Sallie Mae 2007 Annual Report Download - page 110

Beginning on November 29, 2007, the Company amended or closed out certain equity forward contracts.
On December 19, 2007, the Company entered into a series of transactions with its equity forward
counterparties and Citibank to assign all of its remaining equity forward contracts, covering 44,039,890 shares,
to Citibank. In connection with the assignment of the equity forward contracts, the Company and Citibank
amended the terms of the equity forward contract to eliminate all stock price triggers (which had previously
allowed the counterparty to terminate the contracts prior to their scheduled maturity date) and termination
events based on the Company’s credit ratings. The strike price of the equity forward contract on December 19,
2007, was $45.25 with a maturity date of February 22, 2008. The new Citibank equity forward contract was
100 percent collateralized with cash. On December 31, 2007, the Company and Citibank agreed to physically
settle the contract and the Company paid Citibank approximately $1.1 billion, the difference between the
contract purchase price and the previous market closing price on the 44,039,890 shares. Consequently, the
common shares outstanding and shareholders’ equity on the Company’s year-end balance sheet reflect the
shares issued in the public offerings and the physical settlement of the equity forward contract. As of
December 31, 2007, the 44 million shares under this equity forward contract are reflected in treasury stock.
The Company paid Citibank the remaining balance of approximately $0.9 billion due under the contract on
January 9, 2008. The Company now has no outstanding equity forward positions.
On December 31, 2007, the Company issued 101,781,170 shares of its common stock at a price of $19.65
per share. Net proceeds from the sale, after deducting underwriting fees and other fees and expenses of the
offering, were approximately $1.9 billion. The Company used approximately $2.0 billion of the net proceeds
from the sale of Series C Preferred Stock and the sale of its common stock to settle its outstanding equity
forward contract (see Note 12, “Stockholders’ Equity,” for further discussion). The remaining proceeds will be
used for general corporate purposes. The Company issued 9,781,170 shares of the 102 million share offering
from its treasury stock. These shares were removed from treasury stock at an average cost of $43.13, resulting
in a $422 million decrease to the balance of treasury stock with an offsetting $235 million decrease to retained
earnings.
The closing price of the Company’s common stock on December 31, 2007 was $20.14.
RECENT DEVELOPMENTS
Higher Education Reauthorization
On October 30, 2007, the House and Senate passed S. 2258, “The Third Higher Education Extension Act
of 2007,” which extends the authorization of the Higher Education Act through March 31, 2008. The
reauthorization of the Higher Education Act remains one of the outstanding issues for this Congress.
On July 24, 2007, the Senate passed the full HEA reauthorization bill, S. 1642. The Senate bill includes
some provisions that would affect the student loan programs. The Senate bill includes provisions that would
regulate gifts, travel, entertainment, and services provided to institutions of higher education by guarantors and
lenders. It includes new disclosure requirements on lenders and would prohibit schools from designating
preferred lender lists. The Senate bill would allow schools to keep standard lists of lenders but would require
the schools to include any lender on the list that requested inclusion. The bill would also eliminate school-as-
lender, effective June 30, 2011.
On February 7, 2008, the House of Representatives passed H.R. 4137, the College Opportunity and
Affordability Act of 2007, its version of the Higher Education Act Reauthorization. The legislation includes
the previously-passed Student Loan Sunshine Act (H.R. 890). In addition, the House legislation includes
provisions similar to Senate Banking Committee legislation, Private Student Loan Transparency, which
provides for certain disclosures and prohibits certain activities in connection with Private Education Loans.
Once House action is completed, it is expected that the House and Senate will resolve the differences between
the two bills in conference committee and complete action on reauthorization prior to the expiration of the
latest temporary extension.
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