SLM Corp., the education lender known as Sallie Mae, said it commenced a cash tender offer to repurchase as much as $1 billion of debt at a discount to face value.
Sallie Mae will offer holders of its notes maturing in 2010 between 91 cents and 98 cents on the dollar through a modified Dutch auction, the Reston, Virginia-based company said today in a statement distributed by Business Wire. In a Dutch auction, the holder of the security specifies the price it will accept within a range. The company selects the lowest offers.
Sallie Mae, which has $18.2 billion of bonds coming due through 2011, is trying to reduce debt as the U.S. government eliminates subsidized lending for student-loan companies. Moody’s Investors Service placed the long-term ratings of SLM on review for possible downgrade on Aug.27, citing large unsecured debt maturities in 2010 and 2011.
"By paying down this debt at a discount it improves the overall liquidity of the company,” Ethan Heisler, a managing director at Hexagon Securities LLC in New York said today in a telephone interview. “After 2011, there is a big reduction in the maturing debt due.”
Holders of the company’s $1.94 billion floating-rate notes due in July can put in bids ranging from 91 to 95 cents on the dollar, according to the statement. Investors owning Sallie Mae’s $1.2 billion of 4.5 percent medium-term notes due in July can place bids ranging from 94 cents to 98 cents on the dollar.
Sallie Mae will pay a fee of 3 cents on the dollar to investors that submit offers on or before 5 p.m. on Sept. 15, according to the statement. This is included in the tender price. The offer will expire Sept. 29.
The floating-rate notes due in 2010 rose 0.8 cent to 92.3 cents on the dollar at 12:40 p.m. New York time, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The 4.5 percent notes due in 2010 rose 1.1 cent to 97.5 cents on the dollar, Trace data shows.
Under the fiscal 2010 budget, President Barack Obama plans to end the 43-year-old government program that subsidizes and guarantees loans made by private lenders. New federal student loans would be made through the Education Department. The lender made $24.2 billion in student loans last year, 74 percent of them federally guaranteed.