The battered student lender First Marblehead Corp. of Boston announced Monday that it received a $132.7 million cash infusion and brought back co-founder and former chief executive officer Daniel Meyers to help make the company profitable again.
By late Monday First Marblehead's shares were up 47% on the news, even though it also warned of a $235 million net loss for its 2008 fiscal year, which ended June 30. It said the quarterly and full-year results likely would be released Thursday.
The equity investment came from GS Capital Partners. The Goldman Sachs Group Inc. unit had agreed in December to take a stake in First Marblehead, and its latest purchase of preferred stock is the second and final part of that deal, bringing its total investment to $192.5 million.
Mr. Meyers said in a press release that the deal gives his company the "liquidity and financial flexibility" it needs.
First Marblehead, which handles back-office work and securitizations of private student loans for banks, has been hit hard by the disruption in the capital markets.
Matt Snowling, an analyst at Friedman, Billings, Ramsey & Co. Inc., wrote in a research note Monday that the disruption continues to cloud First Marblehead's future. "Although the capital infusion provides a much-needed lifeline for the company, we remain cautious on the ability of First Marblehead to generate positive cash flow," the note said.
Still, the return of Mr. Meyers, who left amid controversy three years ago, is a positive because he brings "valuable" school relationships and contacts to the company, Mr. Snowling said in the note.
First Marblehead said Jack L. Kopnisky would step down as CEO on Aug. 31. Though Mr. Meyers is already back at the company, he is officially to become the president and CEO and join its board Sept. 1.
Mr. Meyers co-founded First Marblehead in 1991 and was its CEO until September 2005. The company said that from its initial public offering in 2003 to Mr. Meyers' departure, earnings increased about 125% annually.
"We believe there is no better person to now lead First Marblehead," William R. Berkley, the lead director, said in the press release.
Mr. Meyers' pay will be tied to First Marblehead's performance. His annual salary will jump from $1 to $1 million when the company generates one fiscal year of positive cash flow and net profit.
Mr. Snowling said in his research note that GS Capital now owns a combination of shares and conversion rights equal to about 13% of First Marblehead's outstanding shares. He said GS Capital's preferred stock is convertible to 8.8 million shares at $15 each. It also bought 5.3 million common shares in December.
First Marblehead's shares, which were trading at $4.42 late Monday, have lost 91% of their value over the past 52 weeks.
