Sallie Mae said this week it closed a new, $6.8 billion credit facility to facilitate term securitization of its federally guaranteed loans. The facility was oversubscribed by a syndicate of eight global financial institutions.
The facility is secured exclusively by Federal Family Education Loan Program (FFELP) loans and will amortize over a one-year period. Its size exceeds the balance remaining in the Sallie Mae’s existing financing via the federally sponsored Straight A asset-backed commercial paper program.
Straight A was launched in 2009, when lenders were having difficulty financing student loans, even federally guaranteed ones, in the capital markets. It ends in January 2014. Obtaining the new credit facility allows Sallie Mae to end its participation before this deadline.
“We are pleased to secure this alternative facility and refinance these loans ahead of schedule,” Joseph DePaulo, Sallie Mae’s executive vice president, banking and finance, said in a press release. “Our conservative liquidity standards, strong support from our bank group and demand from the capital markets for quality term ABS make this an attractive transaction.”
Sallie Mae’s assets in the Straight A facility have fallen from a high of $24.1 billion in December 2010 to $6.9 billion at March 31, 2013, primarily through the issuance of term securitization transactions.
The new facility could allow the company to put off term securitization until next year, according to analysts at Deutsche Bank. In research published this week, they noted that one-year term of the new facility buys the lender some time to obtain more permanent financing. However they said the pace of term securitization will depend on a number of other factors, including spread levels and market conditions for the remainder of this year.
Spreads on all kinds of asset backed securities widened by about 10 basis points over the last week as the result of volatility in the broader credit markets, according to Deutsche’s report.
Sallie Mae is currently in the market with its third FFELP securitization of the year; the $1.246 billion SLM Student Loan Trust 2013-3 consists of three tranches of 'AAA'-rated, floating-rate notes totaling $1.211 billion and $35 million of floating rate, ‘A’ rated Class B notes.