Market interest was strong and expectations high last week before Academic Loan Group priced its $1.3 billion ALG Student Loan Trust II.

The SLABS transaction was expected to do very well across all tranches because of the high-quality portfolio, according to a source familiar with the situation. To be sure, the deal received triple-A through single-A ratings on its various tranches from Standard & Poor's and was anticipated to price similar to Nelnet Inc.'s $2.4 billion transaction, which got done with very tight spreads last month, the source said.

Indeed, ALG's nine-year $147 million triple-A notes are structured similarly to Nelnet's 10-year $383 million triple-A notes, which came in at seven basis points over three-month Libor. "There is more demand than you can meet. It is a good time to be an issuer," the source said, noting that on the other end, it is a tough time to be a student loan investor because allocations are simply less attractive.

The deal is also piquing the interest of European investors after several successful road shows and a market that has been seeing increasing demand for student loan paper, the source said.

The transaction, which is being underwritten by Royal Bank of Canada Capital Markets and Goldman Sachs, is the second iteration for the company. However, from a credit perspective, the deal is similarly structured to ALG Loan Trust I, which issued its series 2004-1 and series 2006-1 notes under a separate indenture, totaling $1.4 billion.

The transaction is collateralized by high-balance consolidation loans - the primary focus of the company's business model and a market that has been expanding. This becomes apparent based on the size of the company's upcoming transaction.

The servicer also received the "Exceptional Performer" designation from the Department of Education, which entitles the trust to 99% reimbursement for defaulted loans while the designation is maintained, according to S&P.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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