Student lender Sallie Mae said it would sell US$2.5 billion in stock and use most of the proceeds to settle contracts requiring the company to buy back stock at prices above current levels.
The Reston, Virginia, company, officially called SLM Corp, last week saw its shares sink to a five year low after the company's chief executive failed to provide enough details about the company's plans in the wake of a failed US$25 billion buyout deal.
Sallie Mae has been trying to close out share repurchase agreements known as equity forward contracts. They allowed the company to profit from rising share prices, but turned into a problem when the company's share price fell.
The firm said on Wednesday that it would use about US$2 billion raised through the offering to buy back 44 million of its shares.
The remainder would be used for general corporate purposes, it said.
The offerings are set to include US$1.5 billion in common stock and US$1 billion preferred stock that will convert into common stock, Sallie Mae said in a statement.
While the offering will dilute the value of shares, the company said the impact will be "partially offset" by the share repurchases. UBS AG and Citigroup Inc are jointly running the offerings.
Sallie Mae's chief executive, Albert Lord, was widely criticized last week after a conference call in which he dismissed several analysts' questions and ended the call with an expletive.
A student-loan law that took effect on Oct. 1 cut billions of dollars in federal subsidies for student lenders like Sallie, which lost US$344 million in the third quarter.
Moreover, defaults are mounting on student loans, while credit-market tremors similar to those linked to the mortgage crisis have begun to show up in the US$85 billion student-loan market.
Earlier this year, a group of investors led by private-equity firm J.C. Flowers & Co reneged on its offer to buy Sallie in part because of the new law reducing federal subsidies.
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