New Issue: Sallie Mae prices $1 billion 7.25% mandatory convertible preferreds due 2010, up 22%

By Evan Weinberger

New York, Dec. 28 - SLM Corp., the student loan backer commonly known as Sallie Mae, priced $1 billion in 7.25% series C mandatory convertible preferred stock due Dec. 15, 2010 with an initial conversion premium of 22% Thursday after the market close.

The deal came in beyond the rich end of talk, which had been for a 7.75% to 8.25% dividend and an 18% to 22% initial conversion premium.

UBS Investment Bank and Citigroup are joint bookrunners of the Securities and Exchange Commission registered transaction.

There is a $150 million over-allotment option.

The deal is expected to close Dec. 31.

The preferreds have a threshold appreciation price of $23.97. The conversion ratio will be 41.7188 if Sallie Mae stock is trading above the conversion price and 50.8906 if Sallie Mae stock is trading below the conversion price at the time of conversion.

The first dividend payment on March 15 will be $15.10. Subsequent dividend payments will be $18.125.

The liquidation preference on the preferreds is $1,000.

Sallie Mae priced a concurrent offering of 101,781,170 shares of common stock at $19.65 Thursday after market close. There is a 15,267,176 share greenshoe on the common stock offering.

Sallie Mae is based in Reston, Va. The company expects to use $2 billion of the proceeds on the two new issues toward physically settling its outstanding equity forward contract pursuant to which it will effect the repurchase of 44,039,890 shares of common stock deliverable to Sallie Mae under the contract.

Issuer: SLM Corp.

Issue: Series C mandatory convertible preferred stock

Amount: $1 billion

Greenshoe: $150 million

Maturity: Dec. 15, 2010

Dividend: 7.25%

Price: Par

Yield: 7.25%

Conversion premium: 22%

Conversion price: $23.97

Conversion ratio: 41.7188-50.8906

Bookrunners: UBS, Citigroup

Pricing date: Dec. 27

Settlement date: Dec. 31

Talk: 7.75%-8.25% coupon, 18%-22% conversion premium

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