RESTON, Va. – Student loan giant Sallie Mae yesterday announced it paid Citibank the remaining $882 million of a $1.1 billion losing bet on its own stock.
The payment terminated a forward equity contract Sallie Mae took out with Citibank when Sallie’s stock was soaring right after a group agreed to buy the student lender for $60 a share. But the deal later collapsed, sending Sallie shares on a freefall and costing it $1.1 billion to settle the contract by buying back 44 million shares from Citibank at $45.25 each, a premium of more than $25 on the open market.
In a forward equity contract, an issuer sells securities to a buyer for the current stock price. The issuer agrees to repurchase the shares for a greater amount in the future.
Sallie Mae, formally known as SLM Corp., is suing the group that terminated the takeover, which is led by private equity partners J.C. Flowers & Co., and banking giants JP Morgan Chase and Bank of America.
Sallie Mae is the largest provider of student loans in the country and buys loans from hundreds of credit unions for sale and securitization on the secondary market.
