Sallie Mae Sells $850 Million of Bonds in First Issue This Year

SLM Corp., the student lender known as Sallie Mae, sold $850 million of bonds in its first offering this year as it prepares to split in two.

SLM sold 6.125 percent, 10-year notes that yielded 351.6 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The securities are expected to be rated Ba1 by Moody’s Investors Service and proceeds are expected to be used for general corporate purposes, the data show.

The student lender, based in Newark, Delaware, is remaking its business after legislation passed in 2010 cut private lenders out of the market for government-guaranteed debt. SLM issued the debt to take advantage of attractive market conditions and before the company structure changes, according to Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia.

“They’re getting a lot of their financing done now,” Lurie said in a telephone interview. “Once they do the spinoff, it’s going to create some sort of volatility on the debt side.”

SLM is splitting into two firms, with a new company named Navient expected to service nearly $300 billion in student loans, Sallie Mae said in a Feb. 25 statement.

In December, SLM issued $1 billion of 4.875 percent securities due 2019 that yielded 352.1 basis points more than similar-maturity Treasuries, Bloomberg data show.

Liquidity Stress

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, increased 1.2 basis points to 71.8 basis points at 5:37 p.m. in New York, according to prices compiled by Bloomberg. Traders moved into a new version of the measure, Series 22, last week.

The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

A measure of corporate liquidity showed stress rose slightly this month as cash-flow pressures increased at some companies. Moody’s Liquidity-Stress Index for speculative-grade businesses increased to 4.6 percent in mid-March, from 4.5 percent at the end of February, analysts led by John Puchalla at Moody’s wrote in a research note dated March 21. The index rises when corporate liquidity appears to weaken and falls when it improves.

“The LSI has been below 5 percent for more than three years, indicating few liquidity problems among U.S. speculative-grade companies,” Puchalla wrote. “Accommodating credit markets have been the cornerstone of liquidity for even low-rated companies.”

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 2.2 basis points to 317.1 basis points, Bloomberg prices show. Speculative-grade bonds are rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt fell 0.7 basis point to 97.1, Bloomberg data show.

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