EdFund president says hefty severance package isn't a done deal

The president of EdFund on Tuesday said a severance package drafted for him and six other executives was "not an exit strategy," but meant to retain key managers during the state's anticipated sale of the student loan guarantor program.

Responding to a story Tuesday in The Bee about a severance package worth more than $3 million, Sam Kipp, president of the Rancho Cordova-based public benefit nonprofit corporation, said the executive staff drafted "boiler-plate samples" for the EdFund board to consider.

"We were directed by the board to develop a draft sample based on standard provisions that may be out there," Kipp said in an phone interview. "But there was never an expectation that that draft would be definitive. It was simply a starting point for discussion."

According to a copy of the proposed severance agreement obtained by The Bee, Kipp and other members of EdFund's executive staff would be each entitled to two years' worth of salaries, bonuses and medical coverage if the sale of EdFund goes through. They would be entitled to as much as $20,000 each to help them find new jobs. EdFund would also be on the hook for any tax they would have to pay the state and federal governments.

Elected officials, legislative analysts and taxpayer advocates raised the concern that providing a lucrative package would diminish the amount of money the state could receive in an EdFund sale. They said the move could also hurt EdFund's efforts to assist schools with loan processing and help delinquent borrowers put their loans back in order.

Lawmakers and Gov. Arnold Schwarzenegger decided to put EdFund on the block last year as part of the state budget agreement, estimating it could fetch up to $500 million. The administration now plans to postpone the sale to the 2009-10 budget year.

Kipp said a decision about the severance package is up to the EdFund board, which will consider it today and Thursday.

On Monday, EdFund staff and board members declined to answer inquiries from The Bee.

On Tuesday, the chair of EdFund sent a memo to staff defending the consideration of a severance deal. Sally Furay, chair of the EdFund board of directors, said concerns were raised by the state's financial adviser.

"The EdFund board of directors is considering an agreement in response to an observation by Bear Stearns, the state's sale-side-advisor, who was surprised when they learned that there was no agreement or contract to keep EdFund's management intact through the sale process and transition.

"Keeping valuable employees together is fundamental to preserving the company's value in the sale by the state."

In his own e-mail to the staff Tuesday, Kipp said the severance package "was a retention strategy, not an exit strategy."

EdFund maintains a $27 billion loan portfolio and insures loans for roughly half of California college students who receive aid through federal programs.

When students default, EdFund receives payment from the federal government and then handles collection duties, where it earns revenues through fees.

About the writer:

• Call Judy Lin, Bee Capitol Bureau, (916) 321-1115.