WASHINGTON - The Brazos Higher Education Service Corp. has extended to the end of the month the deadline for issuers to agree to voluntarily tender, at less than par, roughly $6 billion of outstanding taxable student-loan related securities so that it can restructure them as term floating-rate notes.
The extension comes after the Waco, Tex.-based student loan lender failed to obtain enough investors willing to tender to proceed with the restructuring.
Danielle Romero-Apsilos, a spokeswoman for Citigroup Inc., which is structuring the transaction, said that the deadline was pushed back to Oct. 31 from Oct. 17 to give investors extra time to consider the offer, which was originally announced at the end of September.
"The last several weeks in the market were obviously very eventful," she said.
The transaction is significant because it appears to be the largest of its kind. Brazos is seeking to buy back outstanding auction-rate securities, most of which are illiquid, that were sold under 13 different indentures going back to 1993. In all, the buyback encompasses 130 Cusips and the bulk of the $7.5 billion of outstanding ARS that was sold on behalf of Brazos.
But for the restructuring to proceed, Brazos needs investors holding 95% of the existing senior bonds in each of the 13 indentures to consent to the tender, while it needs investors holding 99% of the subordinate notes in the indentures to consent. Of the $6 billion, most of which is taxable, $5.1 billion is senior debt and $831 million is subordinate, Citi has said. The investment bank owns approximately $1 billion of outstanding ARS that it could tender in the exchange, a Citi source said.
In a three-page notice issued late Monday, Brazos announced that investors wishing to participate in the restructuring now have until Oct. 31 to indicate via their bank or broker that they are interested in tendering their ARS. The notice also said that Brazos will select which indentures to initially include in the re-securitization on Nov. 7, instead of Monday, and that the expiration of each offer has moved to Dec. 4 from Nov. 6. The expiration date is important because it is the date that the new term floating-rate notes will price.
The mechanics of the tender and re-securitization is complex, but Leon Higher Education Authority Inc., a Texas nonprofit corporation for which Brazos acts as master servicer, is formally making the offer to purchase or exchange the ARS and will issue the new term floating-rate notes on behalf of Brazos.