Mellon Bank Eyes Student Loan Securitization


Mellon Bank Corp., through its principal subsidiary Mellon Bank, N.A., will launch a new, one-time student loan securitization program with a deal expected to hit before the end of the year - marking a first for the issuer, known for its credit card, auto and home-equity loan deals.

Officials at Mellon would not comment except to confirm that it would be the first time the bank would be securitizing its student-loan collateral. Steve Cobain, a director of securitization at the bank, said that he had filed the with the Securities and Exchange Commission so the company could pull the trigger on the deal if market conditions firmed up. However, he hastened to say that securitization would not be done out of necessity.

According to the shelf registration, an upcoming deal will consist of mostly federally guaranteed, floating-rate student loans structured into two classes of notes and one class of certificates. The filing allows for both Treasury-indexed and Libor-indexed securities to issue from the trust, which has been dubbed Mellon Student Loan Trust. The collateral will primarily come from graduate student-loan programs established at the bank.

Size on the deal was uncertain, as Mellon is striving to sell the debt sometime down road and is still pooling collateral. Cobain said the deal could hit in the fourth quarter or in early 2000.

The bank has a history of keeping the volume of its outstanding loans a secret, but as of June 30 this year, Mellon had total assets of $41 billion and liabilities of approximately $37 billion. Nonperforming assets totaled $142 million at June 30, compared with $170 million a year earlier. The ratio of nonperforming assets to total loans and net acquired property was 0.46% in June, compared with 0.55% percent a year ago.

An effort announced over a year ago to concentrate on more "fee-based" businesses such as asset management has continued with the sale a few weeks back of Mellon's residential mortgage business to Chase Manhattan Corp. This followed the sale of its credit card business to Citigroup Inc. in March.

The bank has completed seven ABS deals totaling $2.7 billion thus far in the credit-card, auto, and home-equity sectors. In addition to the student-loan collateral, Cobain hinted that the bank would also be filing a shelf for a program that would represent another new asset class for the bank in coming weeks. But he declined to say more.