Group drops US loan firm buyout

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US student loan firm Sallie Mae has said private equity buyers are pulling out of a $25bn buyout of the firm.

The deal, announced in April, has been derailed by the global credit crunch, which has made it harder for buyers to raise capital and sell on debt.

Sallie Mae said it would pursue legal action against the consortium to try to push through the deal.

But the would-be buyers said changes in the economy meant the sale could not go through in its current form.

"We have told representatives of the Sallie Mae board that we are open to discussing a revision of the transaction that reflects this new environment," said a spokesman for JC Flowers, which makes up the consortium along with Bank of America and JPMorgan Chase.

Created in 1972 as a government-backed firm to fund student loans, Sallie Mae began privatisation in 1997 and ended all ties with the federal government in 2004.

It manages $153bn in education loans for about 10 million students and parents.