The Wall Street Journal-20080124-Sallie Swings to a Loss- Girds for Refinancing
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Sallie Swings to a Loss, Girds for Refinancing
SLM Corp. swung to a $1.6 billion fourth-quarter loss on a steep increase in provisions against bad loans and a $1.5 billion loss on contracts to buy its own stock.
The results capped a grim year for the nation's largest student lender -- better known as Sallie Mae -- which saw a $25 billion buyout deal collapse amid tougher legislation and difficult credit markets. The company also pointed to difficult times ahead.
Chief Executive Albert Lord told analysts during a conference call that, while the company is "very close" to refinancing a $26 billion credit facility that must be replaced with longer-term debt, the needed funds have become "vastly more expensive." He also said the company's 2008 earnings likely will come in below $2 a share in 2008 -- missing the forecast for $2.01 a share by analysts surveyed by Thomson Financial -- and announced plans for deep cost cuts.
In addition, the company disclosed that the Securities and Exchange Commission has asked for information about big stock sales by Mr. Lord and a board director last December.
Shares fell 33 cents, or 1.7%, to $18.69 in 4 p.m. New York Stock Exchange composite trading.
Investors seem to be heartened by a more conservative approach to future lending.
"It looks like they're taking loan originations down by $1.5 billion," in the private-loan market to for-profit schools, which has been more problematic for them, said Matthew J. Snowling, analyst for Friedman, Billings, Ramsey. "In addition, the company indicated that it is getting out of the spot market and wholesale loan market, because they're getting too costly." That accounts for about another $10 billion to $15 billion of loans.
The cost of insuring Sallie Mae's debt against default rose about 10% in morning trading, indicating the markets' perception of the company's creditworthiness soured a bit after the report of the loss.
Sallie Mae faces big challenges following the collapse of the buyout offer from private-equity firm J.C. Flowers & Co., Bank of America Corp. and J.P. Morgan Chase & Co. And it is under immediate pressure to refinance the $26 billion it has drawn on a credit line with Bank of America and J.P. Morgan.
Investor fears were allayed a bit there as well yesterday after company executives in a conference call "gave a pretty strong indication that they're close to getting alternative funding," said Sameer Gokhale, analyst for Keefe, Bruyette and Woods.
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Andrew Dowell and Joseph Pereira contributed to this article.
