On February 22, Sallie Mae (NASDAQ:SLM) is contractually obliged to pay Citigroup (NYSE:C) almost $2 billion for 44 million of its own shares, at $45.25 apiece. That's despite the fact that the shares are currently trading at less than half that level. So in order to find the cash, Sallie is selling a combination of new shares and new mandatory converts.
SLM said it planned to raise $1.5 billion by selling common stock. If it prices the shares at $20.50 each, that would require the sale of 73 million shares of common stock. It also plans to raise $1 billion by selling preferred stock that would have to be converted into common stock, but it did not give details of the pricing or terms of those shares.
For all those of you looking with jealousy towards sovereign wealth funds who are able to buy mandatory convertibles in troubled U.S. financial institutions desperately in need of fresh capital, here's your opportunity. Last week I said that there "might well be quite a bit of appetite for a large mandatory-convert issue," but I have to admit that I didn't have Sallie Mae in mind.
That said, I'm not an American, and I don't have a feel for the national importance of Sallie Mae. People really mind if their bank goes bust; would anybody mind if Sallie Mae closed its doors?