security. Accordingly, declines in this security’s cost basis are recognized in earnings. Increases are recorded in other comprehensive income, net of applicable income taxes. Unrealized gains associated with the Company's structured finance security totaled $1.0 million as of December 31, 2012.

No other than temporary impairment losses were recognized in connection with the Company’s structured finance securities during the year ended December 31, 2012. Details of other than temporary impairment losses recognized for the periods indicated are as follows (in millions):



	For the Years Ended December 31,
	2011		2010
Total other-than-temporary impairment losses on securities available for sale	$	0.6	$	1.2
Less: Unrealized losses on securities available for sale, recognized in other comprehensive income	—		—
Unrealized losses on securities available for sale, recognized in earnings	$	0.6	$	1.2

In 2010, the Company sold two of its three structured finance auction rate securities for $7.0 million. The sold securities had a cost basis of $6.6 million, with cumulative credit losses of $4.6 million recognized in prior periods. The cumulative credit losses were partially offset by a realized gain of $0.4 million on the sale transaction, for a cumulative net realized loss of $4.2 million on disposal. Details of the securities sold, as of the date of sale, are as follows (in millions):



Par value	$	11.2
Cost basis	$	6.6
Fair value	$	5.7
Cumulative realized losses	$	4.2
Accumulated losses in other comprehensive income, net of tax	$	0.6

Student Loan Auction Rate Securities

In the second quarter of 2011, the issuer of one of the Company’s student loan auction rate securities redeemed its security at its par value of $4.6 million. In connection with the redemption, $0.5 million of cumulative unrealized losses, and the corresponding tax impact of $0.2 million, were eliminated from other comprehensive income. Management believes the temporary unrealized decline in estimated fair value as of December 31, 2012 associated with its remaining student loan auction rate securities is primarily attributable to the limited liquidity of these investments and overall market volatility. The Company expects to recover the remaining cost basis of its student loan auction rate securities, and does not intend to sell, or believe that it will more likely than not be required to sell its student loan auction rate securities before recovery of their cost basis, which may be at maturity. Cumulative gross unrealized losses on the Company’s student loan auction rate securities totaled $1.2 million and $1.0 million as of December 31, 2012 and 2011, respectively, or $0.6 million net of applicable income taxes as of both December 31, 2012 and 2011, respectively, which were reflected as a component of other comprehensive income.

Auction Rate Securities – Reconciliation of Cost Basis to Fair Value

The Company's student loan auction rate securities have been in a continuous unrealized loss position for over twelve months. The cost basis, gross cumulative unrealized (losses) gains and estimated fair values of the Company’s auction rate securities as of the dates indicated were as follows (in millions):



	December 31, 2012
	Adjusted Cost Basis (1)		Gross Cumulative Unrealized (Losses)/Gains			Fair Value
Auction rate securities – student loans	$	12.9	$	(1.2	)	$	11.7
Auction rate securities – structured finance securities	1.7		1.0			2.7
Total auction rate securities	$	14.6	$	(0.2	)	$	14.4

	December 31, 2011
	Adjusted Cost Basis (1)		Gross Cumulative Unrealized (Losses) Gains			Fair Value
Auction rate securities – student loans	$	12.9	$	(1.0	)	$	11.9
Auction rate securities – structured finance securities	1.7		—			1.7
Total auction rate securities	$	14.6	$	(1.0	)	$	13.6


(1)	Adjusted cost basis reflects adjustments for credit and other losses recognized in earnings on our structured finance security. Cumulative adjustments to the cost basis of securities held as of both December 31, 2012 and 2011 totaled $3.3 million. Par value of securities held as of both December 31, 2012 and 2011 totaled $17.9 million.

As of December 31, 2012, contractual maturities of the Company’s student loan auction rate securities range from 15 to 35 years, and for the structured finance security, 4 years.