Sallie Mae CEO spooks investors in testy call; United Rentals case closed; CSX proxy fight leaving station?

By Evan Weinberger

New York, Dec. 19 - SLM Corp., the government-secured student loan backer better known as Sallie Mae, tumbled Wednesday as an investors' question-and-answer conference call failed to instill any confidence with shareholders.

In the conference call, Sallie Mae's newly appointed chief executive officer, Albert L. Lord, fielded questions from investors and analysts about the future of the failed buyout by private equity shop J.C. Flowers and plans to solidify the company's capital.

"This is a very challenging time. The goal here is to get out of deal mode and into the growth mode - the same growth mode we've been in for the past 25 years," Lord said.

Also in the conference call, Lord said the deal with Flowers is "not a deal any longer, it's litigation."

Reston, Va.-based Sallie Mae recently lowered its fourth-quarter earnings outlook, the result of higher funding costs, Lord said.

And while he said Sallie Mae's goal was to restore its balance sheet to regain the company's single-A rating, Lord refused to get specific about any plans to do so.

"At this point I'm not going to get very precise with you. The idea is to strengthen the equity, the capital count, with financing somewhere beneath the long-term credit line," Lord said.

Among the options under review, according to the CEO, are reviewing Sallie Mae's fourth-quarter dividend; signing a truce with the unsecured lending community and disarming equity forward contracts; and selling off assets.

The conference call grew testy, as analysts pitched questions about the company's share price and other issues. And it ended abruptly with Lord saying, "There's no questions, let's get the (expletive) out of here."

"It's on the transcript," one market source said. But the - to be kind - unusual ending to the conference call was expunged from the replay of the conference call on Sallie Mae's web site.

Lord's performance did little to reassure investors, and Sallie Mae's (NYSE: SLM) stock plummeted $5.98, or 20.71%, to close at $22.89 Wednesday.

"Can you believe two months ago it was $40?" the market source said. "As long as people keep going to school, and they keep raising the fees, they'll be in business."

Stock markets struggled for direction Wednesday on waves of conflicting headlines.

After vacillating throughout the day, the Dow Jones Industrial Average closed down 25.20 points, or 0.19%, at 13,207.27.

The Nasdaq gained 4.98 points, or 0.19%, for a 2,601.01 close.

And the Standard & Poor's 500 slipped 1.98 points, or 0.14%, to 1,453.00.

United Rentals case heading for closure

The case of United Rentals Inc. versus Cerberus Capital Management appears to be heading for a close - and none too soon, according to one market watcher.

Seven days of testimony - which did not open Tuesday, as erroneously reported in this space Tuesday - closed Wednesday, and the chancellor overseeing the trial in Delaware said he would have a decision "very, very promptly."

"You would hope it would be this week," a market watcher said.

Greenwich, Conn.-based United Rentals sued Cerberus over the breakup of the private equity shop's $4 billion takeover of the construction equipment rental firm in November.

United Rentals stock (NYSE: URI) fell 80 cents, or 3.47%, to $22.25 on Wednesday.

ACA cut to junk, rallies

New York-based bond insurer ACA Capital Holdings was cut to junk by Standard & Poor's on Wednesday. The ratings agency dropped ACA to a CCC rating from its earlier A rating.

But ACA stock rallied on a report in the New York Times that Merrill Lynch, Bear Stearns and other large banks were in talks to bail out ACA.

ACA stock, (over the counter: ACA) skyrocketed 34 cents, or 109.68%, to 65 cents in trading Wednesday.

Did bell ring on CSX proxy fight?

Two months after London-based hedge fund the Children's Investment Fund (TCI) released a letter trashing Jacksonville, Fla.-based railroad company CSX Corp., the specter of a proxy fight grew.

TCI and hedge fund 3G Capital Partners, which also has a stake in CSX, nominated a minority slate for the CSX board Wednesday that includes TCI's chief Christopher Hohn.

CSX did not welcome the move.

"The board and management team believe that the CSX directors are well qualified to further advance the interests of the company's shareholders, as well as its employees, customers and communities," CSX management said in a statement. "The board also believes the company's outstanding record of financial, safety and operational improvements demonstrates unequivocally that CSX is a well run company."

CSX stock (NYSE: CSX) fell 40 cents, or 0.92%, to $43.21 on Wednesday.

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