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.

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"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.

"SLM Corporation was founded in 1972 as an agency to buy student loans from other lenders. In 1997, they decoupled from the government and became an independent public company making their own loans.

"Although they are still frequently called a GSE (Government Supported Enterprise), they have claimed no special relationship with the government since 2004. They currently manage $169 billion in loans. With an $11 billion market cap, they are about five times larger than their nearest competitor.

"The rising cost of college has increased the necessity of financing an education. Also, it is quite easy to predict the growth of the market from the growth in the target population and the increasing percentage of people seeking high education.

"The recent development of non-traditional schools offering on-line education and private trade schools offering advanced technical training has increased the market for education loans.

"So, if it is such a good market, why is the leader down almost 60% over the past year? Of course, the credit crunch made it harder to securitize and market bonds based on the loans they made.

"And then there were the self-inflicted wounds including a dilutive stock offering and a failed attempt to take the company private. And then there was a 'famous' conference call in which the CEO cursed at the media when asked about the sale of 97% of his stock.

"So, six months later, why do I think SLM is a good buy? In general, things are improving. With the election underway, political candidates from both parties will be jumping up and down like eager puppies at the thought of making it easier for college kids to get loans.

"Also, the credit markets seem to be improving. SLM just recently sold $2.5 billion of unsecured notes in an offering that was significantly oversubscribed. This will provide a source of funds for student loans.

"We may also be moving into an era of unusually high demand because recessions are well known to be good for the education market. And, of course, the CEO has frequently apologized. I don't think it is a big deal. No amount of CEO profanity is worth 20% of an $11 billion company.

"Value opportunities are created when a company declines for no good reason, and I think we now have a chance to buy a good company at a bargain price."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

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MOST NOTEWORTHY:

• 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.

• 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.

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

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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.

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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.

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MOST NOTEWORTHY:

• 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.

• 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.

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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.

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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.

Economist Steve Affinito told BloggingStocks Tuesday that the failed auction demonstrates two current economic realities.

"First, debt aversion is increasing. It seems the U.S. market, and much of the global market, has gone from a state of total disregard for the risks implied by debt to a condition where very few players want any debt, any debt that's below high-quality, that is," Affinito said. "The failure of student loan bond auctions is troubling, to say the least. In theory, this is relatively high-quality debt, so it should be insulated somewhat from the mortgage bond problem. But it's clear the risk fall-out is spilling over to affect even distant bonds."

"Second, it means student loan interest rates are likely to increase because issuers like Sallie Mae will have to increase the interest rate they pay on these bonds issued to attract investors. It's just another unfortunate, sad consequence of the subprime mortgage default problem," Affinito said.

Costlier student loans

The auction portion of the student loan-backed securities market is about $90-95 billion, Affinito said, but he could not estimate the exactly impact higher bonds rates would have on student loan interest rates.

"That depends on a variety of interest factors, but use this as a rule: if issuers' interest rates go up about 100 basis points [one percentage point], students can expect a student loan interest rate increase of roughly that size, more or less," he said.

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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).

Despite reassurances from the private equity sponsor -- Thomas H. Lee - the deal still has an enormous spread. In other words, the buyout price is $39.20 and the current market price is $29.69.

What's going on?

Well, investors should be concerned. Besides the ADS transaction, there have been other deals that have imploded - such as United Rentals (NYSE: URI), SLM (NYSE: SLM) and Harmon (NYSE: HAR).

What's more, the slowing economy is likely to negatively impact marketing spending, which should be a drag on radio. Clear Channel has already talked about this.

Besides, the credit markets are still tight, making it difficult to raise large sums for buyout transactions.

True, Clear Channel still has strong competitive advantages and it looks like there is room to cut costs, but right now, Wall Street traders certainly are not in a risk-taking mood.

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

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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.

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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.

• 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.

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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.

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• What to Know If Your Mortgage Lender Goes Belly Up
• How to Get 600 or More on Your Credit Score

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Since the early 1970s, the Apollo Group (NASDAQ: APOL) has transformed the private education business. The company not only has a broad network of campuses called the University of Phoenix, but also a thriving online education system.

As seen with yesterday's fiscal Q1 results, Apollo is continuing to grow at a nice clip. Net income increased 23% to $139.9 million, or $0.83 per share. Revenues were up 17% to $780.7 million.

Apollo got a boost from enrollments, which increased 11% to 325,000. But the company has also made important strides with student retention as well as the quality of the curriculum.

True, there are worries about the credit crunch. Just take a look at school loan provider Sallie Mae (NYSE: SLM), which plans to pull back somewhat. Yet, Apollo has anticipated some of this and has tried to reduce its reliance on private student lending.

In terms of expansion, Apollo recently struck a $1 billion joint venture with the Carlyle Group. The goal is to make investments in educational organizations outside the US. In other words, it's a good bet we'll see some deals in 2008.

All in all, it was a solid quarter. And in today's trading, Apollo's stock is up 12.77% to $76.81.

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 DealProfiles.com.

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Having recently returned to the CEO's role in the wake of a failed leveraged buyout, Sallie Mae (NYSE: SLM) Chairman and CEO Albert Lord will give up the chairman's.

According (subscription required) to the Wall Street Journal, "Anthony P. Terracciano, 68 years old, with a history of finding capital for troubled companies -- and a reputation for helping to sell them -- will serve as chairman of SLM, also known as Sallie Mae, as he seeks to bolster its credit rating and investor confidence."

Additionally, former executive Jack Remondi is returning to the company as vice chairman and CFO.

Part of the reason for Lord's departure from the Chairman's role may be his exceptionally poor handling of a recent conference call that culminated in his rejoicing that they could "get the (expletive) outta here" because there were no more questions.

But questions still surround Mr. Lord. Why was he so eager to sell the company? Was he aware of troubles on the horizon and sought to dump the mess on someone else?

Investor perception of the company would probably strengthen considerable if Mr. Lord left entirely. But for now, separating the chairman and CEO jobs is always a good move for corporate governance.

Investors liked the news, sending the stock up more than 8%.

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SLM (NYSE: SLM) closed $16.67 Friday, a seven-year low.

SLM disclosed last week it will decrease the production on loan origination and purchases because of a new federal law that reduces subsidies to commercial lenders to distribute federal loans to students.

SLM January option implied volatility is 101; February is at 95; above its 26-week average of 49 according to Track Data, suggesting larger price movements.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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The American consumer is not the only part of the US economy that's holding off on spending. So are institutional bond investors.Based on a report from Bloomberg, it looks like Wall Street's premier investment banks -- such as Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and JPMorgan Chase (NYSE: JPM) -- are slashing prices on their buyout debt backlog. In fact, some of the discounts are as much as 10% of the face values. Given that Wall Street is going to report horrendous financial results, it makes sense to deal with the problems now, right?

Interestingly enough, Wall Street had some help from failed deals, such as with SLM (NYSE: SLM). Actually, this trend has wiped out $51 billion in obligations.

Yet, there is still much to finance, such as Clear Channel, Harrah's, BCE and Alltel. So, we might also see some post-Christmas buyout bond slashing, as well.

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 DealProfiles.com.

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