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Canyon Partners Proposes Minority Slate of Nominees

JSM | February 21, 2019

PR Newswire

LOS ANGELES, Feb. 21, 2019

LOS ANGELES, Feb. 21, 2019 /PRNewswire/ -- Canyon Capital Advisors LLC (together with certain of its affiliates, "Canyon"), today sent a letter to the board of directors (the "Board") of Navient Corporation ("Navient") (NASDAQ: NAVI) proposing a minority slate of four nominees for election to the Board as independent directors at Navient's 2019 annual meeting of stockholders.

The full text of the letter sent to the Board can be read below:

February 21, 2019

Board of Directors
Navient Corporation ("Navient" or the "Company")
123 Justison Street
Wilmington, DE 19801

Re: Canyon's Proposed Minority Slate

Members of the Board:

As you know, Canyon Capital Advisors LLC (together with certain of its affiliates, "Canyon") is the investment advisor to funds and accounts that hold more than 25.6 million shares, over 10%, of the outstanding common stock of the Company. Canyon has been a Navient investor for years and is the Company's largest shareholder.

As such, Canyon has serious concerns about the direction of the Company. Rather than focusing on managing its legacy assets obtained at the time of spin-off, the Company has used the cash flows from those assets to subsidize new, non-core businesses with uncertain growth and profitability prospects. We believe this has contributed to the poor performance of the Company's stock price. The Company also removed 'operating expense/efficiency' benchmarks from the metrics of its management's incentive plan, further highlighting the Company's emphasis on growth at the expense of profitability.

We attempted to engage with you about a potential transaction. We simply requested that you continue to engage with us, and defer the February 23 deadline for action at the Company's upcoming annual meeting (in order to allow us time to complete the necessary remaining diligence and negotiate a contract). However, you declined to provide the information we requested, abruptly walked away from our discussions, and refused to extend the deadline for shareholder action.

Accordingly, yesterday we withdrew our initial expression of interest and informed you that we do not intend to participate in an acquisition process. Instead, we seek to bring a fresh perspective and oversight to Navient's strategic direction by nominating directors for election at the annual meeting with the requisite experience and independence. We are proposing the following four candidates (a minority slate), all of whom are independent of Canyon:

Alan Robert Ginsberg
Gregory A. Pratt
Ivona Smith
Robert Webster

We include brief bios of the candidates in Attachment A. As you will see, they are a diverse group possessing in-depth financial expertise and a wealth of experience in investment and financial services, along with extensive corporate governance experience on the boards of numerous public and private companies (including at companies in challenging situations). We are confident that they possess the leadership skills, expertise and perspective necessary to help guide the Company forward and address the issues of concern to all shareholders.

Canyon acquired its position in the Company based on its assessment of the significant value it sees in the cash flows generated by the Company's legacy assets. When the Company was spun off from Sallie Mae, the initial plan was to manage those inherited assets and return capital to shareholders. Instead, the legacy asset cash flows have been used increasingly to acquire a collection of subscale and largely unrelated new businesses that include Gila, Xtend, and Duncan (Business Process Outsourcing ("BPO") businesses) and more recently Earnest (a loan refinance ("refi") business).

We believe that a number of these acquired businesses are being subsidized by cash flows from the legacy assets. The subsidies are principally in the form of $250-275 million in un-allocated overhead expenses, which if fully allocated would make clear that nearly all of the other businesses are less profitable or lose money. That is reflected in an expense allocation analysis we shared with you and with management (who responded that they can neither agree nor disagree with our conclusions). We include that analysis as Attachment B (in redacted form in order to eliminate non-public information when we release this letter publicly).

Besides depleting capital and liquidity, these non-core businesses have other issues as well. The loss of major contracts could make it particularly challenging for the BPO businesses to be profitable. The loss of one such contract already has required the Company to write down a portion of intangibles associated with its Gila acquisition, and the Company stated in its periodic filings that the revenue performance of Xtend since its acquisition has been below expectations.

Earnest's refi business is effectively a fixed-rate lending business, in which margins contract as interest rates rise. In addition to dealing with margin compression, the Company has had to temporarily fund acquisition of loans with higher cost warehouse and high-yield debt, making the economics of the refi business even less advantageous.

Growth is not an end in itself, nor does it come without costs and risks. In our view, the costs and risks of the Company's growth strategy significantly outweigh the benefits to shareholders. Indeed, it appears that the only potential beneficiary of the strategy is management. Beginning with the Company's FY 2017 proxy statement, "Operating expense/efficiency" was removed as a metric from the Company's management incentive plan and "Revenue from growth business" was added. Incentivizing revenue growth alone does not incentivize profitability or assure greater shareholder value, and the Company has not even been able to meet its own revenue targets applicable to this metric.

Having constructed our own set of projections, we believe there is real risk that without significant change in direction, within four or five years the Company will only break even or actually suffer a loss. The market also does not appear to have endorsed the Company's direction, with Company's stock price having underperformed the S&P 500 index by over 70 percentage points since the Sallie Mae spin-off (both with and without including dividends in the calculation).

Canyon continues to have confidence in the Company's core legacy asset business, which generates strong, steady cash flows that can provide abundant debt coverage and positive shareholder returns. The Company appears to have lost sight of this, and its current value has been depressed by the ill-conceived strategy of growth for growth's sake. The Company must refocus that strategy.

Many of the incumbent directors have been on the board since its spin-off from Sallie Mae and have supported the failed growth strategy. It is time for a fresh set of eyes. An appropriately reinvigorated Board must guide the needed refocus, and we believe our proposed minority slate of candidates will help to provide that guidance.

Sincerely,

Canyon Capital Advisors LLC,
on behalf of its managed funds and accounts

About Canyon Partners LLC
Founded and partner owned since 1990, Canyon employs a deep value, credit intensive approach across its investment platform. Canyon specializes in value-oriented special situation investments for endowments, foundations, pension funds, sovereign wealth funds, family offices and other institutional investors. The firm invests across a broad range of asset classes, including distressed loans, corporate bonds, convertible bonds, securitized assets, direct investments, real estate, arbitrage, and event-oriented equities. For more information visit: www.canyonpartners.com.

Additional Important Information about the Solicitation and Participants
Canyon Capital Advisors LLC ("CCA") plans to file a proxy statement for use in soliciting proxies for the 2019 annual meeting of stockholders of Navient Corporation (the "Company"). Stockholders are advised to read the proxy statement when it becomes available because it will contain important information. When the proxy statement becomes available, stockholders will be able to obtain it and any other relevant documents at no charge on the SEC's website at http://www.sec.gov.

CCA, its managed funds and accounts holding shares of common stock of the Company, Mitchell R. Julis, Joshua S. Friedman, Jonathan Heller, Sergey Kamensky, Alan Robert Ginsberg, Gregory A. Pratt, Ivona Smith and Robert B. Webster (collectively, the "Participants") may be deemed to be participants in the proxy solicitation. The direct or indirect interests of the Participants in the proxy solicitation are described in Exhibit 1 to the filing of this press release that CCA is making with the SEC pursuant to Rule 14a-12 under the Securities Exchange Act ("Rule 14a-12"), which supersedes Exhibit 1 to the filing that CCA made with the SEC on February 20, 2019 pursuant to Rule 14a-12 and can be obtained at no charge on the SEC's website at http://www.sec.gov.

Cautionary Statement Regarding Forward-Looking Information
All statements contained in this communication that are not clearly historical in nature or that necessarily depend on future events are "forward-looking statements," which are not guarantees of future performance or results, and the words "anticipate," "believe," "expect," "potential," "could," "opportunity," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained in this communication that are not historical facts are based on current expectations, speak only as of the date of this communication and involve risks that may cause the actual results to be materially different. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation as to future results. Canyon disclaims any obligation to update the information herein and reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Canyon has not sought or obtained consent from any third party to use any statements or information indicated herein as having been obtained or derived from statements made or published by third parties.

Media Contact:
Brian Schaffer
Prosek Partners
(646) 818-9229
bschaffer@prosek.com

Attachment A

Brief Bios of Our Nominees

Alan Robert Ginsberg is the founder and chief executive officer of Larchmont Advisors Inc., an institutional investor consulting firm founded in 2000. From 1986 to 2000, Mr. Ginsberg worked as an investment banker with a focus on corporate fixed income/high-yield debt research at various investment banks, including serving as a managing director and the global head of high yield debt research and U.S. investment grade debt research at Barclays Capital. Since 2000, he has served as a board member on behalf of institutional investors or owners for private companies in various industries.

Gregory A. Pratt has extensive experience serving as an executive officer and director of public and private companies across a variety of industries. Since 1984, he has held key executive and board leadership positions at multiple publicly-traded companies, including as chairman, chief executive officer, president and now non-executive chairman of Carpenter Technology Corporation and as lead director of Tredegar Corporation. He has also served as a member of the Standing Advisory Group of the Public Company Accounting Oversight Board and the Chair of the Capital Area Chapter of the National Association of Corporate Directors.

Ivona Smith is an advisor at Drivetrain LLC, an independent fiduciary services firm. She has over twenty-five years of experience in the financial services industry, providing financial and investment advisory services and acting as portfolio manager and managing director at various investment management and advisory firms, including Restoration Capital Management LLC, a hedge fund with a focus on distressed assets that she co-founded in 2001. Since joining Drivetrain, Ms. Smith has served as an independent director on the boards of various companies.

Robert B. Webster is the co-founder and senior managing director of Twin Haven Capital Partners, LLC, an investment management firm founded in 2009. Prior to launching Twin Haven Capital, Mr. Webster worked as a managing director and senior portfolio manager at Pequot Capital Management, an investment management firm, from 2001 to 2009, and as a managing director at Pacific Capital Group, a family office with substantial assets, from 2000 to 2001. Mr. Webster has also served on the boards of 14 private and public companies.

Attachment B