Bondholders Howl Over Sallie Mae Takeover

22 de may de 2007

<body><div id="article"><tr><td height="28" valign="middle" width="184"></td><td valign="middle" width="185"></td></tr><h1>Bondholders Howl Over Sallie Mae Takeover</h1><p>May 22 (LPAC)--Bondholders were "ambushed" by last month's $25 billion takeover of SLM Corp., the student loan company known as "Sallie Mae," by a group including JP Morgan Chase, Bank of America, J.C. Flowers and Freidman Fleischer & Lowe. The leveraged buyout will significantly increase Sallie Mae's debt load, and the deal has caused the interest rates of finance company sector company debt to rise. Bonds sold by finance companies have lost some $5 billion since the deal was announced, and the increase in yields the companies must pay on their debt has risen by $1.4 million in annual interest to sell $1 billion in debt, according to Bloomberg.</p><p>In a "leveraged buy out" (LBO), the targeted company is usually saddled with huge debts as the predator group cashes out, but finance companies, which live on the difference between what they pay for the money they borrow and what they charge for loans they make and thus need high credit ratings, had previously not been considered LBO targets. Finance companies represent 40% of the $2 trillion U.S. corporate bond market. With the financial system choking on its own debt, takeovers are increasingly being used to hide bankruptcy, and sometimes the rescue operations due almost as much damage as letting a company blow up.</p></div></body>