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Sallie Mae to raise $2.5 billion through sale of common and convertible preferred stock

Sallie Mae to raise $2.5 billion through sale of common and convertible preferred stock

Student lender Sallie Mae said it would sell $2.5 billion (euro1.7 billion) in stock and use most of the proceeds to settle contracts requiring the company to buy back stock at prices above current levels.
The Reston, Virginia, company, officially known as SLM Corp., last week saw its shares sink to a five year low after the company's chief executive failed to provide enough details about the company's plans in the wake of a failed $25 billion (euro17.4 billion) buyout deal.
Sallie Mae has been trying to close out share repurchase agreements known as equity forward contracts. They allowed the company to profit from rising share prices, but turned into a problem when the company's share price fell.
The company said Wednesday it would use about $2 billion (euro1.4 billion) raised through the offering to buy back 44 million shares. The remainder would be used for general corporate purposes.
The offerings are to include $1.5 billion (euro1.04 billion) in common stock and $1 billion (euro690 million) preferred stock that will convert into common stock, Sallie Mae said in a statement.
While the offering will dilute the value of current shares, the company said the impact will be "partially offset" by the share repurchases. UBS AG and Citigroup Inc. are jointly running the offerings.
Sallie Mae's chief executive, Albert Lord, was widely criticized last week after a contentious conference call in which he dismissed several analysts' questions and ended the call with an expletive.
A landmark student-loan law that took effect Oct. 1 cut billions of dollars in federal subsidies for student lenders like Sallie, which lost $344 million (euro239 million) in the third quarter. Moreover, defaults are mounting on student loans, while credit-market tremors similar to those linked to the mortgage crisis have begun to show up in the $85 billion (euro59 billion) student-loan market.
Earlier this year, a group of investors led by private-equity firm J.C. Flowers & Co. reneged on its offer to buy Sallie _ and brushed off Sallie's attempt to revive the transaction at a lower price _ in part because of the new law reducing federal subsidies on student loans.
Sallie Mae shares fell 18 cents to $21.85 in after-hours trading. The stock rose 7 cents to close Wednesday's regular session at $22.13.


Updated : 2021-04-11 22:19 GMT+08:00