Student Loan Bonds To Set Sail From Riverfront


The awakened student-loan sector of the asset-backed market will get another chunk of large volume in the form of a hefty issue from Cincinnati-based Student Loan Funding Riverfront LLC.

The deal, which will launch in coming weeks through its Student Loan Funding A/B Trust, marks the first time the Cincinnati-based company has tapped the ABS market since December 1998, when it priced a $727.8 million deal via lead underwriter Salomon Smith Barney.

This time around, the deal could ring at as much as $1.25 billion, according to a source close to the deal. Salomon will lead again, along with co-managers Fifth Third Securities, Banc of America Securities and PNC Capital Markets. Exact timing for the deal had not yet been pinned down, but sources indicate the bonds could be issued in September or early in the fourth quarter.

The upcoming deal breaks down into three tranches: an A-1 and an A-2 class of notes benchmarked to one-month Libor; and a smaller subordinated B-1 class pegged to three-month Libor. A shelf registration filed with the SEC allows for either adjustable rate or fixed-rate collateral to issue from the trust, but market sources expect to see floating-rate product similar to the company's previous deal.

Also similar to the company's last deal, the B-class securities will be sold as a separate issue, yet on the same day as the senior notes (hence the A/B moniker for the trust).

The deal differs from the 1998 A/B transaction both in size and in structure, as it will carry three tranches as opposed to five this time. The transaction comes on the heals of another large offering from benchmark issuer Sallie Mae, and looks to become part of a caravan of student-loan issuance expected to land in the second half of 1999.

Sector experts have predicted a renaissance for the asset class. USA Group Secondary Marketing Services has registered a hefty $1.7 billion shelf calling for the issuance of floating rate senior notes from its SMS Student Loan Trust through two "A-class" tranches. Also, Union Financial Services filed a $1.5 billion shelf that the company will start firing from when market conditions warrant.

Sallie Mae, meanwhile, priced its $1 billion offering at the wide end of talk last week. Supply, widening swap spreads and uncertainty over last week's payroll data report caused many bond issues to price on the wide end of premarketing guidelines. The deal's largest tranche sold for 20 basis points over three-month Libor.

Despite the price widening, however, investors still like the student loan sector though, experts say.