Originally Posted by JohnEyles
With ISM/OSM getting down close to $17, the real yield is
stratospheric. Kinda scary though. I didn't get out when
most of you did, so guess I'll just hang on tight now ...
I've put sell orders above the market for a while and it keeps going lower.
Latest news I read is that the Congress and White house are close to an agreement that would cut the subsidy to Sallie Mae of certain student loans by 50-55 biases points. The good news for us bond holders is the legislation passes, the J.C. Flower group will likely withdraw its bid.
Certainly with SLM trading below 50 and the buyout at $60 that is the betting on the street. (For any of you arbitrage folks out there I saw that annualize return on SLM is now a mere %183 assuming a 10/15 close lol).
It seems to me that most like scenario is that the legislation passes and the take over goes south. This would put us bond holders in pretty much the same situation we were at the beginning of summer, except for two important factors. The premium for credit risk is much higher than it was a few month ago, and the rumors of lower government subsidies would be a fact. Any of you smart bond types want to hazard a guess on what SLM credit rating would be in that situation.
The nightmare scenario is the legislation passes and the take over proceeds. I am guessing that interest rates on the debt J.C. Flower has to issue would be a heck of lot higher than when the originally proposed the deal. Again any numbers from smart bond folks would be appreciated.
At which point are SLM/OSM "bonds" become pretty much pure junk with a low double digit return.