After several days of speculation, Sallie Mae, the US education lender, has agreed to be sold to two private investment funds and banks JPMorgan and Bank of America for $25bn, the Wall Street Journal reported Monday on its website.
The deal puts the embattled company, formally known as SLM Corp, into private hands at a time of intense political scrutiny of the US student-lending industry.
Investment funds JC Flowers & Co and Friedman Fleischer & Lowe plan to take a combined 50.2 per stake in the newly private company, with JPMorgan and Bank of America each taking 24.9 per cent, the Journal said, citing people familiar with the matter. The buyout group plans to pay $60 per share, nearly a 50 per cent premium to the price last Thursday, before news leaked of a possible transaction.
The deal represents a turning point for both the private equity industry and the student-lending business. Leveraged-buyout firms have generally shied from big investments in financial-services companies, as such investments cannot withstand the same debt levels normally placed on LBO targets.
But JC Flowers, named for its well-regarded chief J. Christopher Flowers, has chipped away at this for problem for years, first buying banks in Japan and Germany, and now the 35-year-old Sallie Mae.
The purchase will be funded with $16.5bn in debt and $8.5bn in equity. To ensure low-cost access to capital, Bank of America and JPMorgan have committed to some five years’ worth of backup financing – worth some $200bn - in the event Sallie Mae is unable to tap the overall financing markets, Sallie Mae said. JPMorgan meanwhile will maintain its existing student-lending business within its retail division, the Journal said.