RESTON, Va. – Student loan giant Sallie Mae yesterday said it has agreed to terminate its claim to a $900 million break-up fee for its failed takeover in exchange for refinancing from some of the same banks that jilted it.
Under the deal, Sallie Mae will terminate its suit against Bank of America, JP Morgan Chase and private equity firm J.C. Flowers & Co. in exchange for a $31 billion financing commitment from a group of banks headed by B of A and JP Morgan Chase. This financing will replace the $30 billion interim financing for the cash-strapped student lender that was put in place by Bank of America and JPMorgan Chase as part of the proposed merger transaction.
Other banks participating in the loan package include Barclays, Deutsche Bank, Credit Suisse and the Royal Bank of Scotland.
Sallie had sued the banks over their termination of a $60-a-share, $25 billion buyout, insisting the groups owed it the $900 million break-up fee called for as part of the takeover. But the banks argued they were legally allowed to terminate the deal and not pay the fee due to a materially adverse condition that had occurred when Congress passed legislation cutting billions of dollars in student loan subsidies.
Since then, the fortunes of the country’s largest provider of student loans have soured with losses of almost $2 million in the last two fiscal quarters, including a $1.5 billion loss on a failed bet the company’s stock would rise on the heels of the takeover.
