Going head-to-head with the sector's leading issuer is rarely recommended, especially if the contender is planning its first foray into the public term markets. But student lender Nelnet did just that last week and came out looking pretty good. The strong historical performance of Sallie Mae actually helped Nelnet, as European buyers, who had shied away from Sallie in recent offerings, were targeted during a two-week roadshow put on by the issuer.
"This structure looked almost exactly like past Sallie Mae structures," said Jeff Noordhoek, senior vice president of capital markets for Colorado-based Nelnet. "By offering two- and seven-year seniors, along with a slightly longer sub class, we had an established structure already familiar to investors, and benefited from it."
As a result, Nelnet priced its offering at spreads-to-Libor that were roughly one and three basis points outside of Sallie for comparably tenured tranches. The two-year A1 priced at four over Libor and the 7.5-year A2 came in at 17 over.
Nelnet and joint lead manager for the offering JPMorgan went on an extensive roadshow, visiting investors in Dublin and London, as well as throughout the U.S. Dublin and London were targets due to the fact that buyers there had previously been buyers of longer-dated Sallie paper.
"This is both an experienced servicer and a new name in the market," noted Anthony Hermann, a vice president in joint lead manager JPMorgan's North American Asset-Backed Group. Chris Cronk, a principal in the education finance group in Banc of America's Global Asset Finance team, which shared the books on the deal, concurred, adding, "Accounts were happy to have the option to diversify their student loan holdings with such high quality paper."
Yield-seeking European accounts in particular were quite happy, as roughly 75% of the A-2 notes, with a 7.5-year average life, went to overseas investors. The plan, according to all involved, was to structure this class to suit overseas accounts that used to buy Sallie Mae paper, but have cut back as spreads tightened over the past year.
The distribution of the two-year A-1 was more like 50/50 and all of the long-dated single-A-rated subs were sold domestically. All classes were fully subscribed, sources said, following the slight widening of the single-A-rated class to 55 basis points over three-month Libor, from initial guidance in the low 50 area.
This is all part of the plan for Nelnet, which had been an active participant in the short-term auction rate market, as it "methodically plotted" its moves aiming to become a programmatic term ABS issuer. "We are trying to create an investor-friendly ABS program," added Cheryl Watson, executive vice president in the company's investor relations department.
Nelnet has plans to bring one more term deal to the public markets this year, according to Noordhoek, en route to becoming a two-to-three time a year issuer in the market.
Although the story at Nelnet is a good one, few people know it, prompting the cross-country and European tour. Nelnet is the third largest holder of FFELP loans in the U.S., behind Sallie and Citigroup as well as the third largest servicer, behind Sallie and Penn. Edu.
In 2002 Nelnet, with more than $7.5 billion in student loan holdings, plans to originate an additional $1.5 billion, up from $1.1 billion last year, a 26.6% increase.
