KEY POINTS:
The wave of debt-financed buy-outs of giant public companies crashed into the financial sector for the first time as private equity bidders agreed on the US$25 billion ($33.8 billion) acquisition of US student loans company Sallie Mae.
A consortium led by New York private equity firm JC Flowers signed the deal yesterday, at a price about 50 per cent above the level at which the company's shares were trading when rumours of a buy-out surfaced last week.
The acquisition consortium also includes Friedman Fleischer & Lowe, another private equity firm, and the banks JP Morgan Chase and Bank of America, both of which are big student loan providers in their own right.
Sallie Mae - formally known as SLM Corp - primarily runs a secondary market for student loans.
It was set up in 1972 as a "Government-sponsored enterprise" with the aim of stimulating the finance industry to provide cheap loans for college educations.
It has been fully privatised since 2005, and has become a substantial direct lender to students, as well as a provider of other services such as debt collection.
The deal shows that few areas of corporate America are off-limits to private equity, which is enjoying a boom because of low interest rates and investors' search for funds that can beat the returns from traditional stock market investing.
Financial firms are usually already highly leveraged, but JC Flowers said it was confident its debt-financed bid was safe.
Credit rating agencies, though, slashed their ratings on Sallie Mae debt. Moody's indicated it would cut its rating by five notches to junk status.
The acquisition would provide "increased liquidity, stability and financial strength", said Christopher Flowers, managing director at JC Flowers.
- INDEPENDENT
