Nellie Mae, the student loan company absent from the asset-backed market since 1996, is expected to come to market this quarter with a floating-rate transaction that might take its cue from new prospective parent Sallie Mae: issuing Libor-based bonds in order to attract a larger audience.
The deal looks to be in the $100 million range, based on a current shelf filing dubbed Nellie Mae Student Loan Trust 1999-A, and also based on the amount the government-backed loan purchaser has historically issued in prior asset-backed deals.
But considering the long respite Nellie Mae has taken from the market, and the fact the issuer currently has $600 million in volume in its commercial paper program, the amount for the upcoming deal could rise significantly above $100 million, sources said.
"Nellie Mae is probably looking to unload some stuff," a source said.
The structure will contain a class A-1 tranche, a class A-2 tranche, and what looks to be a tranche of residual certificates. As with past Nellie Mae offerings, Salomon Smith Barney is the likely lead. Nellie Mae Education Loan Corp. is listed as seller/servicer in shelf documents.
Jack Remondi, chief executive officer at Nellie Mae, confirmed that the shelf was registered for a term deal, but would not comment on the structure or timing of the transaction.
Remondi said the company was getting back into the market as "part of an overall financing strategy," and that the deal was filed before "the announcement with Sallie Mae."
Braintree, Mass.-based Nellie Mae agreed to be acquired by Sallie Mae for $320 million in an all-cash transaction. The deal is still subject to regulatory approvals.
"Basically, Nellie may be saying, Hey, they did it, got good execution,'" a source said. "In general, the market looks pretty good, especially after the Sallie deal came it out. It priced pretty well considering the sloppiness in the market recently. Nellie may be looking to take advantage of favorable environs."
Nellie Mae appears to be following Sallie Mae's lead in at least one aspect, according to sources. The student loan company will issue its bonds benchmarked to three-month Libor floaters.
"They'll go with the Libor floaters because there'll be more investor demand," said one ABS player. "Plus, since they're paying quarterly, they're just matching a three-month Libor rate."
Sallie Mae issued bonds benchmarked to three-month Libor on its last transaction in reaction to investor demand. The appetite for Treasury-bill benchmarked floaters, the traditional offering from Sallie Mae, dried up after many match-funded hedge funds were squeezed in last fall's credit crunch.
Hedge funds are traditionally big buyers of Sallie Mae bonds and other student loan paper. - SK