LP Thoughts on Sallie Mae

The following is an email from a limited partner with J.C. Flowers, the buyout firm that is in a litigious battle to buy (or perhaps not to buy) student lender Sallie Mae. I’ve been talking to a lot of these LPs, and this basically sums up what I’ve heard. It’s being kept anonymous, per the sender’s request:

Well this one is pretty interesting. It has been difficult to get information out of Flowers on this one. We aren’t even sure how the $900 million breakup fee will be allocated among the syndicate.

We are hearing that this is just negotiating strategy on both sides and neither side can risk taking this case all the way to trial. We assume that they will agree to a compromise deal at a lower price.

We are also hearing that the bank members of the syndicate, JP Morgan and BofA would gladly pay their share of the breakup fee rather than have to make good on the commitment to fund the debt component of the
financing package.

One last wild card is that if Flowers lost the lawsuit, he could be on the hook for more than $900 million, because Sallie Mae could argue for economic damages greater than the break-up fee.

The whole thing is messy and of course, the only ones making money are the lawyers.