<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED.
<PAGE>
FILED PURSUANT TO RULE 424 (B)(2)
REGISTRATION NUMBER 333-83941
SUBJECT TO COMPLETION. DATED NOVEMBER 1, 1999.
Prospectus Supplement to Prospectus dated October 19, 1999.
3,000,000 Shares
SLM HOLDING CORPORATION
% Cumulative Redeemable Preferred Stock, Series A
(Liquidation Preference $50.00 per share)
-----------------
Dividends on the Preferred Stock will be cumulative from November , 1999,
and will be payable quarterly on the last day of January, April, July and
October of each year, commencing January 31, 2000. The dividend rate is %
per annum, which is equivalent to $ per annum per share. If Congress enacts
certain adverse changes to the dividends-received deduction before April ,
2001, the dividend amount will be adjusted according to the formula set forth in
the prospectus.
On or after November , 2009, SLM Holding Corporation has the option to
redeem all or a portion of the shares of Preferred Stock at the redemption
prices set forth in the prospectus.
SLM Holding Corporation intends to list the Preferred Stock on the New York
Stock Exchange under the symbol " ".
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to SLM Holding Corporation....... $ $
</TABLE>
To the extent that the underwriters sell more than 3,000,000 shares of
Preferred Stock, the underwriters have the option to purchase up to an
additional 450,000 shares from SLM Holding Corporation at the initial public
offering price less the underwriting discount plus accrued dividends, if any.
The initial public offering price set forth above does not include accrued
dividends, if any. Dividends on the Preferred Stock will accrue from November
, 1999 and must be paid by the purchaser if the Preferred Stock is delivered
after November , 1999.
-----------------
The underwriters expect to deliver the shares against payment in New York,
New York on November , 1999.
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL SECURITIES
-----------------
Prospectus Supplement dated November , 1999.
<PAGE>
In this Prospectus Supplement, the words "Company", "we", "our", and "us"
refer to SLM Holding Corporation, a Delaware corporation, unless otherwise
stated or unless the context otherwise requires.
OBLIGATIONS OF SLM HOLDING CORPORATION AND ANY SUBSIDIARY OF SLM HOLDING
CORPORATION ARE NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES
AND NEITHER SLM HOLDING CORPORATION NOR ANY SUBSIDIARY OF SLM HOLDING
CORPORATION IS A GOVERNMENT-SPONSORED ENTERPRISE (OTHER THAN THE STUDENT LOAN
MARKETING ASSOCIATION) OR AN INSTRUMENTALITY OF THE UNITED STATES.
WHERE YOU CAN FIND MORE INFORMATION
We file periodic reports, proxy statements and other information with the
SEC. You may inspect and copy these reports and other information at the SEC's
public reference facilities in Washington, D.C. (located at 450 Fifth Street,
N.W., Washington, D.C. 20549), Chicago (located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661) and New York
(located at Seven World Trade Center, 13th Floor, New York, New York 10048). You
can also obtain copies of these materials from the SEC's public reference
section (located at 450 Fifth Street, N.W., Washington, D.C. 20549) at
prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. The SEC also maintains a site on the World
Wide Web at http://www.sec.gov. This site contains reports, proxy and
information statements and other information about registrants that file
electronically with the SEC. You can also inspect reports and other information
we file at the office of the New York Stock Exchange, Inc. (located at 20 Broad
Street, New York, New York 10005), or at our web site at
http://www.salliemae.com. We have filed a registration statement and related
exhibits with the SEC under the Securities Act of 1933. This registration
statement contains additional information about us and our securities. You can
inspect the registration statement and exhibits without charge at the SEC's
office in Washington, D.C. (located at 450 Fifth Street, N.W.), and you may
obtain copies from the SEC at prescribed rates. The SEC permits us to
"incorporate by reference" the information and reports we file with it. This
means that we can disclose important information to you by referring to another
document. The information that we incorporate by reference is considered to be
part of this Prospectus Supplement, and later information that we file with the
SEC automatically updates and supersedes this information. Specifically, we
incorporate by reference:
- - our annual report on Form 10-K for the fiscal year ended December 31, 1998,
which we filed on March 29, 1999 (File Number 1-13251);
- - our quarterly report on Form 10-Q for the quarterly period ended March 31,
1999, which we filed on May 14, 1999 (File Number 1-13251);
- - our quarterly report on Form 10-Q for the quarterly period ended June 30,
1999, which we filed on August 16, 1999 (File Number 1-13251);
- - our current report on Form 8-K, which we filed on June 3, 1999;
- - our current report on Form 8-K, which we filed on November 1, 1999; and
- - all documents we file with the SEC pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act of 1934 after the date of this Prospectus
Supplement and before we sell all of the securities offered by this Prospectus
Supplement.
S-2
<PAGE>
You may request a copy of these filings at no cost by writing or telephoning
us at the following address:
Corporate Secretary
SLM Holding Corporation
11600 Sallie Mae Drive
Reston, VA 20193
(703) 810-3000
You should rely only on the information incorporated by reference or
provided in this Prospectus Supplement and the accompanying Prospectus. We have
not authorized anyone else to provide you with different information. You should
not assume that the information in this Prospectus Supplement or the
accompanying Prospectus is accurate as of any date other than the date on the
front of the applicable document.
------------------------
Dividends paid on the Preferred Stock have no exemption under federal law
from federal, state or local taxation.
S-3
<PAGE>
OFFERING SUMMARY
<TABLE>
<S> <C>
ISSUER....................................... SLM Holding Corporation
SECURITY OFFERED............................. 3,000,000 shares of % Cumulative
Redeemable Preferred Stock, Series A (the
"Preferred Stock"). We may sell up to 450,000
additional shares of Preferred Stock to the
underwriters to cover over-allotments, if
any.
MATURITY..................................... The Preferred Stock does not have any
maturity date nor are we required to redeem
the Preferred Stock. Accordingly, the
Preferred Stock will remain outstanding
unless we decide to redeem it. In addition,
we are not required to set aside funds to
redeem the Preferred Stock.
DIVIDENDS:
RATE....................................... Investors will be entitled to receive
cumulative cash dividends on the Preferred
Stock at a rate of % per annum of the
$50.00 per share liquidation preference
(equivalent to $ per annum per
share).
Dividends will accrue from the date of
original issuance, which is expected to be
November , 1999.
FREQUENCY.................................. Quarterly in arrears, when, as and if
declared by the Board of Directors.
PAYMENT DATES.............................. January 31, April 30, July 31 and October 31
of each year, beginning January 31, 2000.
DRD PROTECTION............................. If, prior to May , 2001, Congress enacts
amendments to the Internal Revenue Code of
1986, as amended, that reduce the percentage
of the dividends-received deduction below
70%, the amount of dividends payable on
Preferred Stock will be adjusted to offset
the effect of that reduction. However, we
will make no adjustment to the extent that
the percentage of the dividends-received
deduction is reduced below 50%.
RANKING...................................... The Preferred Stock will rank, both as to
dividends and upon liquidation, dissolution
or winding up, over our common stock (and any
other stock junior to the Preferred Stock).
OPTIONAL REDEMPTION.......................... Beginning November , 2009, we will have the
option to redeem the Preferred Stock at any
time, in whole or in part, at the redemption
price of $50 per share plus accrued and
unpaid dividends to the redemption date.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
LIQUIDATION RIGHTS........................... If we are dissolved, liquidated or wound up,
holders of the Preferred Stock will be
entitled to receive out of any assets
available for distribution to stockholders,
up to $50 per share plus accrued and unpaid
dividends to, but not including, the
liquidation payment date. Payment of this
liquidation preference must be made before
any payment is made to the holders of our
common stock with respect to the distribution
of assets upon our dissolution, winding up or
liquidation.
PREFERRED STOCK BOARD COMMITTEE.............. Our board of directors will appoint a
committee of the board of directors to
monitor payment of dividends on the Preferred
Stock. The committee will include at least
three persons, each of whom is an independent
director.
VOTING AND BOARD OBSERVER RIGHTS............. None, except with respect to certain changes
in the terms of the Preferred Stock. Also, if
we do not pay dividends on the Preferred
Stock for four or more quarterly dividend
periods (whether or not consecutive), the
holders of the Preferred Stock, voting as a
class with the holders of any other class or
series of our capital stock which has similar
voting rights, will be entitled to vote for
the election of two board observers to attend
and participate in meetings of our board of
directors until we pay all dividends that we
owe on the Preferred Stock.
PREEMPTIVE AND CONVERSION RIGHTS............. None.
USE OF PROCEEDS.............................. For general corporate purposes.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
REGISTRAR.................................. Bank of New York, New York, New York.
NYSE LISTING................................. We intend to list the Preferred Stock on the
New York Stock Exchange (the "NYSE"). If so
approved, we expect that trading on the NYSE
will commence 30 days after the initial
delivery of the Preferred Stock.
</TABLE>
S-5
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income.............. $ 330 $ 341 $ 651 $ 781 $ 894 $ 908 $ 982
Net income....................... 237 283 501 508 409 356 410
Basic earnings per share......... 1.46 1.67 2.99 2.80 2.10 1.51 1.47
Diluted earnings per share....... 1.44 1.64 2.95 2.78 2.09 1.51 1.47
Dividends per share.............. .30 .28 .57 .52 .47 .43 .41
Return on stockholders' equity... 75% 94% 81% 65% 50% 29% 28%
Net interest margin.............. 1.89 1.94 1.93 1.80 1.96 1.85 2.14
Return on assets................. 1.30 1.53 1.41 1.12 .86 .69 .85
Dividend payout ratio............ 21 17 19 19 22 29 28
Average equity/average assets.... 1.65 1.54 1.65 1.64 1.66 2.28 2.96
BALANCE SHEET DATA:
Student loans.................... $31,820 $25,506 $28,283 $29,443 $33,696 $34,285 $30,571
Total assets..................... 39,859 35,163 37,210 39,832 47,572 49,951 53,161
Total borrowings................. 37,959 33,231 35,399 37,717 45,124 47,530 50,335
Stockholders' equity............. 659 630 654 675 834 867 1,388
Book value per share............. 4.10 3.76 3.98 3.89 4.44 4.29 5.39
OTHER DATA:
Securitized student loans
outstanding.................... $17,567 $18,984 $17,909 $14,104 $ 6,263 $ 954 $ --
Total managed assets............. 57,426 54,147 55,119 53,936 53,835 50,905 53,161
Percentage of student loans
insured by government.......... 95 94 94 95 97 98 97
</TABLE>
S-6
<PAGE>
THE COMPANY
We are the largest non-governmental source of financing and servicing
support for higher education loans for students and their parents in the United
States. We provide a wide range of financial services, processing capabilities
and information technology to meet the needs of educational institutions,
lenders, students and guarantee agencies. We are organized as a holding company
and we presently conduct a majority of our business through two wholly owned
subsidiaries: Student Loan Marketing Association, a government-sponsored
enterprise or GSE, and Sallie Mae Servicing Corporation. These and our other
principal subsidiaries are shown below:
[LOGO]
We were formed in 1997 in connection with the reorganization of the GSE
under the Student Loan Marketing Association Reorganization Act of 1996 (the
"Privatization Act"). The Privatization Act requires the GSE to transfer its
business to the holding company and dissolve on or before September 30, 2008.
The GSE was chartered by an act of Congress in 1972 to enhance access to
education by providing a national secondary market and financing for guaranteed
student loans. As of September 30, 1999, our managed portfolio of student loans
totaled $53.7 billion (including loans owned and securitized). We also had
commitments to purchase $17.8 billion of student loans as of September 30, 1999.
Although we are primarily a secondary market purchaser and servicer of
student loans, we recently began to originate loans. We serve a diverse range of
clients, including approximately 5,000 financial and educational institutions
and state agencies.
Most of the loans we purchase are originated under the Federal Family
Education Loan Program (the "FFELP"). These loans, Stafford and PLUS loans, are
insured by state-related or non-profit guarantee agencies and are reinsured by
the Department of Education. Stafford and PLUS loans disbursed prior to
October 1, 1993 are 100% insured and loans disbursed after October 1, 1993 are
98% insured. Neither the Privatization Act nor the dissolution of the GSE will
affect the insurance coverage on these loans. We also purchase loans originated
under the Health Education Assistance Loan program that are insured directly by
the U.S. Department of Health and Human Services.
We purchase loans primarily through commitment contracts, but we also make
spot portfolio purchases. In conjunction with the commitment contracts, we
frequently provide selling institutions with operational support in the form of
an automated loan administration system for the lender's use at its offices
before loan sale (PortSS-Registered Trademark-), or in the form of loan
origination and interim servicing provided through one of our loan servicing
centers ExportSS-Registered Trademark-.
S-7
<PAGE>
In 1998, we began to originate FFELP loans through our wholly owned
subsidiary, SLM Education Loan Corp. In addition, SLM Financial Corp., the
Company's recently created consumer loan subsidiary, originated $86 million of
education-related and other credit-based loans in the third quarter of 1999.
With the acquisition of Nellie Mae in the third quarter of 1999 and the recent
introduction of Laureate-SM-, our new Internet-based student loan delivery
system, we expect our origination activity to increase.
The Laureate system is designed to provide real-time data linkage among
schools, borrowers, lenders and guarantors. With Laureate, a school loan process
that previously required multiple sessions over several days now may be
completed in one on-line session. In the third quarter of 1999, Laureate
processed more than 50,000 student loans on 54 campuses representing nearly
$250 million of volume.
We also offer consolidation loans as well as a private credit line of
products for post-secondary, career training, lifelong learning and K-12
education as well as other credit-based consumer loans.
Through our four regional loan servicing centers, we process student loans
for approximately 4.5 million borrowers. As of September 30, 1999, the Company,
through Sallie Mae Servicing Corporation, serviced approximately $48.4 billion
of loans, including approximately $27.2 billion owned by the GSE, $17.9 billion
owned by 13 securitization trusts sponsored by the GSE and $3.2 billion
currently owned by ExportSS customers.
To create customer preferences and compete more effectively in the student
loan marketplace, we have developed a comprehensive set of loan programs and
services for borrowers, including numerous loan restructuring and repayment
options and programs that encourage and reward good repayment habits. The
Company's Great Rewards-Registered Trademark- Program provides a 2 percentage
point interest rate reduction to Stafford loan borrowers who make the first 48
scheduled monthly payments on time. The Direct Repay-SM- Plan reduces the
interest rate by .25 of a percentage point for borrowers who pay electronically.
We obtain funds for our operations primarily through the issuance of GSE
debt although, since 1995, we have diversified our funding sources, independent
of the GSE's borrower status, by securitizing a portion of our student loan
assets. Securitization is an off-balance sheet funding mechanism that we effect
through the sale of portfolios of student loans by the GSE to SLM Funding
Corporation, a bankruptcy-remote, limited purpose, wholly owned subsidiary of
the GSE, which in turn sells the student loans to an independent owner trust
that issues securities to fund the purchase of the student loans. These
securities are secured primarily by the student loans and other trust assets and
are not an obligation of the GSE or the Company. Since 1995, we have securitized
$24.5 billion of student loans.
Our principal competitors include the Federal Direct Student Loan Program,
whose originations represented about one-third of total student loan
originations in the 1998-99 academic year, as well as large commercial banks and
secondary market agencies.
Our principal executive offices are located at 11600 Sallie Mae Drive,
Reston, VA 20193 and our telephone number is (703) 810-3000.
RECENT DEVELOPMENTS
On October 13, 1999, we reported third-quarter 1999 net income of
$121 million, or $.75 per diluted share of common stock, compared to
$108 million, or $.64 per diluted share of common stock in the year-ago period.
For the nine months ending September 30, 1999, net income was $359 million, or
$2.19 per diluted share of common stock, versus $391 million, or $2.29 per
diluted share of common stock, for the same period last year.
Included in the third-quarter 1999 net income was $.01 per diluted share of
common stock attributable to a gain on sale of $1 billion of student loans.
There were no loans securitized during
S-8
<PAGE>
the year-ago quarter. For the nine months ending September 30, 1999, gains on
sales of student loans contributed $.05 to diluted earnings per share of common
stock. Gains on sales of student loans added $.44 to diluted earnings per share
of common stock for the same nine-month period a year ago.
We also reported third-quarter 1999 "cash-basis" net income of
$125 million, or $.77 per diluted share of common stock, a 13 percent increase
over third-quarter 1998 "cash-basis" net income of $115 million, or $.68 per
diluted share of common stock. For the nine months ending September 30, 1999,
our "cash-basis" net income totaled $367 million, or $2.24 per diluted share of
common stock, compared to $332 million, or $1.94 per diluted share of common
stock, for the same period last year. This is an increase of 15 percent in
"cash-basis" diluted earnings per share of common stock.
We present "cash-basis" results of operations, which treat securitization
transactions as financings, not sales, thereby eliminating gains on such sales.
We believe this pro-forma approach assists in better understanding our
performance.
We acquired a record $5.6 billion of student loans in the third quarter
1999, including $2.6 billion from the July acquisition of Nellie Mae
Corporation. Acquisitions were $3.5 billion in the previous quarter and
$2.0 billion in the year-ago quarter. Over the past 12 months, managed student
loans increased 19 percent to $53.7 billion. Our controlled channels of loan
originations totaled $1.6 billion, an increase of 6 percent from $1.5 billion in
the year-ago quarter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Set forth below is Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company for the three and six months
ended June 30, 1999 and 1998. This section should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the years ended December 31, 1996-1998 presented in the Company's
Annual Report on Form 10-K. All dollar amounts are in millions, except per share
amounts or as otherwise noted.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
For the three months ended June 30, 1999, the Company's net income was
$124 million ($.76 diluted earnings per share of common stock), versus net
income of $144 million ($.84 diluted earnings per share of common stock) in the
second quarter of 1998. For the six months ended June 30, 1999, the Company
earned net income of $237 million ($1.44 diluted earnings per share of common
stock) versus $283 million ($1.64 diluted earnings per share of common stock)
for the six months ended June 30, 1998.
During the second quarter of 1999, conditions in the global financial
markets improved to a point such that management believed it was economically
feasible for the Company to reenter the securitization market. Accordingly, the
Company securitized $1.0 billion of student loans and recorded an after-tax
securitization gain of $5 million. This was a decrease of $32 million from an
after-tax securitization gain of $37 million recorded on the $3.0 billion of
student loans securitized in the second quarter of 1998. The decrease in the
1999 second quarter securitization gain as a percentage of loans securitized is
mainly due to portfolio characteristics and the higher financing spreads in the
1999 transaction. In the first six months of 1998, the Company securitized
$6.0 billion of student loans and recorded an after-tax securitization gain of
$76 million.
The financial market turbulence in the third quarter of 1998 also increased
the funding spreads on the Company's on-balance sheet financings; as a result,
the spread earned on the Company's portfolio of student loans has decreased
versus the second quarter of 1998. The negative effect of
S-9
<PAGE>
the higher funding spreads was partially offset by lower average 91-day Treasury
bill rates in the second quarter of 1999, as a significant portion of the
Company's portfolio of managed student loans earned interest at the minimum
borrower rate, while their floating rate funding (exclusive of funding spreads)
continued to decrease. In the second quarter of 1999, the Company continued to
lower operating expenses, which as a percentage of managed student loans, were
.71 percent versus .85 percent in the second quarter of 1998.
In addition to reporting results of operations in accordance with generally
accepted accounting principles, the Company also presents pro-forma results of
operations, which treat securitization transactions as financings rather than
sales, thereby eliminating gains on such sales. Management refers to these
pro-forma results as "cash basis" earnings and believes that they assist in
better understanding the Company's results of operations. The Company's "cash
basis" net income was $124 million in the second quarter of 1999 ($.75 diluted
earnings per share of common stock) versus $113 million ($.66 diluted earnings
per share of common stock) in the second quarter of 1998. The Company's "cash
basis" net income was $242 million in the first six months of 1999 ($1.47
diluted earnings per share of common stock) versus $217 million in the first six
months of 1998 ($1.26 diluted earnings per share of common stock). "See
Pro-forma Statements of Income."
NET INTEREST INCOME
Net interest income is derived largely from the Company's on-balance sheet
portfolio of student loans. The Taxable Equivalent Net Interest Income analysis
set forth below is designed to facilitate a comparison of non-taxable asset
yields to taxable yields on a similar basis. Additional information regarding
the return on the Company's student loan portfolio is set forth below under
"Student Loans-Student Loan Spread Analysis."
Taxable equivalent net interest income for the three months ended June 30,
1999 increased by $6 million while the net interest margin decreased by
.04 percent versus the three months ended June 30, 1998. The $21 million
increase in taxable equivalent net interest income attributable to the change in
volumes for the three months ended June 30, 1999 was principally due to the
$4.2 billion increase in the average balance of student loans in the second
quarter of 1999 versus 1998. The $15 million decrease in taxable equivalent net
interest income attributable to the change in rates for the three months ended
June 30, 1999 was principally due to the decrease in the student loan spread
discussed below. This margin decrease was partially offset by the increased
percentage of higher yielding student loans remaining on-balance sheet relative
to other earning assets (84 percent in the second quarter of 1999 versus
77 percent in the second quarter of 1998).
Taxable equivalent net interest income for the six months ended June 30,
1999 versus the six months ended June 30, 1998 decreased by $13 million as the
decrease in the net interest margin of .05 percent and the decrease in non
student loan interest earning assets of $2.6 billion more than offset the
increase of $2.1 billion in the average balance of student loans. The increase
in the average balance of student loans is principally due to the Company's
acquisition of $6.45 billion of student loans in the first six months of 1999
compared with $3.85 billion in the prior year and to the absence of student loan
securitizations from October 1998 through May 1999. The decrease in the net
interest margin is principally due to the decrease in the student loan spread
discussed below, partially offset by the increased percentage of higher yielding
student loans remaining on-balance sheet relative to other earning assets
(83 percent in the first six months of 1999 versus 76 percent in the first six
months of 1998).
S-10
<PAGE>
TAXABLE EQUIVALENT NET INTEREST INCOME
The amounts in the following table are adjusted for the impact of certain
tax-exempt and tax-advantaged investments based on the marginal corporate tax
rate of 35 percent.
<TABLE>
<CAPTION>
THREE
MONTHS SIX MONTHS
ENDED INCREASE ENDED INCREASE
JUNE 30, (DECREASE) JUNE 30, (DECREASE)
------------------- ------------------- ------------------- -------------------
1999 1998 $ % 1999 1998 $ %
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income
Student Loans...................... $571 $536 $ 35 7% $1,092 $1,105 $ (13) (1)%
Warehousing advances............... 18 28 (10) (34) 40 58 (18) (31)
Academic facilities financings..... 19 22 (3) (12) 38 44 (6) (13)
Investments........................ 50 77 (27) (35) 103 168 (65) (39)
Taxable equivalent adjustment...... 8 8 -- (11) 16 18 (2) (14)
---- ---- ---- --- ------ ------ ----- ---
Total taxable equivalent interest
income............................. 666 671 (5) (1) 1,289 1,393 (104) (7)
Interest expense..................... 485 496 (11) (2) 943 1,034 (91) (9)
---- ---- ---- --- ------ ------ ----- ---
Taxable equivalent net interest
income............................. $181 $175 $ 6 3% $ 346 $ 359 $ (13) (4)%
==== ==== ==== === ====== ====== ===== ===
</TABLE>
AVERAGE BALANCE SHEETS
The following table reflects the rates earned on earning assets and paid on
liabilities for the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------------------- -------------------------------------------
1999 1998 1999 1998
-------------------- -------------------- -------------------- --------------------
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS
Student loans............ $31,868 7.18% $27,641 7.77% $30,662 7.18% $28,563 7.80%
Warehouse advances....... 1,328 5.56 1,840 6.04 1,446 5.61 1,930 6.08
Academic facilities
financings............. 1,165 8.20 1,337 8.19 1,185 8.17 1,366 8.22
Investments.............. 3,383 6.31 4,994 6.44 3,546 6.19 5,503 6.40
------- ---- ------- ---- ------- ---- ------- ----
Total interest earning
assets................... 37,744 7.08% 35,812 7.51% 36,839 7.06% 37,362 7.52%
==== ==== ==== ====
Non-interest earning
assets................... 1,894 1,950 2,003 1,917
------- ------- ------- -------
Total assets............... $39,638 $37,762 $38,842 $39,279
======= ======= ======= =======
AVERAGE LIABILITIES AND
STOCKHOLDERS' EQUITY
Six month floating rate
notes.................. $ 4,832 5.16% $ 2,873 5.55% $ 4,466 5.20% $ 2,974 5.58%
Other short-term
borrowings............. 26,972 5.07 20,416 5.48 25,648 5.05 21,302 5.53
Long-term notes.......... 5,986 5.53 12,434 5.71 6,868 5.45 12,942 5.72
------- ---- ------- ---- ------- ---- ------- ----
Total interest bearing
liabilities.............. 37,790 5.15% 35,723 5.57% 36,982 5.14% 37,218 5.60%
==== ==== ==== ====
Non-interest bearing
liabilities.............. 1,206 1,449 1,220 1,455
Stockholders' equity....... 642 590 640 606
------- ------- ------- -------
Total liabilities and
stockholders' equity..... $39,638 $37,762 $38,842 $39,279
======= ======= ======= =======
Net interest margin........ 1.92% 1.96% 1.89% 1.94%
==== ==== ==== ====
</TABLE>
S-11
<PAGE>
RATE/VOLUME ANALYSIS
The Rate/Volume Analysis below shows the relative contribution of changes in
interest rates and asset volumes.
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TAXABLE ATTRIBUTABLE
EQUIVALENT TO CHANGE IN
INCREASE -------------------
(DECREASE) RATE VOLUME
----------- -------- --------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999 VS. THREE MONTHS ENDED JUNE
30, 1998
Taxable equivalent interest income.......................... $ (5) $(45) $40
Interest expense............................................ (11) (30) 19
----- ---- ---
Taxable equivalent net interest income...................... $ 6 $(15) $21
===== ==== ===
SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED JUNE 30,
1998
Taxable equivalent interest income.......................... $(104) $(98) $(6)
Interest expense............................................ (91) (74) (17)
----- ---- ---
Taxable equivalent net interest income...................... $ (13) $(24) $11
===== ==== ===
</TABLE>
STUDENT LOANS
STUDENT LOAN SPREAD ANALYSIS
The following table analyzes the reported earnings from student loans both
on-balance sheet and those off-balance sheet in securitization trusts. The line
captioned "Adjusted student loan yields" reflects contractual student-loan
yields adjusted for the amortization of premiums paid to purchase loan
portfolios and the estimated costs of borrower benefits as required by GAAP. For
student loans off-balance sheet, the Company will continue to earn servicing fee
revenues over the life of the securitized student loan portfolios. The
off-balance sheet information presented in "Securitization Program--Servicing
and Securitization Revenue" analyzes the on-going servicing revenue and residual
interest earned on the securitized portfolios of student loans. For an analysis
of the Company's student loan spread for the entire portfolio of managed student
loans on a similar
S-12
<PAGE>
basis to the on-balance sheet analysis see "'Cash Basis' Student Loan Spread and
Net Interest Income."
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ON-BALANCE SHEET
Adjusted student loan yields.......................... 7.53% 8.12% 7.54% 8.15%
Consolidated loan rebate fees......................... (.21) (.24) (.22) (.24)
Offset fees........................................... (.14) (.11) (.14) (.11)
------- ------- ------- -------
Student loan income................................... 7.18 7.77 7.18 7.80
Cost of funds......................................... (5.12) (5.50) (5.10) (5.54)
------- ------- ------- -------
Student loan spread................................... 2.06% 2.27% 2.08% 2.26%
======= ======= ======= =======
OFF-BALANCE SHEET
Servicing and securitization revenue.................. 1.92% 1.50% 1.95% 1.50%
======= ======= ======= =======
AVERAGE BALANCES
Student loans......................................... $31,868 $27,642 $30,662 $28,563
Securitized loans..................................... 16,889 16,727 17,255 15,518
------- ------- ------- -------
Managed student loans................................. $48,757 $44,369 $47,917 $44,081
======= ======= ======= =======
</TABLE>
The Company earns interest at the greater of the borrower's rate or a
floating rate determined by reference to the average of the weekly auctions of
the 91-day Treasury bills by the government, plus a fixed spread, which is
dependent upon when the loan was originated. In all cases, the rate the borrower
pays sets a minimum rate for determining the yield the Company earns on the
loan. The Company generally finances its student loan portfolio with floating
rate debt tied to the average of the 91-day Treasury bill auctions, either
directly or through the use of derivative financial instruments, to mimic the
interest rate characteristics of the student loans. Such borrowings, however, do
not have minimum rates. As a result, in periods of declining interest rates, the
portfolio of managed student loans may be earning at the minimum borrower rate
while the Company's funding costs (exclusive of funding spreads) will generally
decline along with Treasury bill rates. For loans where the borrower's interest
rate is fixed to term, declining interest rates may benefit the spread earned on
student loans for extended periods of time. For loans where the borrower's
interest rate is reset annually, any benefit of a low interest rate environment
will only enhance student loan spreads through the next annual reset of the
borrowers' interest rates, which occurs on July 1 of each year. Assuming the
decline in interest rates on the Company's floating rate debt exactly matched
the decline in Treasury bill rates, then the effect of lower Treasury bill rates
on the Company's on-balance sheet student loan spread, net of payments under
Floor Interest Contracts (discussed below), was $25 million and $46 million for
the three and six months ended June 30, 1999, respectively, of which
$15 million and $28 million, respectively, is attributable to student loans with
minimum borrower rates fixed to term and $10 million and $18 million,
respectively, is attributable to student loans whose minimum borrower rates
adjust annually on July 1. For the three and six months ended June 30, 1998, the
Company earned $16 million and $28 million, respectively, from loans earning at
the minimum borrower rate, of which $8 million and $15 million, respectively,
was attributable to student loans whose minimum borrower rates were fixed to
term and $8 million and $13 million, respectively, was attributable to those
whose minimum borrower rates adjust annually on July 1.
The decrease in the student loan spread for the three months ended June 30,
1999 versus the corresponding period is mainly due to higher funding spreads on
the Company's debt along with
S-13
<PAGE>
higher premium amortization and higher offset fees, whose combined effect
reduced the student loan spread by 32 basis points, partially offset by lower
Treasury bill rates in 1999 that resulted in an increase of 8 basis points
earned on loans earning at the minimum borrower rate. The decrease in the
student loan spread for the six months ended June 30, 1999 versus the
corresponding period is mainly due to higher funding spreads on the Company's
debt along with higher premium amortization and higher offset fees, whose
combined effect reduced the student loan spread by 26 basis points, partially
offset by lower Treasury bill rates in 1999 that resulted in an increase of 9
basis points earned on loans earning at the minimum borrower rate. Lower
consolidation lender fees and the restructuring of the Company's joint venture
with Chase Manhattan Bank (the "Joint Venture") in December of 1998 also
benefited the student loan spread.
The following table analyzes the ability of the FFELP student loans in the
Company's managed student loan portfolio to earn at the minimum borrower
interest rate at June 30, 1999 and 1998, based on the last Treasury bill
auctions of May 1998 and 1997 for variable rate loans (5.16 percent in both
years) and based on the last Treasury bill auctions of June 1999 and 1998 for
fixed rate loans (4.89 percent and 5.13 percent, respectively) which were
applicable to those periods. Beginning on July 1, 1999 the minimum rate for
variable rate loans was reset at 4.62% based on the last treasury bill auction
in May 1999, at which time no variable rate loans were earning at the minimum
rate.
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
------------------------------ ------------------------------
FIXED VARIABLE TOTAL FIXED VARIABLE TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Student loans eligible to earn at the minimum
borrower rate................................. $12.5 $ 27.9 $ 40.4 $13.4 $ 22.3 $ 35.7
Less notional amount of floor interest
contracts..................................... (3.8) (16.7) (20.5) (5.9) (18.6) (24.5)
----- ------ ------ ----- ------ ------
Net student loans eligible to earn at the
minimum borrower rate......................... $ 8.7 $ 11.2 $ 19.9 $ 7.5 $ 3.7 $ 11.2
===== ====== ====== ===== ====== ======
Net student loans earning at the minimum
borrower rate................................. $ 5.7 $ 11.1 $ 16.8 $ 4.9 $ -- $ 4.9
===== ====== ====== ===== ====== ======
</TABLE>
STUDENT LOAN FLOOR INTEREST CONTRACTS
Periodically the Company and third parties have entered into contracts to
monetize the value of the minimum borrower interest rate feature of its
portfolio of FFELP student loans. These contracts are referred to as "Floor
Interest Contracts" under which the Company receives an upfront payment and
agrees to pay the difference between: (i) the minimum borrower interest rate
less the applicable Special Allowance Payment ("SAP") rate (the "Strike Rate")
and (ii) the average of the 91-day Treasury bill rates over the period of the
contract. If the Strike Rate is less than the average of the Treasury bill
rates, then no payment is required. These upfront payments are being amortized
over the average life of the contracts. Floor Interest Contracts sold on loans
where the borrower rate is reset annually have historically been sold through
the next reset date, a period of one year or less, while Floor Interest
Contracts sold on loans where the borrower rate is fixed to term have been sold
for multi-year periods. The $3.8 billion of outstanding fixed borrower rate
Floor Interest Contracts at June 30, 1999 have expiration dates through the year
2003, while the $16.7 billion of annually reset borrower rate contracts
outstanding at June 30, 1999 expire on July 1, 1999.
For the three months ended June 30, 1999 and 1998, the amortization of the
upfront payments received from the sale of Floor Interest Contracts with
annually reset borrower rates was $12 million and $9 million, respectively. For
the six months ended June 30, 1999 and 1998, the amortization of the upfront
payments received from the sale of Floor Interest Contracts with annually reset
borrower rates was $20 million and $14 million, respectively.
S-14
<PAGE>
PROVISION FOR LOSSES
The provision for losses for the three months ended June 30, 1999 and 1998
included $7 million for potential losses on the non-federally insured portfolio
versus none in the year-ago quarter, and $6 million and $2 million,
respectively, for potential losses due to risk-sharing and other claims on FFELP
loans. The provision for losses for the six months ended June 30, 1999 and 1998
included $11 million and $8 million, respectively, for potential losses on the
non-federally insured portfolio and $10 million and $4 million, respectively,
for potential losses due to risk sharing and other claims on FFELP loans.
Management believes that the provision for losses is adequate to cover
anticipated losses. However, this evaluation is inherently subjective as it
requires material estimates that may be susceptible to significant changes.
ON-BALANCE SHEET FUNDING COSTS
The Company's borrowings are generally variable rate indexed principally to
the 91-day Treasury bill rate. The following table summarizes the average
balance of on-balance sheet debt (by index, after giving effect to the impact of
interest rate swaps) for the three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- ---------------------------------------------
1999 1998 1999 1998
--------------------- --------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Treasury bill,
principally
91-day.............. $28,466 5.18% $27,925 5.49% $28,496 5.14% $28,528 5.52%
LIBOR................. 2,517 4.86 4,915 5.52 2,529 4.92 4,954 5.57
Discount notes........ 4,924 4.76 1,160 5.46 4,062 4.78 2,012 5.50
Fixed................. 868 6.03 641 7.11 871 6.07 645 7.15
Zero coupon........... 151 11.14 138 11.14 149 11.14 138 11.13
Other................. 864 4.74 944 5.56 875 4.75 941 5.51
------- ----- ------- ----- ------- ----- ------- -----
Total................. $37,790 5.15% $35,723 5.57% $36,982 5.14% $37,218 5.60%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The following table details the spreads for the Company's Treasury bill
indexed borrowings and London Interbank Offered Rate ("LIBOR") indexed
borrowings:
<TABLE>
<CAPTION>
THREE
MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
INDEXED BORROWINGS 1999 1998 1999 1998
- ------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
TREASURY BILL
Weighted average Treasury bill.............................. 4.71% 5.25% 4.70% 5.27%
Borrowing spread............................................ .47 .24 .44 .25
---- ---- ---- ----
Weighted average borrowing rate............................. 5.18% 5.49% 5.14% 5.52%
==== ==== ==== ====
LIBOR
Weighted average LIBOR...................................... 5.08% 5.76% 5.16% 5.81%
Borrowing spread............................................ (.22) (.24) (.24) (.24)
---- ---- ---- ----
Weighted average borrowing rate............................. 4.86% 5.52% 4.92% 5.57%
==== ==== ==== ====
</TABLE>
S-15
<PAGE>
SECURITIZATION PROGRAM
During the second quarter of 1999, conditions in the global financial
markets improved to a point such that management believed it was economically
feasible for the Company to reenter the securitization market. Accordingly, the
Company securitized $1.0 billion of student loans and recorded a pre-tax
securitization gain of $8 million, which was .79 percent of the portfolio
securitized. In the second quarter of 1998 the Company securitized $3.0 billion
of student loans and recognized a pre-tax securitization gain of $57 million,
which was 1.89 percent of the portfolio securitized. The decrease in the 1999
second quarter securitization gain as a percentage of loans securitized is
mainly due to portfolio characteristics and the higher financing spreads in the
1999 transaction. The adverse financial market conditions, which first arose in
August 1998 after the Russian bond default, persisted through the first quarter
of 1999. The Company did not complete a securitization during that period. In
the first six months of 1998, the Company completed two securitization
transactions in which it securitized $6.0 billion of student loans and recorded
a pre-tax securitization gain of $117 million or 1.95 percent of the portfolios
securitized.
SERVICING AND SECURITIZATION REVENUE
The following table summarizes the components of servicing and
securitization revenue:
<TABLE>
<CAPTION>
THREE
MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Servicing revenue less amortization of servicing asset...... $38 $39 $ 78 $ 72
Securitization revenue...................................... 43 24 89 43
--- --- ---- ----
Total servicing and securitization revenue.................. $81 $63 $167 $115
=== === ==== ====
</TABLE>
In the three and six months ended June 30, 1999, servicing and
securitization revenue was 1.92 percent and 1.95 percent, respectively, of
average securitized loans versus 1.50 percent and 1.50 percent, respectively, in
the corresponding year ago periods. The Company's securitized loan portfolios
benefit from declining Treasury bill rates in a manner similar to the on-balance
sheet portfolio of student loans. The increase in securitization revenue in the
three months ended June 30, 1999 versus 1998 is due to the decline in Treasury
bill rates, which increased securitization revenue by $16 million over the three
months ended June 30, 1998 as more loans were earning at the minimum borrower
rate. For the six months ended June 30, 1999 the decline in Treasury bill rates
increased securitization revenue by $36 million over the six months ended
June 30, 1998. The increase in securitization revenue in the three months ended
June 30, 1999 is also due to the increase in the average balance of the interest
residual to $708 million from $593 million in the three months ended June 30,
1998. For the six months ended June 30, 1999 the average balance of the interest
residual increased to $714 million from $538 million in the six months ended
June 30, 1998. The increase in servicing revenue for the six months ended
June 30, 1999 versus 1998 is mainly due to the increase in the average balance
of securitized student loans to $17.3 billion in 1999, from $15.5 billion in
1998.
OTHER INCOME
Exclusive of gains on sales of student loans and servicing and
securitization revenue, other income totaled $22 million and $26 million for the
three months ended June 30, 1999 and 1998, respectively, and $42 million and
$48 million for the six months ended June 30, 1999 and 1998, respectively. The
decrease in other income in 1999 versus 1998 can be attributed to lower
servicing
S-16
<PAGE>
fees from the Joint Venture as a result of the restructuring in the fourth
quarter of 1998. Under the terms of the restructuring, the student loans are no
longer co-owned in the Joint Venture by the Company and Chase and serviced by
the Company for a fee. Instead, the Company now purchases all loans originated
by Chase. As of June 30, 1999, the $5.0 billion of loans owned jointly by the
Company and Chase in the Joint Venture at the time of the restructuring have
been sold to the Company. The decrease in other income from reduced servicing
fees was partially offset by $8 million and $16 million, respectively, in late
fee revenues earned in the three and six months ended June 30, 1999 versus none
in the corresponding year-ago periods as the Company began assessing late fees
in the second half of 1998.
OPERATING EXPENSES
In the three months ended June 30, 1999 and 1998, total operating expenses
were $86 million and $94 million, respectively, or as a percentage of managed
student loans .71 percent and .85 percent, respectively. For the six months
ended June 30, 1999 and 1998, total operating expenses were $173 million and
$185 million, respectively, or as a percentage of managed student loans
.73 percent and .84 percent, respectively. The decrease in operating expenses,
both in absolute terms and as a percentage of managed student loans was due
principally to lower servicing costs as a result of the closing of two satellite
servicing centers in the second quarter of 1998, for which the Company took a
$9 million charge, and to cost savings attained through the ongoing servicing
center reconfiguration.
STUDENT LOAN PURCHASES
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Exports, origination and servicing clients................ $2,529 $1,095 $4,776 $2,522
Other commitment clients.................................. 288 264 565 614
Spot purchases............................................ 34 185 73 212
Consolidations............................................ 391 6 542 65
Other..................................................... 249 206 495 439
------ ------ ------ ------
Total..................................................... $3,491 $1,756 $6,451 $3,852
====== ====== ====== ======
</TABLE>
For the three months ended June 30, 1999, the Company purchased
$3.49 billion of student loans compared with $1.76 billion in the year-ago
period. For the six months ended June 30, 1999, the Company purchased
$6.45 billion of student loans compared with $3.85 billion in the year-ago
period. As mentioned above, in the fourth quarter of 1998, the Company
restructured the Joint Venture and now purchases all loans originated by Chase.
The purchases in the first half of 1999 include $1.6 billion of loans in the
Joint Venture that were previously funded by Chase's half of the participations.
The Company purchased $.6 billion of such loans in the second quarter.
In the three and six months ended June 30, 1999, $480 million and
$2.2 billion, respectively, of student loans were originated and transferred to
the Company's ExportSS system versus $484 million and $2.2 billion,
respectively, in the corresponding year-ago periods. The pipeline of loans
currently serviced and committed for purchase by the Company was $3.1 billion at
June 30, 1999 versus and $3.4 billion at June 30, 1998.
The Department of Education offers existing FFELP borrowers the opportunity
to refinance FFELP loans into Federal Direct Student Loan Program ("FDSLP")
loans. During the three months
S-17
<PAGE>
ended June 30, 1999 and 1998, approximately $287 million and $119 million,
respectively, of the Company's managed student loans were accepted for
refinancing into the FDSLP. During the six months ended June 30, 1999 and 1998,
approximately $599 million and $186 million, respectively, of the Company's
managed student loans were accepted for refinancing into the FDSLP. The increase
in the number of loans accepted for refinancing into the FDSLP is due to
legislation that allowed borrowers to consolidate student loans into the FDSLP
at advantageous rates through January 31, 1999. Applications to these borrowers
will continue to be processed through the third quarter of 1999. In connection
with this increase in consolidations, the Company increased its provision for
losses at December 31, 1998 by $10 million.
The following table summarizes the activity in the Company's managed
portfolio of student loans for the three and six months ended June 30, 1999 and
1998.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BEGINNING BALANCE..................................... $47,523 $44,200 $46,192 $43,547
Purchases............................................. 3,491 1,756 6,451 3,852
Capitalized interest on securitized loans............. 94 79 200 170
Repayments, claims, other............................. (1,330) (1,375) (2,628) (2,812)
Loans consolidated away from the Company.............. (391) (170) (828) (267)
------- ------- ------- -------
Ending balance........................................ $49,387 $44,490 $49,387 $44,490
======= ======= ======= =======
</TABLE>
PRO-FORMA STATEMENTS OF INCOME
Under GAAP, the Company's securitization transactions have been treated as
sales. At the time of sale, in accordance with Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), the Company records a gain equal to the present
value of the estimated future net cash flows from the portfolio of loans sold.
Interest earned on the interest residual and fees earned for servicing the loan
portfolios are recognized over the life of the securitization transaction as
servicing and securitization revenue. Under SFAS 125, income recognition is
effectively accelerated through the recognition of a gain at the time of sale
while the ultimate realization of such income remains dependent on the actual
performance, over time, of the loans that were securitized.
Management believes that, in addition to results of operations as reported
in accordance with GAAP, another important performance measure is pro-forma
results of operations under the assumptions that the securitization transactions
are financings and that the securitized student loans were not sold. The
following pro-forma statements of income present the Company's results of
operations under those assumptions. As such, no gain on sale or subsequent
servicing and securitization revenue is recognized. Instead, the earnings of the
student loans in the trusts and related financing costs are reflected over the
life of the underlying pool of loans. Management refers to these pro-forma
results as "cash basis" statements of income. Management monitors the periodic
"cash basis" earnings of the Company's managed student loan portfolio and
believes that they assist in a better understanding of the Company's student
loan business.
S-18
<PAGE>
The following table presents the "cash basis" statements of income and
reconciliations to GAAP net income as reflected in the Company's consolidated
statements of income.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----- ----- ------- -------
"CASH BASIS" STATEMENTS OF INCOME:
Insured student loans...................... $ 891 $ 860 $ 1,743 $ 1,705
Advances/Facilities/Investments............ 88 128 183 273
----- ----- ------- -------
Total interest income...................... 979 988 1,926 1,978
Interest expense........................... (713) (746) (1,405) (1,498)
----- ----- ------- -------
Net interest income........................ 266 242 521 480
Less: provision for losses................. 17 7 29 20
----- ----- ------- -------
Net interest income after provision for 249 235 492 460
losses...................................
----- ----- ------- -------
OTHER INCOME:
Gains on sales of student loans.......... -- -- -- --
Servicing and securitization revenue..... -- -- -- --
Gains on sales of securities............. 1 4 1 6
Other.................................... 21 22 42 41
----- ----- ------- -------
Total other income......................... 22 26 43 47
Total operating expenses................... 86 94 173 185
----- ----- ------- -------
Income before taxes and minority interest 185 167 362 322
in earnings of subsidiary................
Income taxes............................... 58 52 114 100
Minority interest in earnings of 3 2 6 5
subsidiary...............................
----- ----- ------- -------
"Cash basis" net income.................... $ 124 $ 113 $ 242 $ 217
===== ===== ======= =======
"Cash basis" diluted earnings per share.... $ .75 $ .66 $ 1.47 $ 1.26
===== ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----- ----- ------- -------
RECONCILIATION OF GAAP NET INCOME TO "CASH
BASIS" NET INCOME:
GAAP net income............................ $ 124 $ 144 $ 237 $ 283
----- ----- ------- -------
"Cash basis" adjustments:
Gains on sales of student loans.......... (8) (57) (8) (117)
Servicing and securitization revenue..... (81) (63) (167) (116)
Net interest income...................... 93 76 190 139
Provision for losses..................... (4) (5) (8) (8)
----- ----- ------- -------
Total "cash basis" adjustments............. -- (49) 7 (102)
Net tax effect (A)......................... -- 18 (2) 36
----- ----- ------- -------
"Cash basis" net income.................... $ 124 $ 113 $ 242 $ 217
===== ===== ======= =======
</TABLE>
- ------------------------
(A) Such tax effect is based upon the Company's marginal tax rate for the
respective period.
S-19
<PAGE>
"CASH BASIS" STUDENT LOAN SPREAD AND NET INTEREST INCOME
The following table analyzes the reported earnings from the Company's
portfolio of managed student loans, which includes those on-balance sheet and
those off-balance sheet in securitization trusts. The line captioned "Adjusted
student loan yields" reflects contractual student-loan yields adjusted for the
amortization of premiums paid to purchase loan portfolios and the estimated
costs of borrower benefits.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------- ------- ------- -------
Adjusted student loan yields.......... 7.54% 7.96% 7.55% 8.00%
Consolidated loan rebate fees......... (.15) (.15) (.15) (.16)
Offset fees........................... (.09) (.07) (.09) (.07)
------- ------- ------- -------
Student loan income................... 7.30 7.74 7.31 7.77
Cost of funds......................... (5.18) (5.63) (5.17) (5.66)
------- ------- ------- -------
Student loan spread................... 2.12% 2.11% 2.14% 2.11%
======= ======= ======= =======
AVERAGE BALANCES
Managed student loans................. $48,757 $44,369 $47,917 $44,081
======= ======= ======= =======
</TABLE>
The Company earns interest at the greater of the borrower's rate or a
floating rate determined by reference to the average of the weekly auctions of
the 91-day Treasury bills by the government, plus a fixed spread, which is
dependent upon when the loan was originated. In all cases, the rate the borrower
pays sets a minimum rate for determining the yield the Company earns on the
loan. The Company generally finances its student loan portfolio with floating
rate debt tied to the average of the 91-day Treasury bill auctions, either
directly or through the use of derivative financial instruments, to mimic the
interest rate characteristics of the student loans. Such borrowings, however, do
not have minimum rates. As a result, in periods of declining interest rates, the
portfolio of managed student loans may be earning at the minimum borrower rate
while the Company's funding costs (exclusive of funding spreads) will generally
decline along with Treasury bill rates. For loans where the borrower's interest
rate is fixed to term, declining interest rates may benefit the spread earned on
student loans for extended periods of time. For loans where the borrower's
interest rate is reset annually, any benefit of a low interest rate environment
will only enhance student loan spreads through the next annual reset of the
borrowers interest rates, which occurs on July 1 of each year. Assuming the
decline in interest rates on the Company's floating rate debt exactly matched
the decline in Treasury bill rates, then the effect of lower Treasury bill rates
on the Company's "cash basis" student loan spread, net of payments under Floor
Interest Contracts (discussed below), was $43 million and $84 million for the
three and six months ended June 30, 1999, respectively, of which, $18 million
and $34 million, respectively, is attributable to student loans with minimum
borrower rates fixed to term and $25 million and $50 million, respectively, is
attributable to student loans whose minimum borrower rate adjusts annually on
July 1.
The increase in the three and six months ended June 30, 1999 "cash basis"
student loan spread versus the year ago period is mainly due to the lower
Treasury bill rates in 1999 which resulted in an increase of 19 and 21 basis
points, respectively, earned from loans earning at the minimum borrower rate.
The student loan spread also benefited from the restructuring of the Joint
Venture. These increases in the spread were offset by an increase in financing
spreads, relative to the Treasury bill rates in 1999 versus 1998, higher loan
premium amortization and higher offset fees. The combined effect of higher
funding costs along with higher loan premium amortization and offset fees was a
decrease in the student loan spread of 21 and 16 basis points for the three and
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<PAGE>
six months ended June 30, 1999, respectively. The increase in financing costs
was mainly due to wider on-balance sheet financing
For the three and six months ended June 30, 1999, the amortization of the
upfront payments received from the sale of Floor Interest Contracts with
annually reset borrower rates was $14 million and $23 million, respectively,
versus $9 million and $14 million, respectively, for the three and six months
ended June 30, 1998. At June 30, 1999, the unamortized balance of upfront
payments received from the sale of fixed borrower rate Floor Interest Contracts
totaled $29 million. There was no unamortized balance of upfront payments
received on annually reset borrower rate contracts
In the three months ended June 30, 1999, "cash basis" net interest income
was $266 million compared with $242 million in the year-ago period. In the six
months ended June 30, 1999, "cash basis" net interest income was $521 million
compared with $480 million in the year-ago period. The increase in net interest
income earned in the three and six months ended June 30, 1999 versus the year
ago periods was due to the increase in the student loan spread discussed above,
the increase in the average balance of managed student loans, and the increase
in student loans as a percentage of average earning assets.
FEDERAL AND STATE TAXES
The Company maintains a portfolio of tax-advantaged assets principally to
support education-related financing activities. That portfolio was primarily
responsible for the decrease in the effective federal income tax rate from the
statutory rate of 35 percent to 32 percent for each of the three and six month
periods ended June 30, 1999 and 1998. The Student Loan Marketing Association, a
wholly-owned subsidiary of the Company, and a government-sponsored enterprise
(the "GSE"), is exempt from all state, local and District of Columbia income,
franchise, sales and use, personal property and other taxes, except for real
property taxes. However, this tax exemption applies only to the GSE and does not
apply to the Company or its other operating subsidiaries, that are subject to
taxation at the state and local level. State taxes were immaterial in the three
and six months ended June 30, 1999 and 1998 as the majority of the Company's
business activities were conducted in the GSE.
USE OF PROCEEDS
We will use the net proceeds from the sale of Preferred Stock for general
corporate purposes.
S-21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999 and as
adjusted to reflect the sale of the Preferred Stock offered by this Prospectus
Supplement, assuming no exercise of the underwriters' option to purchase
additional shares of the Preferred Stock. You should read this table along with
our financial statements and accompanying notes incorporated by reference into
this Prospectus Supplement and the accompanying Prospectus. Amounts are in
thousands, except per share amounts.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Borrowed funds:
Short-term borrowings..................................... $32,030,251 $32,030,251
Long-term borrowings...................................... 5,929,143 5,929,143
----------- -----------
Total borrowed funds.................................... 37,959,394 37,959,394
----------- -----------
Stockholders' equity:
Preferred stock, Series A, par value $.20 per share,
20,000,000 shares authorized, 3,000,000 shares issued,
as adjusted............................................. -- 600
Common stock, par value $.20 per share, 250,000,000 shares
authorized, 184,976,111 shares issued................... 36,995 36,995
Additional paid-in capital................................ 34,964 184,364
Unrealized gains on investment, net of tax................ 330,973 330,973
Retained earnings......................................... 1,249,278 1,249,278
----------- -----------
Stockholders' equity before treasury stock................ 1,652,210 1,802,210
Common stock held in treasury at cost, 24,068,203
shares.................................................. 992,827 992,827
----------- -----------
Total stockholders' equity.................................. 659,383 809,383
----------- -----------
Total capitalization........................................ $38,618,777 $38,768,777
=========== ===========
</TABLE>
S-22
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and other operating
information of the Company on a consolidated basis. The selected financial data
in the table is derived from the consolidated financial statements of the
Company. You should read this table in conjunction with the financial statements
and accompanying notes incorporated by reference into this Prospectus Supplement
and the accompanying Prospectus. Amounts for the six month periods ended
June 30, 1998 and 1999 are unaudited. Per share amounts refer to shares of
common stock. Amounts in the following table are in millions, except per share
amounts.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income...................... $ 330 $ 341 $ 651 $ 781 $ 894 $ 908 $ 982
Net income............................... 237 283 501 508 409 356 410
Basic earnings per share................. 1.46 1.67 2.99 2.80 2.10 1.51 1.47
Diluted earnings per share............... 1.44 1.64 2.95 2.78 2.09 1.51 1.47
Dividends per share...................... .30 .28 .57 .52 .47 .43 .41
Return on stockholders' equity........... 75% 94% 81% 65% 50% 29% 28%
Net interest margin...................... 1.89 1.94 1.93 1.80 1.96 1.85 2.14
Return on assets......................... 1.30 1.53 1.41 1.12 .86 .69 .85
Dividend payout ratio.................... 21 17 19 19 22 29 28
Average equity/average assets............ 1.65 1.54 1.65 1.64 1.66 2.28 2.96
BALANCE SHEET DATA:
Student loans............................ $31,820 $25,506 $28,283 $29,443 $33,696 $34,285 $30,571
Total assets............................. 39,859 35,163 37,210 39,832 47,572 49,951 53,161
Total borrowings......................... 37,959 33,231 35,399 37,717 45,124 47,530 50,335
Stockholders' equity..................... 659 630 654 675 834 867 1,388
Book value per share..................... 4.10 3.76 3.98 3.89 4.44 4.29 5.39
OTHER DATA:
Securitized student loans outstanding.... $17,567 $18,984 $17,909 $14,104 $ 6,263 $ 954 $ --
Total managed assets..................... 57,426 54,147 55,119 53,936 53,835 50,905 53,161
Percentage of student loans insured by
government............................. 95 94 94 95 97 98 97
PRO FORMA RESULTS (1):
"Cash basis" net interest income....... $ 521 $ 480 $ 986 $ 969 $ 982 $ 908 $ 982
"Cash basis" net income................ 242 217 449 345 395 356 410
"Cash basis" diluted earnings per
share................................ 1.47 1.26 2.64 1.89 2.02 1.51 1.47
"Cash basis" net interest margin....... 1.99 1.89 1.93% 1.81% 1.98% 1.85% 2.14%
"Cash basis" return on assets.......... .90 .83 .85 .62 .77 .69 .85
</TABLE>
- --------------------------
(1) The pro-forma results present the Company's results of operations under the
assumption that the securitization transactions are financings and that the
securitized student loans were not sold. As such, no gain on sale or
subsequent servicing and securitization revenue is recognized. Instead, the
earnings of the student loans in the trusts and related financing costs are
reflected over the life of the underlying pool of loans. Management refers
to these pro-forma results as "cash basis" results. Management monitors the
periodic "cash basis" results of the Company's managed student loan
portfolio and believes that they assist in a better understanding of the
Company's student loan business.
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<PAGE>
DESCRIPTION OF PREFERRED STOCK
The following description of the Preferred Stock supplements, and, to the
extent inconsistent with the Prospectus or as expressly provided in this
Prospectus Supplement, replaces the more general description of preferred stock
that appears in the accompanying Prospectus. The following summarizes the
material terms of the Preferred Stock, but does not purport to be complete and
is subject to and qualified in its entirety by reference to our Amended and
Restated Certificate of Incorporation and the form of the Certificate of
Designation relating to the Preferred Stock, all of which have been or will be
filed as exhibits to or incorporated by reference in the registration statement
of which this Prospectus Supplement and the accompanying Prospectus is a part.
GENERAL
The Series A Preferred Stock:
- is a single series consisting of 3,000,000 shares (plus up to 450,000
additional shares issuable upon exercise of the underwriter's
over-allotment option),
- will not be convertible into shares of our common stock or any other
securities,
- will be fully paid and non-assessable,
- is non-voting,
- will confer no preemptive rights on its holders,
- has no stated maturity, and
- will not be subject to any sinking fund or mandatory redemption provision.
The Bank of New York will be the transfer agent, dividend disbursing agent and
registrar for the Preferred Stock.
DIVIDENDS
Dividends on shares of the Preferred Stock will not be mandatory. Holders of
Preferred Stock will be entitled to receive cumulative, quarterly cash
dividends. Dividends will accrue from but not include November , 1999 and will
be payable on January 31, April 30, July 31 and October 31 of each year (each, a
"Dividend Payment Date"), commencing January 31, 2000, at the annual rate of
$ per share, when, as and if declared by the Board of Directors in its sole
discretion, out of funds legally available for dividend payments.
Dividends payable on the Preferred Stock, including dividends payable for
partial dividend periods, will be computed on the basis of a 360-day year
consisting of twelve 30-day months. If a Dividend Payment Date is not a
"Business Day," the related dividend will be paid on the next Business Day with
the same force and effect as though paid on the Dividend Payment Date through
the date of actual payment. For these purposes, "Business Day" means a day other
than:
- a Saturday or a Sunday,
- a day on which New York City banks are closed, or
- a day on which our offices are closed.
Dividends will be paid to holders of record on the record date fixed by the
Board of Directors. The record date will not be earlier than 45 days or later
than 10 days before the applicable Dividend Payment Date. If declared, the
initial dividend, which will be for the period from but not including
November , 1999 through and including January 31, 2000, will be $
per share and will be payable on January 31, 2000. Thereafter, the "Dividend
Period" relating to a
S-24
<PAGE>
Dividend Payment Date will be the period from, but not including, the preceding
Dividend Payment Date through and including the related Dividend Payment Date.
The Preferred Stock will rank prior to our common stock, par value $0.20 per
share (the "Common Stock"), or any other stock junior to the Preferred Stock,
with respect to dividends, to the extent provided in the Certificate of
Designation. We may not declare, pay or set apart for payment on the Common
Stock or any other stock junior to the Preferred Stock any dividends unless we
have declared and paid or set apart (or ordered to be set apart) full cumulative
dividends on the Preferred Stock.
We may not redeem, purchase or otherwise acquire for any consideration (or
make any payment to or for a sinking fund for redemption of) any shares of
Common Stock or any other stock ranking junior to or on a parity with the
Preferred Stock as to dividends unless we have declared and paid or set apart
(or ordered to be set apart) full cumulative dividends on the Preferred Stock.
However, if we have already deposited any funds in any sinking fund with respect
to any such stock in compliance with the provisions of the sinking fund, we may
use those funds to purchase or redeem such stock in accordance with the terms of
the sinking fund, regardless of whether we have paid or set apart for payment at
the time of such application full cumulative dividends upon the Preferred Stock
outstanding to the most recent Dividend Payment Date. Any such junior or parity
stock or Common Stock may, however, be converted into or exchanged for stock of
the Company ranking junior to the Preferred Stock as to dividends.
Dividends on the Preferred Stock will be cumulative from the date of
original issue. If we do not pay a dividend on the Preferred Stock, the holders
of the Preferred Stock will have no claim arising from our non-payment so long
as we pay no dividend on the Common Stock (or any other stock junior to the
Preferred Stock).
The Board of Directors, in its discretion, may choose to pay dividends on
the Preferred Stock without paying any dividends on the Common Stock.
We will not declare or pay or set apart for payment any dividends on any
shares of the Preferred Stock if, at the same time, any arrears or default
exists in the payment of dividends on any outstanding class or series of stock
ranking prior to or on a parity with the Preferred Stock with respect to the
payment of dividends. At the time we issue the Preferred Stock, no class or
series of stock ranking prior to or on a parity with the Preferred Stock exists.
Holders of shares of the Preferred Stock will not be entitled to any
dividends, whether payable in cash or property, other than as described above
and will not be entitled to interest, or any sum in lieu of interest, relating
to any dividend payment.
CHANGES IN THE DIVIDENDS-RECEIVED PERCENTAGE
CHANGES BEFORE MAY , 2001
If, prior to May , 2001, Congress enacts one or more amendments to the
Code that reduce the percentage of the dividends-received deduction (currently
70 percent) as specified in section 243(a)(1) of the Code or any successor
provision (the "Dividends-Received Percentage"), certain adjustments may be made
as to the dividends payable by us on the Preferred Stock, and Post Declaration
Date Dividends and Retroactive Dividends (as these terms are defined below) may
become payable, as described below. If the amount of dividends payable per share
of Preferred Stock is adjusted pursuant to the DRD Formula (as defined below)
and or Post Declaration Date Dividends or Retroactive Dividends are to be paid,
we will give the holders of the Preferred Stock notice of each such adjustment
and, if applicable, any Post Declaration Dividends and any Retroactive
Dividends.
S-25
<PAGE>
FORMULA FOR ADJUSTMENT
The amount of each dividend payable (if declared) per share of Preferred
Stock for dividend payments made on or after the effective date of such change
in the Code will be adjusted by multiplying
- the amount of the dividend payable described above under "Dividends"
(before adjustment) by
- the number determined in accordance with the following formula (the "DRD
Formula"):
1 -.35 (1-.70)
-----------------
1--.35 (1--DRP)
and rounding the result to the nearest cent (with one-half cent rounded up).
For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in question;
PROVIDED, HOWEVER, that if the Dividends-Received Percentage applicable to the
dividend in question is less than 50%, then the DRP will equal .50. No amendment
to the Code, other than a change in the percentage of the dividends-received
deduction set forth in section 243(a)(1) of the Code or any successor provision,
or a change in the percentage of the dividends-received deduction for certain
categories of stock, which change applies to the Preferred Stock, will cause an
adjustment.
Unless the context otherwise requires, references to dividends in this
Prospectus Supplement will mean dividends as adjusted by the DRD Formula. Our
calculation of the dividends payable as so adjusted shall be final and not
subject to review, absent manifest error.
If, as to any amendment to the Dividends-Received Percentage, we receive
either:
- an unqualified opinion of nationally recognized independent tax counsel
that we select or
- a private letter ruling or similar form of authorization from the Internal
Revenue Service (the "IRS")
to the effect that the amendment does not apply to a dividend payable on the
Preferred Stock, then there will be no adjustment with respect to that dividend.
POST-DECLARATION DATE DIVIDENDS
Notwithstanding the foregoing, if Congress enacts any amendment to the Code
discussed above that reduces the Dividends-Received Percentage after we declare
the dividend payable on a Dividend Payment Date but before we pay that dividend,
the amount of the dividend payable on that Dividend Payment Date will not be
increased. Instead, additional dividends (the "Post Declaration Date
Dividends"), equal to the excess, if any of:
- the product of the dividend that we pay on that Dividend Payment Date and
the DRD Formula (where the DRP used in the DRD Formula would be equal to
the greater of the Dividends-Received Percentage applicable to the
dividend in question and .50) over
- the dividend that we pay on that Dividend Payment Date,
will be payable (if declared) to holders of Preferred Stock on the record date
for the next succeeding Dividend Payment Date, or, if we call the Preferred
Stock for redemption prior to such record date, to holders of Preferred Stock on
the applicable redemption date, as the case may be, in addition to any other
amounts payable on that date.
S-26
<PAGE>
Notwithstanding the foregoing provisions, if, with respect to any such
amendment, we receive either:
- an unqualified opinion of nationally recognized independent tax counsel
that we select or
- a private letter ruling or similar form of authorization from the IRS
to the effect that such amendment does not apply to a divided so payable on the
Preferred Stock, then such amendment will not result in the payment of Post
Declaration Date Dividends.
RETROACTIVE DIVIDENDS
If Congress enacts any amendment to the Code that reduces the
Dividends-Received Percentage and the reduction applies retroactively to a
Dividend Payment Date for which we paid dividends on the Preferred Stock (each,
an "Affected Dividend Payment Date"), we will pay (if declared) additional
dividends (the "Retroactive Dividends") to holders of Preferred Stock on the
record date applicable to the next succeeding Dividend Payment Date (or, if
Congress enacts such amendment after we declare the dividend payable on that
Dividend Payment Date, to Holders of Preferred Stock on the record date
applicable to the second succeeding Dividend Payment Date following the date of
enactment) in an amount equal to the excess of:
- the product of the dividend we paid on each Affected Dividend Payment Date
and the DRD Formula (where the DRP used in the DRD Formula would be equal
to the greater of the Dividends-Received Percentage and .50 applied to
each Affected Dividend Payment Date) over
- the sum of the dividends we paid on each Affected Dividend Payment Date.
We will make only one payment of Retroactive Dividends for any such amendment.
Notwithstanding the foregoing provisions, if, as to any such amendment, we
receive either:
- an unqualified opinion of nationally recognized independent tax counsel
that we select or
- a private letter ruling or similar form of authorization from the IRS
to the effect that such amendment does not apply to a dividend payable on an
Affected Dividend Payment Date for the Preferred Stock, then such amendment will
not result in the payment of Retroactive Dividends with respect to such Affected
Dividend Payment Date.
Any opinion of independent tax counsel described in "Changes in the
Dividends-Received Percentage" must be based upon the legislation amending or
establishing the DRP or upon a published pronouncement of the IRS addressing
that legislation.
AMENDMENTS ON OR AFTER MAY , 2001
Notwithstanding any of the foregoing, we will make no adjustment in the
dividends payable by us and no Post Declaration Date Dividends or Retroactive
Dividends will be payable by us for the enactment of any amendment to the Code
on or after May , 2001 that reduces the Dividends-Received Percentage.
OPTIONAL REDEMPTION
We cannot redeem the Preferred Stock before November , 2009. On or after
that date and subject to any further limitations that may be imposed by law, we
may redeem the Preferred Stock:
- in whole or in part,
- at any time or from time to time,
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<PAGE>
- out of funds legally available therefor,
- at the redemption price of $50.00 per share plus accrued and unpaid
dividends to but not including the date of the redemption (including any
Post Declaration Date Dividends and Retroactive Dividends).
If we choose to redeem less than all of the outstanding shares of the Preferred
Stock, we will select shares to be redeemed from the outstanding shares not
previously called for redemption by lot or pro rata (as nearly as possible) or
by any other method that we in our sole discretion deem equitable.
We will give notice of any redemption by mail to holders of the Preferred
Stock not less than 30 days and not more than 60 days prior to the date we fix
for that redemption. Each notice will state:
- the number of shares of Preferred Stock being redeemed,
- the redemption price,
- the redemption date, and
- the place at which a holder's certificate(s) representing shares of the
Preferred Stock must be presented upon such redemption.
Any notice that is so mailed shall be conclusively presumed to have been
duly given, whether or not the stockholder received such notice. Our failure
duly to give notice or any defect in any notice or in the mailing of any notice
shall not affect the validity of the proceedings for the redemption of any other
shares of Preferred Stock that are to be redeemed.
If any redemption date is not a Business Day, then payment of the redemption
price may be made on the next Business Day with the same force and effect as if
made on the redemption date, and no interest, additional dividends or other sums
will accrue on the amount payable from the redemption date to the next Business
Day.
From and after the redemption date, the shares of Preferred Stock called for
redemption will no longer be deemed outstanding, and all rights of the
stockholders as holders of the Preferred Stock will cease.
NO PREEMPTIVE RIGHTS AND NO CONVERSION
No holder of the Preferred Stock will have any preemptive right to purchase
or subscribe for any other shares, rights, options or other securities of any
class of the Company that at any time we may sell or offer for sale. The holders
of shares of Preferred Stock will have no right to convert their shares into or
exchange their shares for any other class or series of our stock or obligations.
PREFERRED STOCK BOARD COMMITTEE; LIMITED RIGHTS TO VOTE AND ELECT BOARD
OBSERVERS
At the first regularly scheduled meeting of the board of directors after the
issuance of the Preferred Stock, the board of directors shall form a committee
of the board of directors whose purpose shall be to monitor and evaluate
proposed actions of the Company that may impact the rights of holders of the
Preferred Stock, including the payment of dividends on the Preferred Stock and
to report to the board of directors thereon. The board of directors shall
designate from among its independent directors (as defined by our bylaws or by
New York Stock Exchange rules) at least three directors to serve on that
committee. The committee shall meet at least once a year.
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<PAGE>
Except as described below and under "Amendments", the holders of the
Preferred Stock will not be entitled to vote. Whenever dividends on any shares
of Preferred Stock are in arrears for four or more quarterly dividend periods,
whether or not consecutive:
- the holders of the Preferred Stock, voting together as single class with
all other classes or series of our capital stock with like voting rights
which are exercisable and which are entitled to vote as a class with the
Preferred Stock in the election of two observers to the board of
directors, will be entitled to vote for the election of a total of two
board observers:
- at a special meeting called by an officer of the Company at the request
of the holders of record of at least 10% of the outstanding Preferred
Stock or by the holders of any such other class or series of our
capital stock,
- at each subsequent annual meeting of our stockholders,
until we have fully paid all dividends accumulated on the Preferred Stock for
all prior dividend periods and the then current dividend period. The board
observers will have no voting rights, but they will receive notice of all
meetings of our board of directors and of the Preferred Stock committee of the
Board described above, they may attend and speak at those meetings on all
matters and they shall have the right to include statements in the minutes of
such meetings.
If and when we pay in full or declare (and set aside a sum sufficient to pay
such dividends in full) full cumulative dividends on the Preferred Stock for all
prior dividend periods and the then current dividend period, the right of
holders of Preferred Stock to elect those two board observers will cease and,
unless there are other classes and series of our capital stock upon with like
voting rights which are exercisable, the observer rights of each of the two
board observers so elected will immediately and automatically terminate.
If one of our officers does not call a special meeting for the election of
the board observers within 30 days after request by the holders of record of at
least 10% of the outstanding shares of Preferred Stock, the requesting holders
may designate a holder of Preferred Stock to call a meeting at our expense. We
will pay all costs and expenses of calling and holding any meeting and of
electing board observers as described above.
The voting provisions described above will not apply if we redeem or call
for redemption (and deposit sufficient funds in trust to effect such redemption)
all outstanding shares of Preferred Stock at or before the time when the action
that would otherwise require such a vote occurs or is taken.
In any matter in which the holders of Preferred Stock are entitled to vote,
including any action by written consent, each share of Preferred Stock shall be
entitled to one vote, except that when shares of any other class or series of
our capital stock have the right to vote with the Preferred Stock as a single
class on any matter, the Preferred Stock and the shares of each such other class
or series will have one vote for each $50.00 of liquidation preference
(excluding accrued dividends).
LIQUIDATION RIGHTS
Upon any voluntary or involuntary dissolution, liquidation or winding up of
the Company,
- after payment or provision for our liabilities and the expenses of that
dissolution, liquidation or winding up,
- the holders of the outstanding shares of the Preferred Stock will be
entitled to receive out of our assets available for distribution to
stockholders,
- before any payment or distribution is made on the Common Stock (or any
other stock junior to the Preferred Stock),
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<PAGE>
the amount of $50.00 per share plus accrued and unpaid dividends through and
including the date of that liquidation payment. If we lack sufficient assets
available for distribution to pay in full the aggregate amount payable to
holders of the Preferred Stock and any other class or series of stock ranking on
a parity upon liquidation with the Preferred Stock, the assets will be
distributed to the holders of Preferred Stock and such parity stock pro rata,
based on the amounts to which they are entitled.
A consolidation, merger or combination of the Company with or into any other
corporation or entity, or the sale of all or substantially all of our property
or business is not a liquidation, dissolution or winding up for purposes of
these provisions on liquidation rights.
ADDITIONAL CLASSES OR SERIES OF STOCK
We have the right to create and issue additional classes or series of stock
ranking on a parity with or junior to the Preferred Stock, as to dividends,
liquidation or otherwise, without the consent of holders of the Preferred Stock.
We may not, however, create and issue additional classes or series of stock
ranking prior to the Preferred Stock as to dividends, liquidation or otherwise.
AMENDMENTS
Without the consent of the holders of the Preferred Stock, we have the right
to amend, alter, supplement or repeal any terms of the Preferred Stock:
- to cure any ambiguity,
- to correct or supplement any term that may be defective or inconsistent
with any other terms, or
- to make any other provisions so long as our action does not materially and
adversely affect the rights, preferences, privileges or voting power of
the holders of the Preferred Stock.
Otherwise, the terms of the Preferred Stock may be amended, altered,
supplemented or repealed only with the consent of the holders of at least
two-thirds of the outstanding shares of Preferred Stock. On matters requiring
their consent, holders of the Preferred Stock will be entitled to one vote per
share.
NYSE
We have applied to list the Preferred Stock on the NYSE. Approval of our
application will be subject, among other things, to satisfactory distribution of
the Preferred Stock. We expect that trading of the Preferred Stock on the NYSE
will commence within 30 days after the initial delivery of the Preferred Stock.
U.S. FEDERAL INCOME TAX MATTERS
The Preferred Stock and payments thereon are generally subject to taxation
by the United States and other taxing jurisdictions to the same extent and in
the same manner as stock of and payments thereon by any other corporation. The
following discussion addresses the material U.S. federal income tax consequences
that may result from ownership of the Preferred Stock by a U.S. person who holds
the Preferred Stock as a capital asset. For this purpose, a U.S. person is:
- an individual who is a citizen or resident of the United States for U.S.
federal income tax purposes,
S-30
<PAGE>
- a corporation, partnership or other type of entity organized under the
laws of the United States or any State (other than a partnership that is
not treated as a U.S. person under any applicable U.S. Treasury
regulations),
- an estate whose income is subject to U.S. federal income tax regardless of
its source, or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
Notwithstanding the preceding sentence, to the extent provided in U.S.
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as U.S. persons prior to that date, that elect to continue to be treated
as U.S. persons, also will be U.S. persons.
This discussion does not purport to address all rules that may apply to you.
You are encouraged to consult your own tax advisors regarding the U.S. federal,
state, local and foreign tax considerations applicable to an investment in the
Preferred Stock.
This discussion reflects current U.S. federal income tax laws and
regulations and administrative and judicial interpretations of those laws and
regulations. Changes to any of these after the date of this Prospectus
Supplement may affect the tax consequences described herein.
DIVIDENDS
CURRENT LAW
Distributions on the Preferred Stock that we pay out of current or
accumulated earnings and profits generally constitute dividends taxable as
ordinary income. To the extent that the amount of any distribution we pay on a
share of Preferred Stock exceeds the current or accumulated earnings and profits
for U.S. federal income tax purposes attributable to that share, that excess
will be treated first as a return of capital (rather than as ordinary income)
and will be applied against and reduce the holder's adjusted tax basis in that
share of Preferred Stock. Any such amount in excess of the holder's adjusted tax
basis will then be taxed as capital gain. For purposes of the remainder of this
discussion, we assume that dividends paid with respect to the Preferred Stock
will constitute dividends for U.S. federal income tax purposes.
Dividends received by corporations generally will be eligible for the
dividends-received deduction. The dividends-received deduction is available only
for dividends on stock held for more than 45 days (or more than 90 days in the
case of a dividend on preferred stock attributable to periods aggregating in
excess of 366 days), including the day of disposition but not the day of
acquisition. This holding period must be satisfied during the 90-day period
(180-day period in the case of a preferred stock dividend attributable to
periods aggregating in excess of 366 days) beginning on the date which is 45
(90) days before the date on which the stock becomes ex-dividend with respect to
the dividend. The length of time that a corporate stockholder is deemed to have
held stock for these purposes is reduced for periods during which the
stockholder's risk of loss with respect to the stock is diminished by reason of
the existence of certain options, contracts to sell, short sales or other
similar transactions.
The amount of the dividends-received deduction generally will equal
70 percent of the amount of the dividends received. The amount may be reduced in
some instances, including where a holder has indebtedness outstanding that is
directly attributable to an investment in the Preferred Stock. For this purpose,
indebtedness of a depository institution attributable to deposits received in
the ordinary course of its business is not treated as indebtedness directly
attributable to an investment in the Preferred Stock.
S-31
<PAGE>
For purposes of the corporate alternative minimum tax, alternative minimum
taxable income is increased by 75 percent of the amount by which a corporation's
adjusted current earnings exceeds its alternative minimum taxable income prior
the addition of the applicable tax preference item. The amount of any dividend
that is included in a corporate stockholder's adjusted current earnings will not
be reduced by any dividends-received deduction otherwise allowable with respect
to that dividend.
RECENT PROPOSAL
On February 1, 1999, the Clinton Administration submitted to Congress a
revenue proposal that would eliminate the dividends-received deduction for
dividends on nonqualified preferred stock, as defined in section 351(g) of the
Code. This proposal applies to nonqualified preferred stock issued on or after
the date of enactment. It is not clear whether the Preferred Stock constitutes
nonqualified preferred stock. It is impossible to predict whether Congress will
enact this or a similar proposal and, if it is enacted, whether it will apply
retroactively.
DISPOSITIONS, INCLUDING REDEMPTIONS
Any sale, exchange, redemption (except as discussed below) or other
disposition of the Preferred Stock generally will result in taxable gain or loss
equal to the difference between the amount received and the stockholder's
adjusted tax basis in the Preferred Stock. Such gain or loss generally will be
capital gain or loss and will be long-term capital gain or loss if the holding
period for the Preferred Stock exceeds one year.
A redemption of Preferred Stock may be treated as a dividend, rather than as
payment in exchange for the Preferred Stock, unless the redemption is "not
essentially equivalent to a dividend" with respect to the holder within the
meaning of section 302(b)(1) of the Code or meets certain other requirements of
section 302(b) of the Code. In applying this standard, the holder must take into
account not only the Preferred Stock and other stock of the Company that it owns
directly, but also the Preferred Stock and other stock of the Company that it
constructively owns within the meaning of section 318 of the Code.
Because of the ambiguities in applying these rules, you should consult your
own tax advisor to determine whether a redemption of Preferred Stock will be
treated as a dividend or as payment in exchange for the Preferred Stock. If the
redemption payment is treated as a dividend, the rules discussed above under
"Dividends" apply.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of dividends on shares of Preferred Stock held of record by U.S.
persons other than corporations and other exempt holders are required to be
reported to the IRS.
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made with respect to shares of Preferred Stock, as well as
payments of proceeds from the sale of shares of Preferred Stock, to holders that
are not "exempt recipients" and that fail to provide certain identifying
information (such as the taxpayer identification number of the holder) in the
manner required. Individuals generally are not exempt recipients. Corporations
and certain other entities generally are exempt recipients.
S-32
<PAGE>
UNDERWRITING
The Company and the underwriters for the offering (the "Underwriters") named
below have entered into an underwriting agreement and a pricing agreement with
respect to the Preferred Stock. Subject to certain conditions, each Underwriter
has severally agreed to purchase the number of shares of Preferred Stock
indicated in the following table.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ------------------
<S> <C>
Goldman, Sachs & Co.....................................
Salomon Smith Barney Inc................................
CIBC World Markets Corp.................................
Prudential Securities Incorporated......................
---------
Total................................................. 3,000,000
=========
</TABLE>
------------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 450,000
shares from the Company to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the Underwriters by the Company. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by the Company
-------------------
No Exercise Full Exercise
------------ -------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial price to the public set forth on the cover of this Prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the Underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price to
public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
The Preferred Stock is a new issue of securities with no established trading
market. The Company has applied to list the Preferred Stock on the NYSE. The
Company expects trading of the Preferred Stock on the NYSE to commence within a
30-day period after the initial delivery of the Preferred Stock. The Company has
been advised by the Underwriters that the Underwriters intend to make a market
in the Preferred Stock but are not obligated to do so and may discontinue any
such market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for the Preferred Stock.
The Company has agreed with the Underwriters not to dispose of or hedge any
of their Preferred Stock during the period from the date of this Prospectus
continuing through the date 90 days after the date of this Prospectus, except
with the prior written consent of the representatives.
In connection with the offering, the Underwriters may purchase and sell
shares of Preferred Stock on the open market. These transactions may include
short sales, stabilizing transactions and
S-33
<PAGE>
purchases to cover positions created by short sales. Short sales involve the
sale by the Underwriters of a greater number of shares than they are required to
purchase in the offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a decline in the
market price of the Preferred Stock while the offering is in progress.
The Underwriters may also impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Preferred Stock. As a result, the price of the
Preferred Stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
The Company estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$150,000.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
EXPERTS
The financial statements and schedules included in our annual report on
Form 10-K for the fiscal year ended December 31, 1998 and incorporated by
reference in this Prospectus Supplement have been audited for the fiscal years
ended December 31, 1998 and December 31, 1997 by Arthur Andersen LLP,
independent public accountants, as indicated in their reports thereon, and for
the fiscal year ended December 31, 1996 by Ernst & Young LLP, independent
auditors, as indicated in their report thereon, and are incorporated by
reference in this Prospectus Supplement in reliance upon the authority of such
firms as experts in accounting and auditing.
LEGAL MATTERS
Marianne M. Keler, who is our Senior Vice President and General Counsel,
will issue an opinion about the validity of the Preferred Stock. As of
November 1, 1999, Ms. Keler was the beneficial owner of 17,408 shares of Common
Stock and options covering an additional 244,409 shares of Common Stock. Certain
legal matters relating to the Preferred Stock will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher, LLP, San Francisco, California. Gibson,
Dunn & Crutcher, LLP represents us in other legal matters.
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus and the
information incorporated by reference herein include forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These forward-looking statements are based on our management's
beliefs and assumptions and on information currently available to our
management. Forward-looking statements include information concerning our
possible or assumed future results of operations and statements preceded by,
followed by or that include the words "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions. Forward-looking
statements involve risks, uncertainties and assumptions. Actual results may
differ materially from those expressed in these forward-looking statements. You
should not put undue reliance on any forward-looking statements. We do not have
any intention or obligation to update forward-looking statements after we
distribute this Prospectus Supplement.
S-34
<PAGE>
You should understand that the following important factors could cause our
results to differ materially from those expressed in forward-looking statements:
- changes in the terms of student loans and the educational credit
marketplace arising from the implementation of applicable laws and
regulations and from changes in these laws and regulations that may reduce
the volume, average term, costs and yields on education loans under the
Federal Family Education Loan Program or result in loans being originated
or refinanced under non-FFELP programs or affect the terms upon which
banks and others agree to sell FFELP loans to us;
- changes in the demand for educational financing or in financing
preferences of educational institutions, students and their families,
which could reduce demand for our products and services or increase our
costs;
- changes in the general interest rate environment and in the securitization
markets for education loans, which could increase the costs or limit the
availability of financings necessary to originate, purchase or carry
education loans; and
- interruptions in our operations or others' operations resulting from the
inability of computers or other systems to process year 2000-related
information, which could impact our liquidity and our ability to obtain,
generate or process documents or payments that we receive from or are due
to others.
S-35
<PAGE>
PROSPECTUS
SLM HOLDING CORPORATION
$600,000,000
DEBT SECURITIES
PREFERRED STOCK
WARRANTS
- - This prospectus provides you with a general description of the securities we
may offer. We will provide specific terms of these securities in supplements
to this prospectus. You should read this prospectus and the applicable
supplement carefully before you invest.
- - We are registering shares of our common stock primarily to preserve our
flexibility to deliver or sell shares of our common stock in connection with
the settlement of privately negotiated equity forward purchase contracts. We
also may issue common stock upon conversion, exercise or exchange of any debt
securities, preferred stock or warrants.
- - We are required to include the following legend:
OBLIGATIONS OF SLM HOLDING CORPORATION AND ANY SUBSIDIARY OF SLM
HOLDING CORPORATION ARE NOT GUARANTEED BY THE FULL FAITH AND
CREDIT OF THE UNITED STATES OF AMERICA, AND NEITHER SLM HOLDING
CORPORATION NOR ANY SUBSIDIARY OF SLM HOLDING CORPORATION IS A
GOVERNMENT-SPONSORED ENTERPRISE (OTHER THAN STUDENT LOAN MARKETING
ASSOCIATION) OR AN INSTRUMENTALITY OF THE UNITED STATES OF
AMERICA.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated October 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
About this Prospectus....................................... 2
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 3
SLM Holding Corporation..................................... 4
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends................................................. 4
Securities We May Offer..................................... 4
Additional Information...................................... 5
Description of Debt Securities.............................. 5
Description of Capital Stock................................ 13
Description of Warrants..................................... 15
Plan of Distribution........................................ 16
Legal Matters............................................... 17
Experts..................................................... 17
</TABLE>
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the SEC
using a "shelf" registration process. Under this shelf process, we may sell debt
securities, preferred stock and warrants in one or more offerings up to a total
dollar amount of $600,000,000. We may sell these securities either separately or
in units. We may also issue common stock upon conversion, exchange or exercise
of any of the securities mentioned above, and we may sell or deliver our common
stock in connection with the settlement of privately negotiated equity forward
or equity option transactions we have entered into or may enter into from time
to time.
This prospectus provides you with a general description of the securities we
may offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read this prospectus and the applicable prospectus
supplement together with the additional information described under the heading
"Where You Can Find More Information."
The registration statement that contains this prospectus, including the
exhibits to the registration statement, contains additional information about us
and the securities we may offer under this prospectus. You can read that
registration statement at the SEC's web site or at the SEC's offices mentioned
under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file periodic reports, proxy statements and other information with the
SEC. You may inspect and copy these reports and other information at the SEC's
public reference facilities in Washington, D.C. (located at 450 Fifth Street,
N.W., Washington, D.C. 20549), Chicago (located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661) and New York
(located at Seven World Trade Center, 13th Floor, New York, New York 10048). You
can also obtain copies of these materials from the SEC's public reference
section (located at 450 Fifth Street, N.W., Washington, D.C. 20549) at
prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. The SEC also maintains a site on the World
Wide Web at http:// www.sec.gov. This site contains reports, proxy and
information statements and other information about registrants that file
electronically with the SEC. You can also inspect reports and other information
we file at the office of the New York Stock Exchange, Inc. (located at 20 Broad
Street, New York, New York 10005), or at our web site at
http://www.salliemae.com.
We have filed a registration statement and related exhibits with the SEC
under the Securities Act of 1933. This registration statement contains
additional information about us and our securities. You can inspect the
registration statement and exhibits without charge at the SEC's office in
Washington, D.C. (located at 450 Fifth Street, N.W.), and you may obtain copies
from the SEC at prescribed rates.
The SEC permits us to "incorporate by reference" the information and reports
we file with it. This means that we can disclose important information to you by
referring to another document. The information that we incorporate by reference
is considered to be part of this prospectus, and later information that we file
with the SEC automatically updates and supersedes this information.
Specifically, we incorporate by reference:
- our annual report on Form 10-K for the fiscal year ended December 31,
1998, which we filed on March 29, 1999 (File Number 1-13251);
- our quarterly report on Form 10-Q for the quarterly period ended
March 31, 1999, which we filed on May 14, 1999 (File Number 1-13251);
2
<PAGE>
- our quarterly report on Form 10-Q for the quarterly period ended June 30,
1999, which we filed on August 16, 1999 (File Number 1-13251);
- our current report on Form 8-K, which we filed on June 3, 1999;
- the description of our common stock in our Form 8-A, which we filed on
August 7, 1997 and amended on July 27, 1999 (File Number 1-13251), and any
amendments or reports filed for the purpose of updating this description;
and
- all documents we file with the SEC pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934 after the date of this
prospectus and before we sell all of the securities offered by this
prospectus.
You may request a copy of these filings at no cost by writing or telephoning
us at the following address:
Corporate Secretary
SLM Holding Corporation
11600 Sallie Mae Drive
Reston, VA 20193
(703) 810-3000
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of these documents.
FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in this
prospectus include forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act . These
forward-looking statements are based on our management's beliefs and assumptions
and on information currently available to our management. Forward-looking
statements include information concerning our possible or assumed future results
of operations and statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" or similar
expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we distribute this prospectus.
You should understand that the following important factors could cause our
results to differ materially from those expressed in forward-looking statements:
- changes in the terms of student loans and the educational credit
marketplace arising from the implementation of applicable laws and
regulations and from changes in these laws and regulations that may reduce
the volume, average term, costs and yields on education loans under the
Federal Family Education Loan Program or result in loans being originated
or refinanced under non-FFELP programs or affect the terms upon which
banks and others agree to sell FFELP loans to us;
- changes in the demand for educational financing or in financing
preferences of educational institutions, students and their families,
which could reduce demand for our products and services or increase our
costs;
3
<PAGE>
- changes in the general interest rate environment and in the securitization
markets for education loans, which could increase the costs or limit the
availability of financings necessary to originate, purchase or carry
education loans; and
- interruptions in our operations or others' operations resulting from the
inability of computers or other systems to process year 2000-related
information, which could impact our liquidity and our ability to obtain,
generate or process documents or payments that we receive from or are due
to others.
SLM HOLDING CORPORATION
We were formed in 1997 in connection with the reorganization of the Student
Loan Marketing Association under the Student Loan Marketing Association
Reorganization Act of 1996. We do business under the name "Sallie Mae". Our
principal business is financing and servicing education loans. We presently
conduct a majority of this business through two wholly owned subsidiaries:
Student Loan Marketing Association, a government-sponsored enterprise chartered
by an act of Congress, and Sallie Mae Servicing Corporation, a Delaware
corporation. We are the largest non-governmental source of financing and
servicing for education loans in the United States.
Our principal executive offices are located at 11600 Sallie Mae Drive,
Reston, VA 20193, and our telephone number is (703) 810-3000.
USE OF PROCEEDS
Unless the applicable prospectus supplement states otherwise, we will use
the net proceeds from the sale of the offered securities for general corporate
purposes.
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth our ratio of earnings to fixed charges and
preferred stock dividends for the five years ended December 31, 1998 and the six
months ended June 30, 1998 and June 30, 1999.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends (1)................................ 1.27 1.16 1.22 1.29 1.37 1.39 1.36
Ratio of Earnings to Fixed Charges (1)............... 1.27 1.16 1.23 1.29 1.38 1.40 1.36
</TABLE>
- ------------------------
(1) For purposes of computing these ratios, earnings represent income before
income tax expense plus fixed charges less preferred stock dividends. Fixed
charges represent interest expense plus the estimated interest component of
net rental expense.
SECURITIES WE MAY OFFER
TYPES OF SECURITIES
The types of securities that we may offer and sell from time to time by this
prospectus are:
- debt securities, which we may issue in one or more series;
- preferred stock, which we may issue in one or more series;
4
<PAGE>
- common stock;
- warrants entitling the holders to purchase common stock, preferred stock
or debt securities;
- warrants or other rights relating to foreign currency exchange rates; or
- warrants for the purchase or sale of debt securities of, or guaranteed by,
the United States government or its agencies, units of a stock index or a
stock basket or a commodity or a unit of a commodity index.
The aggregate initial offering price of all securities we sell will not
exceed $600,000,000. We will determine when we sell securities, the amounts of
securities we will sell and the prices and other terms on which we will sell
them. We may sell securities to or through underwriters, through agents or
directly to purchasers.
ADDITIONAL INFORMATION
We will describe in a prospectus supplement, which we will deliver with this
prospectus, the terms of particular securities that we may offer in the future.
Each prospectus supplement will include the following information:
- the type and amount of securities that we propose to sell;
- the initial public offering price of the securities;
- the names of the underwriters or agents, if any, through or to which we
will sell the securities;
- the compensation, if any, of those underwriters or agents;
- information about securities exchanges or automated quotation systems on
which the securities will be listed or traded;
- any material United States federal income tax considerations that apply to
the securities; and
- any other material information about the offering and sale of the
securities.
DESCRIPTION OF DEBT SECURITIES
This section discusses debt securities we may offer under this prospectus.
We may issue debt securities under one or more indentures, entered into
between us and Deutsche Bank, New York, New York, as trustee, or another trustee
we choose that is qualified to act as trustee under the Trust Indenture Act of
1939. The indentures will be governed by the Trust Indenture Act.
The following is a summary of the indentures. It does not restate the
indentures entirely. We urge you to read the indentures. The indentures will be
filed or incorporated by reference as exhibits to the registration statement of
which this prospectus is a part, and you may inspect them at the office of the
trustee, or as described under the heading "Where You Can Find More
Information." References below to an "indenture" are references to the
applicable indenture under which we issue a particular series of debt
securities.
5
<PAGE>
TERMS OF THE DEBT SECURITIES
Our debt securities will be unsecured obligations of SLM Holding
Corporation. We may issue them in one or more series. Authorizing resolutions or
a supplemental indenture will set forth the specific terms of each series of
debt securities. We will provide a prospectus supplement for each series of debt
securities that will describe:
- the title of the debt securities and their CUSIP numbers;
- any limit upon the aggregate principal amount of the series of debt
securities;
- the date or dates on which principal and premium, if any, of the debt
securities will be payable;
- if the debt securities will bear interest:
- the interest rate on the debt securities or the method by which the
interest rate may be determined;
- the date from which interest will accrue;
- the record and interest payment dates for the debt securities; and
- any circumstances under which we may defer interest payments;
- the place or places where:
- we can make payments on the debt securities;
- the debt securities can be surrendered for registration of transfer or
exchange; and
- notices and demands can be given to us relating to the debt securities
and under the applicable indenture, and where notices to holders
pursuant to the applicable indenture will be published;
- any optional redemption provisions that would permit us or the holders of
debt securities to elect to redeem the debt securities before their final
maturity;
- any sinking fund provisions that would obligate us to redeem the debt
securities;
- whether any of the debt securities are to be issuable as registered
securities, bearer securities or both, whether debt securities are to be
issuable with or without coupons or both and, if issuable as bearer
securities, the date as of which the bearer securities will be dated (if
other than the date of original issuance of the first debt security of
that series of like tenor and term to be issued);
- whether all or part of the debt securities will be issued in whole or in
part as temporary or permanent global securities and, if so, the
depositary for those global securities and a description of any book-entry
procedures relating to the global securities;
- if we issue temporary global securities, any special provisions dealing
with the payment of interest and any terms relating to the ability to
exchange interests in a temporary global security for interests in a
permanent global security or for definitive debt securities;
- the denominations in which the debt securities will be issued, if other
than $1,000 or an integral multiple of $1,000 in the case of registered
securities or $5,000 in the case of bearer securities;
- the portion of the principal amount of debt securities payable upon a
declaration of acceleration of maturity, if other than the full principal
amount;
- the currency or currencies in which the debt securities will be
denominated and payable and, if a composite currency, any related special
provisions;
6
<PAGE>
- any circumstances under which the debt securities may be paid in a
currency other than the currency in which the debt securities are
denominated and any related provisions;
- the manner in which principal, premium and interest on debt securities
will be determined if they are determined with reference to an index based
upon a currency or currencies other than that in which the debt securities
are denominated or payable;
- any events of default that will apply to the debt securities in addition
to those contained in the applicable indenture;
- any additions or changes to the covenants contained in the applicable
indenture and the ability, if any, of the holders to waive our compliance
with those additional or changed covenants;
- whether the provisions described below under the heading "--Defeasance"
apply to the debt securities;
- the identity of the security registrar and paying agent for the debt
securities if other than the applicable trustee and
- any other terms of the debt securities.
COVENANTS CONTAINED IN INDENTURES
In the indenture, we promise not to create or guarantee any debt for
borrowed money that is secured by a lien on the capital stock of our wholly
owned subsidiary, Student Loan Marketing Association, unless we also secure the
debt securities on an equal or priority basis with the other secured debt. Our
promise, however, is subject to an important exception: we may secure debt for
borrowed money with liens on that stock without securing the debt securities if
our board of directors determines that the liens do not materially detract from
or interfere with the then-present value or control of that stock.
Except as noted above, the indenture does not restrict our ability to put
liens on our interests in our subsidiaries other than Student Loan Marketing
Association, and it does not restrict our ability to sell or otherwise dispose
of our interests in any of our subsidiaries, including Student Loan Marketing
Association.
CONSOLIDATION, MERGER OR SALE
The indenture generally permits a consolidation or merger between us and
another entity. It also permits the sale or transfer by us of all or
substantially all of our property and assets. These transactions are permitted
if:
- the resulting or acquiring entity, if other than us, is organized and
existing under the laws of a domestic jurisdiction and assumes all of our
responsibilities and liabilities under the applicable indenture, including
the payment of all amounts due on the debt securities and performance of
the covenants in the indenture; and
- immediately after the transaction, and giving effect to the transaction,
no event of default under the indenture exists; and
- we deliver to the trustee an officers' certificate and an opinion of
counsel stating that the transactions comply with these conditions.
If we consolidate or merge with or into any other entity or sell or lease
all or substantially all of our assets according to the terms and conditions of
the indenture, the resulting or acquiring entity will be substituted for us in
the indenture with the same effect as if it had been an original party to the
indenture. As a result, the successor entity may exercise our rights and powers
under the indenture, in
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our name and, except in the case of a lease of all or substantially all of our
properties, we will be released from all our liabilities and obligations under
the indenture and under the debt securities.
EVENTS OF DEFAULT AND REMEDIES
An event of default with respect to any series of debt securities will be
defined in the indenture or applicable supplemental indenture as being:
- default for 30 days in payment of any installment of interest on any debt
security of that series beyond any applicable grace period;
- default in payment of the principal of or premium, if any, on any of the
debt securities of that series when due;
- default for 60 days after notice in the observance or performance of any
other covenants in the indenture or applicable supplemental indenture
relating to that series;
- our bankruptcy, insolvency or reorganization; and
- any other event of default provided with respect to debt securities of any
series.
The indenture will provide that the trustee may withhold notice to the
holders of any series of debt securities of any default, except a default in
payment of principal, premium, if any, or interest, if any, with respect to a
series of debt securities, if the trustee considers it in the interest of the
holders of that series of debt securities to do so.
The indenture will provide that if any event of default (other than our
bankruptcy, insolvency or reorganization) has occurred and is continuing with
respect to any series of debt securities, the trustee or the holders of not less
than 25% in principal amount of all series of debt securities then outstanding
affected by any such event of default, acting together as a single class, may
declare the principal amount of and all accrued but unpaid interest on all the
debt securities of those series to be due and payable immediately. If our
bankruptcy, insolvency or reorganization causes an event of default, the
principal amount of and all accrued but unpaid interest on all series of debt
securities that are affected by the event of default will be immediately due and
payable without any declaration or action by the trustee or the holders. The
holders of a majority in principal amount of the debt securities of all series
then outstanding that are affected by an event of default, acting as a single
class, by written notice to the trustee and to us, may waive any past default,
other than any event of default in payment of principal or interest or in
respect of an indenture provision that may be amended only with the consent of
the holder of each affected debt security. Holders of a majority in principal
amount of debt securities of any series affected by an event of default that
were entitled to declare the event of default may rescind and annul the
declaration and its consequences if the recission will not conflict with any
judgment or decree for payment of money due that has been obtained by the
trustee.
The holders of a majority of the outstanding principal amount of the debt
securities of any series will have the right to direct the time, method and
place of conducting any proceedings for any remedy available to the trustee with
respect to that series, subject to limitations specified in the indenture.
DEFEASANCE
DEFEASANCE AND DISCHARGE. At the time that we establish a series of debt
securities under the indenture, we can provide that the debt securities of that
series are subject to the defeasance and discharge provisions of that indenture.
If we so provide, we will be discharged from our obligations on the debt
securities of that series if:
- we deposit with the trustee, in trust, sufficient money or, if the debt
securities of that series are denominated and payable in U.S. dollars
only, eligible instruments, to pay the principal, any
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interest, any premium and any other sums due on the debt securities of
that series, such as sinking fund payments, on the dates the payments are
due under the indenture and the terms of the debt securities;
- we deliver to the trustee an opinion of counsel that states that the
holders of the debt securities of that series will not recognize income,
gain or loss for federal income tax purposes as a result of the deposit
and will be subject to federal income tax on the same amounts and in the
same manner and at the same times as would have been the case if no
deposit had been made; and
- if the debt securities of that series are listed on any domestic or
foreign securities exchange, the debt securities will not be delisted as a
result of the deposit.
When we use the term "eligible instruments" in this section, we mean
monetary assets, money market instruments and securities that are payable in
dollars only and are essentially risk free as to collection of principal and
interest, including:
- direct obligations of the United States backed by the full faith and
credit of the United States; or
- any obligation of a person controlled or supervised by and acting as an
agency or instrumentality of the United States if the timely payment of
the obligation is unconditionally guaranteed as a full faith and credit
obligation by the United States.
In the event that we deposit money and/or eligible instruments in trust and
discharge our obligations under a series of debt securities as described above,
then:
- the indenture will no longer apply to the debt securities of that series;
but certain obligations to compensate, reimburse and indemnify the
trustee, to register the transfer and exchange of debt securities, to
replace lost, stolen or mutilated debt securities, to maintain paying
agencies and the trust funds and to pay additional amounts, if any,
required as a result of U.S. withholding taxes imposed on payments to
non-U.S. persons will continue to apply; and
- holders of debt securities of that series can only look to the trust fund
for payment of principal, any premium and any interest on the debt
securities of that series.
DEFEASANCE OF COVENANTS AND EVENTS OF DEFAULT. At the time that we
establish a series of debt securities under the applicable indenture, we can
provide that the debt securities of that series are subject to the covenant
defeasance provisions of that indenture. If we so provide and we make the
deposit and deliver the opinion of counsel described above in this section under
the heading "--Defeasance and Discharge" we will not have to comply with any
covenant we designate when we establish the series of debt securities.
In the event of a covenant defeasance, our obligations under the applicable
indenture and the debt securities, other than with respect to the covenants
specifically referred to above, will remain in effect.
If we exercise our option not to comply with any covenant and the debt
securities of the series become immediately due and payable because an event of
default has occurred, other than as a result of an event of default related to a
covenant that is subject to defeasance, the amount of money and/or eligible
instruments on deposit with the applicable trustee will be sufficient to pay the
principal, any interest, any premium and any other sums, due on the debt
securities of that series, such as sinking fund payments, on the date the
payments are due under the applicable indenture and the terms of the debt
securities, but may not be sufficient to pay amounts due at the time of
acceleration. We would remain liable, however, for the balance of the payments.
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REGISTRATION AND TRANSFER
Unless we indicate otherwise in the applicable prospectus supplement, we
will issue debt securities only as registered securities without coupons. Debt
securities that we issue as bearer securities will have interest coupons
attached, unless we indicate otherwise in the applicable prospectus supplement.
With respect to registered securities, we will keep or cause to be kept a
register in which we will provide for the registration of registered securities
and the registration of transfers of registered securities. We will appoint a
"security registrar," and we may appoint any "co-security registrar," to keep
the security register.
Upon surrender for registration of transfer of any registered security of
any series at our office or agency maintained for that purpose in a place of
payment for that series, we will execute one or more new registered securities
of that series in any authorized denominations, with the same aggregate
principal amount and terms. At the option of the holder, a holder may exchange
registered securities of any series for other registered securities of that
series, or bearer securities (along with all necessary related coupons) of any
series for registered securities of the same series. Registered securities will
not be exchangeable for bearer securities in any event.
We will agree in the indenture that we will maintain in each place of
payment for any series of debt securities an office or agency where:
- any debt securities of each series may be presented or surrendered for
payment;
- any registered securities of that series may be surrendered for
registration of transfer;
- debt securities of that series may be surrendered for exchange or
conversion; and
- notices and demands to or upon us in respect of the debt securities of
that series and the indenture may be served.
We will not charge holders for any registration of transfer or exchange of
debt securities. We may require holders to pay for any tax or other governmental
charge that may be imposed in connection with any such registration of transfer
or exchange, other than exchanges expressly provided in the indenture to be made
at our own expense or without expense or without charge to the holders.
GLOBAL SECURITIES
We may issue debt securities of a series, in whole or in part, in the form
of one or more global securities, registered in the name of Cede & Co., the
nominee of The Depository Trust Company, New York, New York, unless the
prospectus supplement describes another depositary or states that no global
securities will be issued. Unless and until it is exchanged in whole or in part
for the individual debt securities it represents, a global security may not be
transferred except as a whole by:
- DTC to its nominee;
- DTC's nominee to the depositary or another nominee of the depositary; or
- DTC or any nominee to a successor depositary or any nominee of that
successor.
Upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the principal amount of the securities
represented by the global security to accounts of institutions that have
accounts with DTC. Institutions that have accounts with DTC are referred to as
"participants." The accounts to be credited will be designated by the agents, or
by us if we sell the securities directly. Owners of beneficial interests in a
global security that are not participants or persons that may hold through
participants but desire to purchase, sell or otherwise transfer ownership of the
securities by book-entry on the records of DTC may do so only through
participants and persons that may hold through participants. Because DTC can
only act on behalf of participants and persons that
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may hold through participants, the ability of an owner of a beneficial interest
in a global security to pledge securities to persons or entities that do not
participate in the book-entry and transfer system of DTC, or otherwise take
actions in respect of the securities, may be limited. In addition, the laws of
some states require that some purchasers of securities take physical delivery of
such securities in definitive form. These limits and laws may impair a
purchaser's ability to transfer beneficial interests in a global security.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or its nominee will be considered the sole owner or holder of the
securities represented by the global security for all purposes under the
indenture. Generally, owners of beneficial interest in a global security will
not be entitled to have securities represented by the global security registered
in their names, will not receive or be entitled to receive physical delivery of
securities in definitive form and will not be considered the owners or holders
of the securities under the applicable indenture.
Principal and interest payments on securities registered in the name of DTC
or its nominee will be made to DTC or its nominee as the registered owner of a
global security. Neither we, the trustee, any paying agent nor the security
registrar will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in a global security or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
We expect that DTC, upon receipt of any payment of principal or interest,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of a global security as shown on the records of DTC. We also expect that
payments by participants to owners of beneficial interests in a global security
held through the participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers and registered in "street name," and will be the responsibility of
such participants. Owners of beneficial interests in a global security that hold
through DTC under a book-entry format (as opposed to holding certificates
directly) may experience some delay in the receipt of interest payments since
DTC will forward payments to its participants, which in turn will forward them
to persons that hold through participants.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by us or DTC within ninety days, we will
issue securities in definitive registered form in exchange for a global
security. In addition, either we or DTC may at any time, in our sole discretion,
determine not to have the securities represented by a global security and, in
that event, we will issue securities in definitive registered form in exchange
for the global security. In either instance, an owner of a beneficial interest
in a global security will be entitled to have securities equal in principal
amount to the beneficial interest registered in its name and will be entitled to
physical delivery of the securities in definitive form.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in those securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of whom own DTC.
Access to DTC's book-entry system is also available to others, including banks,
brokers, dealers and trust companies, that clear through or maintain a custodian
relationship with a participant, whether directly or indirectly.
DTC has also advised us that DTC management is aware that some computer
applications, systems and the like for processing data that depend on calendar
dates, including dates before, on and after
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January 1, 2000, may encounter "Year 2000 problems." DTC has informed its
participants and other members of the financial community that it has developed
and is implementing a program so that its computer systems, as they relate to
the timely payment of distributions, including principal and income payments, to
securityholders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames. However, DTC's ability to perform properly its services also
depends upon other parties, including but not limited to issuers, issuer's
agents, third-party vendors from whom DTC licenses software and hardware and
third-party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial community that it is contacting, and will continue to contact,
third-party vendors from whom DTC acquires services to impress upon them the
importance of such services being Year 2000 compliant; and to determine the
extent of their efforts for Year 2000 remediation, and, as appropriate, testing,
of their services. In addition, DTC is in the process of developing contingency
plans it deems appropriate.
DTC has advised us that the above information with respect to DTC's Year
2000 efforts has been provided to its participants and other members of the
financial community for informational purposes only and is not intended to serve
as a representation, warranty or contract modification of any kind.
PAYMENT AND PAYING AGENTS
Unless we indicate otherwise in a prospectus supplement:
- we will maintain an office or agency in each place of payment for any
series of debt securities where debt securities of that series may be
presented or surrendered for payment; we may also from time to time
designate one or more other offices or agencies where debt securities of
one or more series may be presented or surrendered for payment and may
appoint one or more paying agents for the payment of debt securities, in
one or more other cities, and may from time to time rescind these
designations and appointments;
- at our option, we may pay any interest by check mailed to the address of
the person entitled to payment as that address appears in the applicable
security register kept by us or by wire transfer; and
- we will pay any installment of interest on registered securities to the
person in whose name the debt security is registered at the close of
business on the regular record date for that payment.
The holder of any coupon relating to a bearer security will be entitled to
receive the interest payable on that coupon upon presentation and surrender of
the coupon on or after the interest payment date of the coupon. We will not make
payment with respect to any bearer security at any of our offices or agencies in
the United States, by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States.
MODIFICATION AND AMENDMENT
Some of our rights and obligations and some of the rights of holders of the
debt securities may be modified or amended with the consent of the holders of at
least a majority of the aggregate principal amount of the outstanding debt
securities of all series of debt securities affected by the modification or
amendment, acting as one class. The following modifications and amendments,
however, will not be effective against any holder without its consent:
- a change in the stated maturity date of any payment of principal or
interest;
- a reduction in payments due on the debt securities;
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- a change in the place of payment or currency in which any payment on the
debt securities is payable;
- a limitation of a holder's right to sue us for the enforcement of payments
due on the debt securities;
- a change in the ranking or priority of any debt securities;
- a reduction in the percentage of outstanding debt securities required to
consent to a modification or amendment of the applicable indenture or
required to consent to a waiver of compliance with certain provisions of
the applicable indenture or past defaults under the applicable indenture;
- a reduction in the requirements contained in the applicable indenture for
quorum or voting;
- a limitation of a holder's right, if any, to repayment of debt securities
at the holder's option; and
- a modification of any of the foregoing requirements contained in the
applicable indenture.
CONCERNING THE TRUSTEE
Deutsche Bank, the trustee, provides and may continue to provide various
services to us in the ordinary course of its business. The indenture will
contain limitations on the rights of the trustee, should it become our creditor,
to obtain payment of claims in specified cases or to realize on property
received in respect of any claim as security or otherwise. The indenture will
permit the trustee to engage in other transactions; but if it acquires any
conflicting interest, it must eliminate the conflict or resign.
The indenture will provide that in case an event of default occurs and is
not cured, the trustee will be required, in the exercise of its power, to use
the degree of care of a prudent person in similar circumstances in the conduct
of its own affairs. The trustee may refuse to perform any duty or exercise any
right or power under the indenture, unless it receives indemnity satisfactory to
it against any loss, liability or expense.
GOVERNING LAW
The laws of the State of New York will govern the indenture and the debt
securities.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock is 250,000,000 shares of common stock, $.20 par
value, and 20,000,000 shares of preferred stock, no par value. As of June 30,
1999, 160,907,908 shares of our common stock and no shares of our preferred
stock were outstanding.
COMMON STOCK
We are registering shares of our common stock primarily to preserve our
flexibility to deliver or sell shares of our common stock in connection with the
settlement of privately negotiated equity forward purchase contracts. We may
also issue common stock upon conversion, exercise or exchange of any debt
securities, preferred stock or warrants.
Our common stock is described in our registration statement on Form 8-A,
which we filed with the SEC on August 7, 1997, as amended by our Form 8-A/A,
which we filed with the SEC on July 27, 1999. These documents are incorporated
by reference into this prospectus.
We will distribute a prospectus supplement with regard to each issue of
common stock. Each prospectus supplement will describe the specific terms of the
common stock offered through that
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prospectus supplement and any general terms outlined in our Form 8-A, as
amended, that will not apply to that common stock.
PREFERRED STOCK
We may issue preferred stock in one or more series with any rights and
preferences that may be authorized by our board of directors. We will distribute
a prospectus supplement with regard to each particular series of preferred
stock. Each prospectus supplement will describe, as to the series of preferred
stock to which it relates:
- the title of the series of preferred stock;
- any limit upon the number of shares of the series of preferred stock that
may be issued;
- the preference, if any, to which holders of the series of preferred stock
will be entitled upon our liquidation;
- the date or dates, if any, on which we will be required or permitted to
redeem the preferred stock;
- the terms, if any, on which we or holders of the preferred stock will have
the option to cause the preferred stock to be redeemed or purchased;
- the voting rights, if any, of the holders of the preferred stock;
- the dividends, if any, that will be payable with regard to the series of
preferred stock, which may be fixed dividends or participating dividends,
and may be cumulative or non-cumulative;
- the right, if any, of holders of the preferred stock to convert it into
another class of our stock or securities, including provisions intended to
prevent dilution of those conversion rights;
- any provisions by which we will be required or permitted to make payments
to a sinking fund to be used to redeem preferred stock, or a purchase fund
to be used to purchase preferred stock; and
- any other material terms of the preferred stock.
Any or all of these rights may be greater than the rights of the holders of
common stock.
Our board of directors, without shareholder approval, may issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of our common stock. The terms of
the preferred stock that might be issued could conceivably prohibit us from:
- consummating a merger;
- reorganizing;
- selling substantially all of our assets;
- liquidating; or
- engaging in other extraordinary corporate transactions without shareholder
approval.
Preferred stock could therefore be issued with terms calculated to delay,
defer or prevent a change in our control or to make it more difficult to remove
our management. Our issuance of preferred stock may have the effect of
decreasing the market price of the common stock.
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DESCRIPTION OF WARRANTS
We may issue:
- warrants for the purchase of debt securities, preferred stock, common
stock or units of two or more of these types of securities;
- currency warrants, which are warrants or other rights relating to foreign
currency exchange rates; or
- index warrants, which are warrants for the purchase or sale of debt
securities of, or guaranteed by, the United States government or its
agencies, units of a stock index or a stock basket or a commodity or a
unit of a commodity index.
Warrants may be issued independently or together with debt securities,
preferred stock or common stock, and may be attached to or separate from any
offered securities. Each series of warrants will be issued under a separate
warrant agreement to be entered into between us and a bank or trust company, as
warrant agent. The warrant agent will act solely as our agent in connection with
the warrants and will not assume any obligation or relationship of agency or
trust for or with any registered holders of warrants or beneficial owners of
warrants.
We will distribute a prospectus supplement with regard to each issue of
warrants. Each prospectus supplement will describe:
- in the case of warrants to purchase debt securities, the designation,
aggregate principal amount, currencies, denominations and terms of the
series of debt securities purchasable upon exercise of the warrants, and
the price at which you may purchase the debt securities upon exercise;
- in the case of warrants to purchase preferred stock, the designation,
number of shares, stated value and terms, such as liquidation, dividend,
conversion and voting rights, of the series of preferred stock purchasable
upon exercise of the warrants, and the price at which you may purchase
shares of preferred stock of that series upon exercise;
- in the case of warrants to purchase common stock, the number of shares of
common stock purchasable upon the exercise of the warrants and the price
at which you may purchase shares of common stock upon exercise;
- in the case of currency warrants, the designation, aggregate principal
amount, whether the currency warrants are put or call currency warrants or
both, the formula for determining any cash settlement value, exercise
procedures and conditions, the date on which your right to exercise the
currency warrants commences and the date on which your right expires, and
any other terms of the currency warrants;
- in the case of index warrants, the designation, aggregate principal
amount, the procedures and conditions relating to the exercise of the
index warrants, the date on which your right to exercise the index
warrants commences and the date on which your right expires, the national
securities exchange on which the index warrants will be listed, if any,
and any other material terms of the index warrants;
- in the case of warrants to purchase units of two or more securities, the
type, number and terms of the units purchasable upon exercise of the
warrants and the price at which you may purchase units upon exercise;
- the period during which you may exercise the warrants;
- any provision adjusting the securities that may be purchased on exercise
of the warrants, and the exercise price of the warrants, to prevent
dilution or otherwise;
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- the place or places where warrants can be presented for exercise or for
registration of transfer or exchange; and
- any other material terms of the warrants.
Unless we provide otherwise in the applicable prospectus supplement,
warrants for the purchase of preferred stock and common stock will be offered
and exercisable for U.S. dollars only, and will be issued in registered form
only. The exercise price for warrants will be subject to adjustment as described
in the applicable prospectus supplement.
Prior to the exercise of any warrants to purchase debt securities, preferred
stock or common stock, holders of the warrants will not have any of the rights
of holders of the securities purchasable upon exercise, including:
- in the case of warrants for the purchase of debt securities, the right to
receive payments of principal of or any premium or interest on the debt
securities purchasable upon exercise, or to enforce covenants in the
applicable indenture; or
- in the case of warrants for the purchase of preferred stock or common
stock, the right to vote or to receive any payments of dividends on the
preferred stock or common stock purchasable upon exercise.
PLAN OF DISTRIBUTION
We may sell any of the securities being offered by this prospectus
separately or together:
- through agents;
- to or through underwriters;
- through dealers;
- through a block trade in which the broker or dealer engaged to handle the
block trade will attempt to sell the securities as agent, but may position
and resell a portion of the block as principal to facilitate the
transaction;
- in exchange for our outstanding indebtedness;
- directly to purchasers, through a specific bidding, auction or other
process; or
- through a combination of any of these methods of sale.
If the securities offered under this prospectus are issued in exchange for
our outstanding securities, the applicable prospectus supplement will describe
the terms of the exchange, and the identity and the terms of sale of the
securities offered under this prospectus by the selling security holders.
The distribution of securities may be effected from time to time in one or
more transactions at a fixed price or prices that may be changed, at market
prices prevailing at the time of sale or prices related to prevailing market
prices or at negotiated prices.
Agents designated by us from time to time may solicit offers to purchase the
securities. We will name any agent involved in the offer or sale of the
securities and set forth any commissions payable by us to an agent in the
prospectus supplement. Unless otherwise indicated in the prospectus supplement,
any agent will be acting on a best efforts basis for the period of its
appointment. Any agent may be deemed to be an "underwriter" of the securities as
that term is defined in the Securities Act.
If we utilize an underwriter or underwriters in the sale of securities, we
will execute an underwriting agreement with the underwriter or underwriters at
the time we reach an agreement for sale. We will set forth in the prospectus
supplement the names of the specific managing underwriter or
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underwriters, as well as any other underwriters, and the terms of the
transactions, including compensation of the underwriters and dealers. This
compensation may be in the form of discounts, concessions or commissions.
Underwriters and others participating in any offering of securities may engage
in transactions that stabilize, maintain or otherwise affect the price of
securities. We will describe any of these activities in the prospectus
supplement.
If a dealer is utilized in the sale of the securities, we or an underwriter
will sell securities to the dealer, as principal. The dealer may then resell the
securities to the public at varying prices to be determined by the dealer at the
time of resale. The prospectus supplement will set forth the name of the dealer
and the terms of the transactions.
We may directly solicit offers to purchase the securities, and we may sell
directly to institutional investors or others. These persons may be deemed to be
underwriters within the meaning of the Securities Act with respect to any resale
of the securities. The prospectus supplement will describe the terms of any
direct sales, including the terms of any bidding or auction process, if
utilized.
Agreements we enter into with agents, underwriters and dealers may entitle
them to indemnification by us against specified liabilities, including
liabilities under the Securities Act, or to contribution by us to payments they
may be required to make in respect of these liabilities. The prospectus
supplement will describe the terms and conditions of indemnification or
contribution. Some of the agents, underwriters or dealers, or their affiliates,
may be our customers, or engage in transactions with or perform services for us
and our subsidiaries in the ordinary course of business.
No securities may be sold under this prospectus without delivery (in paper
format, in electronic format on the Internet, or both) of the applicable
prospectus supplement describing the method and terms of the offering.
LEGAL MATTERS
Marianne M. Keler, Esq., who is our Senior Vice President and General
Counsel, or another of our lawyers, will issue an opinion about the legality of
the securities offered by this prospectus. Ms. Keler owns shares of our common
stock and holds stock options and stock-based awards under our compensation and
management incentive plans. She may receive additional awards under these plans
in the future. Certain legal matters will be passed upon for any underwriters or
agents by Gibson, Dunn & Crutcher LLP, San Francisco, California. Gibson, Dunn &
Crutcher LLP represents us in other legal matters.
EXPERTS
The financial statements and schedules included in our annual report on Form
10-K for the fiscal year ended December 31, 1998 and incorporated by reference
in this prospectus have been audited for the fiscal years ended December 31,
1998 and December 31, 1997 by Arthur Andersen LLP, independent public
accountants, as indicated in their reports thereon, and for the fiscal year
ended December 31, 1996 by Ernst & Young LLP, independent auditors, as indicated
in their report thereon, and are incorporated by reference in this prospectus
and registration statement in reliance upon the authority of such firms as
experts in accounting and auditing.
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
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Page
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Where You Can Find More Information............ S-2
Offering Summary............................... S-4
Summary Selected Financial Data................ S-6
The Company.................................... S-7
Recent Developments............................ S-8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... S-9
Use of Proceeds................................ S-21
Capitalization................................. S-22
Selected Financial Data........................ S-23
Description of Preferred Stock................. S-24
U.S. Federal Income Tax Matters................ S-30
Underwriting................................... S-33
Experts........................................ S-34
Legal Matters.................................. S-34
Forward-Looking Statements..................... S-34
Prospectus
About this Prospectus.......................... 2
Where You Can Find More Information............ 2
Forward-Looking Statements..................... 3
SLM Holding Corporation........................ 4
Use of Proceeds................................ 4
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends.................... 4
Securities We May Offer........................ 4
Additional Information......................... 5
Description of Debt Securities................. 5
Description of Capital Stock................... 13
Description of Warrants........................ 15
Plan of Distribution........................... 16
Legal Matters.................................. 17
Experts........................................ 17
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3,000,000 Shares
SLM HOLDING CORPORATION
% Cumulative Redeemable Preferred Stock, Series A
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
CIBC WORLD MARKETS
PRUDENTIAL SECURITIES
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