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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 the $25bn acquisition of Sallie Mae, the US student loans company.
A consortium led by New York-based private equity firm JC Flowers signed the deal yesterday, at a price some 50 per cent higher than the level at which the company's shares had been trading when rumours of a buy-out first 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, having been set up in 1972 as a "government sponsored enterprise" with the aim of stimulating the finance industry to provide cheap debt 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 thanks to 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 that its debt-financed bid was safe. Credit rating agencies, though, slashed their ratings on Sallie Mae debt, with Moody's signaling 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.
"Both Bank of America and JPMorgan Chase have fully committed to support the company with short- and long-term financing