Shares in student lender company Sallie Mae drop

WASHINGTON (AP) — Shares of student lender Sallie Mae sank Thursday, a day after the company said it would sell $2.5 billion in stock to settle unprofitable contracts that require it to buy back shares at above-market prices.

The Reston, Va., company, officially known as SLM Corp., also disclosed in offering documents that federal education officials plan to examine whether the company’s billing practices complied with federal law. The company also said it faces a class-action lawsuit alleging that the company steered minority students into more expensive loans, an allegation the company denied.

Shares fell $1.30, or 5.9 percent, to $20.83 in morning trading.

Last week Sallie Mae saw its shares sink to a five-year low after the company’s chief executive failed to satisfy Wall Street analysts seeking details about the company’s plans to shore up its finances in the wake of a failed $25 billion buyout deal.

Sallie Mae also has been trying to close out share repurchase agreements known as equity-forward contracts. They allowed the company to profit from rising share prices, but turned into a problem when the company’s share price fell.

The company said Wednesday it would use about $2 billion raised through the stock offering to buy back 44 million shares. The remainder would be used for general corporate purposes. Sallie Mae currently has 414.1 million shares outstanding as of Sept. 30.

The offerings are to include $1.5 billion, or 70 million shares, of common stock and $1 billion, or 1 million shares, in preferred stock that will convert into common stock, Sallie Mae said in offering documents filed with the Securities and Exchange Commission.