Sallie Mae is remarketing $180 million of federally guaranteed student-loan backed securities issued in 2005, according to a regulatory filing.
The $180 million class A-5 notes were issued by SLM Student Loan Trust 2005-7 in August 2005. They paid interest of Libor plus 9 basis points for the initial period ending on July 25, 2013.
The remarketing agents, Bank of America Merrill Lynch and Deutsche Bank, will seek to find new buyers for any of the securities tendered at an interest rate linked to three-month Libor until the next reset date on October 25, 2013.
If all holders fail to tender their notes for remarketing, the notes will pay the “all hold” rate of Libor plus 75 basis points until the next reset period in October 2013.
If the remarketing fails, holders will also receive interest of Libor plus 75 basis points until the next reset period three months later.
Sallie Mae has the option to call the notes at any reset date.
Student loan asset based securities issued in the mid-2000s often included longer-dated senior notes with rates that rest after initial periods of three to seven years. This allowed issuers to lower their all-in cost of funds, since the reset rate notes priced as shorter-term notes. The legal maturity date for the class A-5 notes of the SLM Student Loan Trust 2005-7 is January 25, 2040.
For the investors, the rate reset notes offered greater prepayment protection than notes with comparable average lives that amortized. During the financial crisis, however, remarketing exercises for many longer-dated securities failed when agents failed to find buyers.
The SLM Student Loan Trust 2005-7 issued another class of notes, A-3, that initially reset in April 2008, according to the prospectus supplement. That document does not indicate whether this class of notes has been successfully remarketed.
However, Sallie Mae's most recent annual report indicates that it had $6 billion of rate reset notes outstanding that had experienced failed remarketings as of Dec. 31, 2012. The company has another $7.5 billion of rate reset notes to be remarketed in 2013.
When asked for a comment, a Sallie Mae representative referred to the annual report, which cites the "ongoing dislocation in the capital markets" as the reason for the failed remarketings.
