SLM Nosedives After Abrasive Conference Call

Shares of student lender SLM Corp. (SLM), also known as Sallie Mae, plunged more than 20% Wednesday to $22.89 after the company said it may face increased financing costs due to a lack of available credit, and noted it may need a capital infusion. In a stormy conference call, new CEO Albert Lord wrangled with investors and analysts, and offered often-evasive answers to their probes. Asked if SLM would shore up its balance sheet by selling equity, he replied: "The most preferred type of equity is common equity. At this point, I'm not going to get very precise with you." Last week SLM lowered its 2008 EPS forecast to $2.60-$2.80 from $3.25, due primarily to increased costs from replacing an interim funding facility (Sallie Mae Lowers Outlook, Says Buyer Is Out). "The interim financing facility provided by the buyer has high financing costs," Lord said Wednesday. "Replacing it will probably involve higher financing costs. This is not a great time to be refinancing."

When one analyst pressured Lord, saying, "We're trying to figure out what your stock is going to be worth and you've got to give us some guidance," Lord told him to "give Steve [McGarry, investor relations head] a call." "But you're the CEO," the analyst protested. "Yes that's exactly right; I'm the CEO. You should give Steve a call. Next question." The call became more abrasive from that point on. After the call, Friedman Billings Ramsey analysts downgraded SLM to Market Perform from Outperform, and lowered their target to $26 from $38, saying they believe management created more uncertainty on the conference call.

The company is in the midst of a court battle (Sallie Mae Sues for Original Deal or Breakup Fee) with a consortium of private-equity buyers that agreed to acquire SLM for $60/share last April at the height of the LBO boom, but later rescinded (Buyers Back Out of $25 Billion Sallie Mae Deal). Last week the consortium refused to renegotiate.

Also Wednesday, the Wall Street Journal reported SLM understated a share sale of CEO Albert Lord announced last week. Filings with the SEC said Lord sold 97% of his stake (1,265,401 shares) at $27.36 per share, more than the previously-reported sale of 1.2 million shares, and in contrast to SLM's description of the sale as "approximately 10% of his equity units." A Sallie Mae spokesman acknowledged the errors but had no further comment.

Sallie Mae/SLM Corporation Shareholder Call Transcript

Sources: Reuters, Wall Street Journal
Additional Reading: Link to call (audio)

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Comments

[Milton P.]

Listening to the call gave me an acid flashback to some of Jeff Skilling's more memorable performances. I say Albert Lord will be the first CEO casualty of the new year.