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SLM Corp., the largest U.S. student-loan company, raised $1.5 billion in the bond market,
paying more than it charges some borrowers to begin addressing
$11 billion of bonds maturing through next year.

Sallie Mae, as the company is known, sold $1.5 billion of 8 percent notes due in 2020 at a yield of 8.25 percent, according to data compiled by Bloomberg. Stafford federal loans disbursed
between July 1, 2009, and June 30, 2010, have a fixed interest
rate of 5.6 percent, according to the company’s Web site.

With $4.51 billion of bonds maturing this year and $6.44 billion in 2011, Sallie Mae is reestablishing access to unsecured debt markets. The offering may bolster investor
confidence, lowering borrowing costs as the company will likely
need to tap debt markets again, said Matthew Eagan, a money
manager at the Loomis Sayles Bond Fund in Boston.

“They’re in a virtuous cycle now,” said Eagan, who helps oversee $18.9 billion, including Sallie Mae debt. “People will see they can raise money in the market and they’re going to have
no problem refinancing all these near-term maturities, pushing
their cost of borrowing down.”

Sallie Mae hadn’t sold unsecured debt since a $2.5 billion offering of 10-year notes in June 2008. Its sale came after average yields fell to 3.978 percent yesterday, the lowest since
Dec. 6, 2004, according to the Bank of America Merrill Lynch
Global Broad Market Corporate index.

When the company issued asset-backed bonds linked to student loans on March 3, the debt priced to yield 325 basis points, or 3.25 percentage points, more than the London
interbank offered rate, Bloomberg data show. Three-month Libor,
a borrowing benchmark, was set at to 0.266 percent today.

‘Expensive for Them’

“This will be expensive for them,” said Peter Thornton, an analyst at KDP Investment Advisors in Montpelier, Vermont. “When you’re a lender you need to borrow money as cheaply as
possible if you’re going to turn around and lend it.”

Martha Holler, a spokeswoman for Reston, Virginia-based Sallie Mae, didn’t return a telephone call seeking comment.

Elsewhere in credit markets, the Federal Home Loan Bank system, the 12 government-chartered cooperatives owned by U.S. financial companies, plan to sell $3 billion of two-year notes
tomorrow. BNP Paribas, Barclays Plc and Deutsche Bank AG are
lead managers on the sale, according to a statement today from
system’s finance office in Reston.

Ford Bonds Rise

Ford Motor Co. bonds rose after Moody’s Investors Service lifted the automaker’s corporate credit rating. The Dearborn, Michigan-based company’s $1.8 billion of 7.45 percent notes due
in 2031 rose 3.25 cents on the dollar to 93.25 cents as of 4:29
p.m. in New York, according to Trace, the bond-price reporting
system of the Financial Industry Regulatory Authority. Moody’s
raised Ford one step to B2, the fifth level below investment
grade. The ratings of Ford and Ford Motor Credit Co. may be
increased further, Moody’s said. About $65 billion of debt is
affected by the change.

In Europe, Merck KGaA, the German chemical and drug maker, sold 3.2 billion euros ($4.4 billion) of bonds in the region’s biggest deal this year, Bloomberg data show. Ineos Group Ltd.,
the U.K.’s biggest chemicals company, plans to raise 1 billion
euros through high-yield senior secured bonds and loans to
refinance debt. Ineos, which re-negotiated borrowing terms in
July after the global recession triggered a slump in demand,
wants the money for at least five years, according to a
statement.

Pets at Home

Loan prices of Pets at Home Ltd., a pet accessories supplier bought by Kohlberg Kravis Roberts & Co., rose on the first day of trading. The company’s seven-year senior loans were
offered at 100.25 percent of face value as of 2 p.m. in London,
according to prices from Mizuho Financial Group Inc. KKR, the
New York-based private equity firm, raised 510 million pounds
($782 million) to buy Handforth, England-based Pets at Home from
Bridgepoint Capital Ltd. in January.

The cost of borrowing dollars between banks in London rose the most in almost six months amid speculation financial institutions held back funds to meet a tax-payment deadline.
Three-month Libor climbed 0.5 basis point, the biggest increase
since Sept. 29, according to the British Bankers’ Association.

The cost to protect against corporate defaults in the U.S. fell to the lowest since Jan. 14. The Markit CDX North America Investment Grade Index, which is linked to 125 companies and
used to speculate on creditworthiness or to hedge against
losses, declined 0.3 basis point to 82.5 basis points, according
to CMA DataVision. The index typically falls as confidence in
debt markets improves.

European iTraxx

In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 2 basis points to 73.5, the lowest since Jan. 18, according to JPMorgan Chase & Co.

Credit-default swaps are derivatives that pay the buyer face value if a borrower defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent.

Sallie Mae is seeking to raise cash as legislation is debated in Congress that would eliminate federal guarantees and subsidies to private student lenders provided under the Federal
Family Education Loan Program, or FFELP. FFELP lending has been
the “primary driver” of Sallie Mae’s business and profits
since its creation as a government-sponsored entity in 1972,
according to a March 8 report from KDP.

“We assume Sallie Mae’s traditional business of originating federally guaranteed student loans will be phased out over time as the Department of Education ramps up direct
lending to students and parents,” the KDP analysts said.

If the government starts originating loans, Sallie Mae will be transformed into a company focused on loan servicing and private lending that is not guaranteed by the government.

Tighter Underwriting

Sallie Mae has cut back on private student-loan originations in part because of tighter underwriting standards, the company said in a Jan. 20 statement. The company originated
$3.2 billion of private student loans last year, down from $6.3
billion in 2008, the statement said.

Late payments on student loans are rising as graduates struggle to find jobs. The jobless rate reached a 26-year high of 10.1 percent in October, according to figures from the Labor
Department. It has fallen since, holding at 9.7 percent in
February for a second month.

Delinquency Rate

The delinquency rate on Sallie Mae’s portfolio of private loans increased to 9.43 percent last month compared with 8 percent in November and 9.29 percent a year ago, according to a
March 15 report from Keefe Bruyette & Woods.

Sallie Mae tumbled 78 percent from a peak of $58.12 in January 2006, closing today at $12.55 in composite trading on the New York Stock Exchange.

Sallie Mae had been selling debt backed by its student loans through the Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF. The program, begun last March to
jumpstart the market for securities backed by consumer and small
business loans, ends this month. The lender sold $1.55 billion
in asset-backed debt for the final TALF round on March 3.

The Sallie Mae bonds are expected to be rated Ba1 by Moody’s Investors Service, one level below investment grade, and one step higher at BBB- by Standard & Poor’s.

Sallie Mae’s sale and a $2 billion offering from International Lease Finance Corp., the plane-leasing unit of American International Group Inc., show investors are receptive
to companies closely linked to the U.S. government that haven’t
sold bonds recently, said Timothy Norman, director of fixed
income trading at Thrivent Financial for Lutherans in
Minneapolis.

‘Wouldn’t Have Believed’

“You’re seeing ILFC and Sallie Mae both do a deal in the same day, which even six short months ago you wouldn’t have believed,” said Norman, who helps manage $64.7 billion. “The
world has changed and they have certainly adapted and are making
some progress relative to where they were a short time ago.”

ILFC last sold unsecured debt in May 2008, Bloomberg data show. GMAC Inc., the auto and home lender controlled by the U.S. government, issued $1.5 billion of notes due in 2020 on March
11, its longest-maturity debt since 2004.

A $25.3 billion takeover bid for Sallie Mae from investors including J.C. Flowers & Co. collapsed in 2007 when Congress passed legislation that cut federal subsidies to student
lenders.

The company reported net income of $309.1 million in the fourth quarter and $159.1 million in previous three-month period, which ended four straight quarters of losses.