Society Corp. is readying the first public sale of securities backed by student loans.

The Cleveland-based company is taking advantage of recent changes in the Investment Company Act of 1940 that facilitate sales of asset-backed securities, said Martin Walker, executive vice president and treasurer.

Tapping the public markets gives the bank access to a wider group of investors and a cheaper cost of borrowing than would be available in a private sale, Mr. Walker said.

The bank will save at least one-quarter percentage point annually through a public deal, one market source said.

Special Units for Offerings

Changes in the Investment Company Act approved by the SEC last month permit the formation of special corporations to sell asset-backed securities without onerous filing requirements, said Thomas Kunz, partner with Skadden, Arps, Slate, Meagher & Flom.

The changes make it easier to securitize pools of personal loans or small-business loans, he said.

"We were hot on that change in securities law," Mr. Walker said. "We had been looking at a private market sale, but since there was a rule change made, we went ahead and took advantage of it."

Society filed with the Securities and Exchange Commission to issue securities backed by student loans, and plans to sell a $200 million to $300 million issue in the first quarter, Mr. Walker said.

Risk Management Step

The bank held $865.5 million of student loans at the end of November and is planning the securitization as part of its standard management of credit risk and loan concentrations, Mr. Walker said.

Society plans to sell assets backed by privately or federally guaranteed loans to law students.

The company is an active originator of these loans and expects to originate $400 million to $500 million worth in 1993. The loans are originated through a program administered nationally by Law Student Administration Services, which administers the standardized law school admissions test.

The loans mature in 15 years or less and typically pay interest that floats at about three percentage points over selected short-term Treasury securities.

Triple-A Rating Expected

The securities will likely have an average life of six to eight years, Mr. Walker said. The offering will be backed by a subordinate class of securities and a surety bond. Society expects the senior securities to get a triple-A rating.

While the new rules facilitate public asset-backed issues, one market source cautioned against expecting a dramatic uptick in new issues.

First Boston Corp. worked extensively with Society on the deal's structure and is the sole underwriter.

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