slm

This week, we've seen two major buyout deals come undone: the $6.1 transaction for Penn National Gaming Inc. (NASDAQ: PENN) and TPG's play for Bradford & Bingley. In fact, according to FactSet Research, about 20% of leveraged buyouts (LBOs) since mid-2007 have been terminated.

Despite all this, some deals are getting done. Perhaps the most notable is the BCE (NYSE: BCE) LBO. BCE has reached an agreement with its private equity sponsors and banks to close its $51 billion LBO. This will represent the biggest buyout in history.

Now, there are some wrinkles. The closing date will be extended to December and there will not be any dividend payments for the rest of the year. The break-up fee was also upped from $1 billion to $1.2 billion.

Yet, the fact is that the price tag will remain unchanged (at $42 per share). No doubt, this is a big feat, especially in light of the credit crunch.

Apparently, there was much discussion about renegotiating the price. Then again, the prospects of massive litigation were daunting, as we have seen in a variety of other deals such as with Clear Channel, SLM (NYSE: SLM) and Huntsman Corp. (NYSE: HUN).

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

"Since the market started its downturn early this year, I have avoided all financial stocks and resisted the temptation of value plays," says Dave Dyer.

In his Dave Dyer's Newsletter, he explains, "Well, it is now time to violate both of those prohibitions at once." Here, he looks at a new buy for SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, the nation's largest provider of college loans and savings programs."

"There must be some financial areas that have predictable, growing demand, willing customers who actually have low default rates, and securitization processes that do not involve the type of financial engineering that is only intended to hide risk.

"Well, there is such an area, and it even involves a product that it makes sense to finance since it will actually increase in value over time. I'm talking about student loans.

MOST NOTEWORTHY: Citizens Republic Bancorp, Hess Corp and Sanderson Farms were today's noteworthy upgrades:

• Keefe Bruyette upgraded shares of Citizens Republic Bancorp (NASDAQ: CRBC) to Outperform from Market Perform on valuation following yesterday's sell-off, which they attribute in part to its removal from the Dow Jones Select Dividend Index. Shares were also raised to OUtperform from Perform at Oppenheimer following the sell-off.
  
• Goldman upgraded Hess (NYSE: HES) to Buy from Neutral citing the company's leverage to higher oil prices. The firm said oil is likely to hit $150-$200/bbl in the next 6-24 months.
  
• Stephens upgraded shares of Sanderson Farms (NASDAQ: SAFM) to Overweight from Equal Weight as they expect industry fundamentals to improve in FY09.

OTHER UPGRADES:

• Baird raised Stellent (NASDAQ: STEL) to OUtperform from Neutral.
  
• Friedman Billings upgraded Preferred Bank (NASDAQ: PFBC) to Market Perform from Underperform.
  
• Agco (NYSE: AG) was upgraded at Goldman to Buy from Neutral.
• Lehman upgraded SLM Corp (NYSE: SLM) to Overweight from Equal Weight.

Today's trading session was merely a mixed day after a huge day, with the bulls coming out slightly on top. The Philadelphia Federal Reserve said regional manufacturing activity has weakened further and its manufacturing activity fell to -24.9 from an already negative -17.4 in March. As we all hope employment will hang tough in a weak spending climate, jobless claims rose by 17,000 more from the prior week to a level of 372,000 this week. Here are the unofficial closing levels for US index levels:

• DJIA 12,622.93 (+3.66; +0.03%)
• NASDAQ 2,341.83 (-8.28; -0.35%)
• S&P500 1,365.41 (+0.70; +0.05%)
• 10YR-TBOND 3.729% (+0.033)
• 52-WEEK LOWS
• TOP 10 ANALYST CALLS

While investors may have flocked to International Business Machines Corp. (NYSE: IBM) and braced for Google, Inc (NASDAQ: GOOG) earnings tonight, there were many other winners and losers.

MOST NOTEWORTHY: SLM Corp, Tempur Pedic and ITT Corp were today's noteworthy downgrades:

• Morgan Stanley downgraded SLM Corp. (NYSE: SLM) to Underweight from Equal Weight citing the impact on earnings from reduced government subsidies and disrupted capital markets.
  
• Tempur Pedic (NYSE: TPX) was cut to Neutral from Overweight at JP Morgan citing the consumer slowdown and increased competition.
  
• Credit Suisse downgraded ITT Corp. (NYSE: ITT) to Neutral from Outperform citing the surprised management changes announced last night.

OTHER DOWNGRADES:

• Cowen downgraded TechTarget (NASDAQ: TTGT) to Neutral from Outperform.
  
• Merriman lowered Jamba (NASDAQ: JMBA) to Neutral from Buy.
  
• LSI Corp. (NYSE: LSI) was downgraded at Merrill to Neutral from Buy.

JP Morgan downgraded Altria (NYSE:MO) from "overweight" to "neutral" according to Briefing.com. The news service also reports that Morgan Stanley downgraded SLM (NYSE:SLM) to "underweight" from "equal weight."

Lehman Bros. started coverage of NutriSystem (NASDAQ:NTRI) with an "underweight" rating, according to the AP.

Douglas A. McIntyre is an editor at 247wallst.com.

MOST NOTEWORTHY: Schering-Plough, Emergency Medical Services and SLM Corp were today's noteworthy upgrades:

• Banc of America upgraded shares of Schering-Plough (NYSE: SGP) to Buy from Neutral on valuation, as they believe current levels already reflect significant cuts to the company's cholesterol franchise from ENHANCE.
  
• JP Morgan upgraded shares of Emergency Medical Services (NYSE: EMS) to Overweight from Neutral following the company's Q4 results.
  
• Friedman Billings upgraded shares of SLM Corp. (NYSE: SLM) to Outperform from Market Perform and raised their target to $25 from $23 to reflect the company's strengthened capital position, diversified sources of income, and attractive valuation.

OTHER UPGRADES:

• JP Morgan added Molson Coors (NYSE: TAP) to its Focus List.
  
• Citigroup raised Dynegy (NYSE: DYN) to Buy from Hold.
  
• Societe Generale upgraded Credit Suisse (NYSE: CS) to Hold from Sell.

Oppenheimer downgraded Morgan Stanley (NYSE: MS) to "perform" from "outperform" and also knocked down Q1 estimates according to the AP.

Citigroup upgraded Dynergy (NYSE: DYN) from "hold" to "buy," according to Briefing.com. The news service also said that Bank of America upgraded Schering-Plough (NYSE: SGP) to "buy" from "neutral."

SLM (NYSE: SLM) was raised to "outperform" at FBR, according to 24/7 Wall St.

Undergrad and graduate students may soon be feeling the pinch of the subprime mortgage default-induced credit crunch.

Securities tied to student loans have failed to generate investors' interest, leaving roughly $3 billion in a sort of limbo, The Wall Street Journal reported Tuesday (subscription required).

Typically, the banks involved in the deal -- in this case Goldman Sachs (NYSE: GS), J. P. Morgan Chase (NYSE: JPM) and Citigroup (NYSE: C) -- would step in to buy the securities when demand is weak. However, because the major banks are already flush with loans and bonds they're trying to get rid of, they have been allowing the auctions to fail, The Journal reported.

Student loan manager Sallie Mae (NYSE: SLM) fell 42 cents to $19.73 on the news in Tuesday morning trading.

Bond demand is weak

The auction process is similar to those held for municipal bonds, corporate debt and other debt securities. However, Wall Street is not obligated to step in and buy student loan-backed securities when demand is weak.

Judging by my latest emails, everybody wants to know "how should I play the financial sector right now?" Let me make it real simple for you: avoid this entire sector at all costs. Don't buy them and don't short them, at least not yet. I've been repeating the same thing over and over since December, so while I know this will leave many unsatisfied, nothing much has changed in two months. In fact, the recent downgrade concerns over bond insurers MBIA (NYSE: MBI) and Ambac Financial (NYSE: ABK), student lender Sallie Mae (NYSE: SLM) and more importantly, prime mortgage lender Fannie Mae (NYSE: FNM), means the situation has gone from bad to worse. Yes, we still risk economic disaster and that's when defaulting consumers could really hurt credit card companies American Express (NYSE: AXP) and Mastercard (NYSE: MA).

But thanks to the lack of transparency in this industry, there's simply no way to accurately judge how bad things really are and as I learned the hard way, accurately gaming disaster is next to impossible.

The good news is that if I had to guess, I'd say the chances of a true disaster are slim. Given that this seems to be an increasingly popular view, many of these financial stocks have been punished to the point of exhaustion. And just as I wouldn't buy them, I wouldn't short them here either. Despite the seemingly steady stream of negative news, the risk of further damage to shareholders and the overall market crashing all around them, broker stocks like Goldman Sachs (NYSE: GS), Bear Sterns (NYSE: BSC), Merrill Lynch (NYSE: MER) and Morgan Stanley (NYSE: MS) have basically stopped going down. They haven't bounced much either, but the nation's three largest banks Bank of America (NYSE: BAC), Citigroup (NYSE: C) and JP Morgan (NYSE: JPM) have managed that feat, with all three bouncing considerably off their lows.

For the private equity space, it's been a mixed bag this week. The good news is that the $17.1 billion acquisition of Harrah's Entertainment got done (the largest casino deal in history). The buyers included TPG and Apollo Global Management LP.

But there was some bad news too -- it looks like Blackstone (NYSE: BX)'s proposed buyout of Alliance Data Systems (NYSE: ADS) is on the rocks.

So, in this environment, it's understandable that Wall Street is jittery with buyout deals. Just look at the pending buyout of Clear Channel Communications (NYSE: CCU).

Sallie Mae (NYSE: SLM) is up 6% on news of a $31 billion financing supported by major banks.

Alliance Data (NYSE: ADS) is down 41% on news that its buy-out by Blackstone (NYSE: BX) could fall apart.

Shares in Restoration Hardware (NASDAQ: RSTO) are trading up 6% on news that a private equity offer for the company is likely to close.

Corning (NYSE: GLW) is up over 5% on better than expected earnings.

McDonald's (NYSE: MCD) is down almost 3% despite good 4th quarter earnings.

Stocks may trade differently in the pre-market than they do in the regular session.

Douglas A. McIntyre is an editor at 247wallst.com.

MAJOR PAPERS:

• UBS AG (NYSE: UBS) is launching an initiative to reduce proprietary risk taking by its investment banking division, the Financial Times reported. In an internal memo, UBS CEO Marcel Rohner wrote that the bank would cut by 50% the number of its employees in its real estate and securitization division, and move its troubled mortgage investments into a separate unit.

OTHER PAPERS:

• The UK Times reported that British music company EMI Group PLC (OTC: EMIPY) has made a bid for Chrysalis, one of Britain's last big independent music companies.
• Student loan giant SLM Corporation (NYSE: SLM), also known as Sallie Mae, said it would lay off 350 employees, or about 3% of its workers, the Washington Post said.
• France Telecom (NYSE: FTE) CEO Didier Lombard said sales of Apple Inc's (NASDAQ: AAPL) iPhone device are going better than expected in France, the Associated Press reported.

If one thing stands out in the NYSE short interest for December 31, it is that short sellers are willing to continue their large bets against big U.S. financial stocks.

Short interest in Wachovia (NYSE: WB) rose 20 million shares to 66.3 million. Short interest in Wells Fargo (NYSE: WFC) was up 8.3 million to 76 million. Shares short also moved up sharply for MBIA (NYSE: MBI) and SLM (NYSE: SLM).

The numbers show that some portion of investors believe that stocks which are down 50% or more will continue to fall. A recession or continued rise in mortgage problems could make short sellers a great deal of money.

Going short, however, is risky business. One strong financing for a firm could move its shares up 10% in a day. There is news that Citigroup (NYSE: C) is about to raise more money. There are 97 million shares short in the company's stock, and some of those people are about to get hit.

Douglas A. McIntyre is an editor at 247wallst.com.

TheStreet.com's Jim Cramer says the sheer number of companies that need foreign capital will keep sovereign funds busy. By Jim Cramer

We need more sheiks!

We need some for Citigroup (NYSE: C) (Cramer's Take) and for Merrill (NYSE: MER) (Cramer's Take) and for Bear (NYSE: BSC) (Cramer's Take). And how do you like the fact that Bear says it needs no money and yet everyone else does? How about that for chutzpa?

We need more sheiks for Countrywide (NYSE: CFC) (Cramer's Take) and for Washington Mutual (NYSE: WM) (Cramer's Take). We need sheiks for National City (NYSE: NCC) (Cramer's Take) and Key (NYSE: KEY) (Cramer's Take) and Huntington Bancshares (NASDAQ: HBAN) (Cramer's Take). Any sheiks around for Corus (NASDAQ: CORS) (Cramer's Take) or Downey (NYSE: DSL) (Cramer's Take) or for the Gang of Four -- or do people really believe that Warren Buffett wants to buy one of them? (My sources indicate that what he does want to do is provide some extremely profitable reinsurance to the gang of four).