At a time when a lot of folks will be stockpiling canned food, or storing cash in a hole in their mattress, Education Loans Inc. will be floating an asset-backed securities deal.

Education Loans, or EdLinc, an Aberdeen, South Dakota-based student loan company, has a $500 million to $1 billion securitization on tap for December, right as Y2K worries cast their longest shadows.

Their rationale: Supply will be so light, that if demand exists, it will be the frantic, must-buy kind that ratchets spreads tighter. The company follows suit with Union Financial Services, who last week announced its intention of launching a student-loan deal late in the fourth quarter.

Salomon Smith Barney will lead the upcoming floating-rate transaction for EdLinc, and will benchmark the bonds off of one-month Libor. The bonds will be split between a senior class and a subordinate class. The deal will combine FFELP loans, in which third-party agencies guarantee the payment of both the principal and interest paid out, and "alternative loans," which lack these guarantees.

Norgrin Sanderson, president of EdLinc, said his company is not of the same mindset as many fellow issuers who are rushing to get all their issuance out of the way before the end of October.

"We're contrarian," Sanderson said. "We think there's going to be more money available looking for a home in December more than any other time. I think it may be the best opportunity to issue debt."

The strategy is based on the construct that there will be some hungry investors out there who found it difficult to make six months worth of allocations in a single quarter.

Fitch IBCA and Moody's Investors Service have already applied ratings to the deal, rating the senior class of bonds at AAA and Aaa respectively, and rating the subordinate bonds at single-A and single-A2, respectively.

One Wall Street analyst likes the chutzpah in this strategy as well as its chances of working because market technicals should place the odds in the issuer's favor.

"It's not too bad of an idea," he said. "Supply will dry up far and above demand. Investors looking for something to buy will be forced into the secondary market. Chances are spreads will tighten in the primary market. It just might work."

EdLinc is a subsidiary of Student Loan Finance Corp., also based in South Dakota. EdLinc has issued one previous deal in February 1998, which totaled $923 million.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.