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Sallie Drops Lawsuit

Sallie Mae (SLM) on Monday said it was dropping its lawsuit over a failed $25 billion buyout deal, as two of the participants in the scuttled transaction teamed with other banks to extend $31 billion in credit to the student lender.

Bank of America (BAC) and JPMorgan Chase (JPM), who were part of a consortium led by private-equity firm J.C. Flowers & Co., led a group of its peers in extending $31 billion in credit good for up to a year.

The funding replaces $30 billion in interim financing the banks would have put in place under the failed deal. Barclays (BCS), Deutche Bank (DB), Credit Suisse (CS), Royal Bank of Scotland (RBS) and UBS (UBS) also teamed in the effort.

Sallie Mae has struggled in recent months amid the lingering credit crunch. The lender last week reported a $1.6 billion fourth-quarter loss, due largely to rising loan-loss provisions. During a conference call discussing the results, CEO Albert Lord apologized for using profanity during a contentious December call with analysts.

As part of the new deal, Sallie agreed to drop its lawsuit against Flowers, which was fighting the possibility of having to pay a $900 million break-up fee. The firm was arguing that the lender had suffered a "material adverse change" to its business due to the credit crisis and a change in federal student loan laws that slashed billions of dollars in federal subsidies for the school loan industry.

Sallie shares were up fractionally to $20 in recent trading Monday morning.

This article was written by a staff member of

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