One of the largest private takeovers in history — the $25.3 billion buyout for college loan giant Sallie Mae — unraveled yesterday after its buyers balked at the price, citing turmoil in the credit markets and federal legislation to cut subsidies to student lenders, the Washington Post reported today. The buyers, headed by fund manager J.C. Flowers, left open the possibility of acquiring Sallie Mae at a lower price. Sallie Mae vowed, however, that it would fight to keep the deal intact “to the fullest extent permitted by law.” The buyers originally agreed to pay Sallie Mae $900 million if they walked away from the deal, one of the largest breakup fees ever. Instead, they now are invoking an “escape” clause that would allow them to cancel the purchase without paying a dime, which Sallie Mae says it will fight in court.

Bankruptcy Judge Burton Lifland ruled yesterday that Calpine Corp.’s bankruptcy reorganization plan, which calls for unsecured creditors to be repaid at least 95 cents for every dollar they’re owed, can be sent to creditors for a vote, the Associated Press reported yesterday. Judge Lifland also denied a request from Calpine shareholders to open an investigation into why the company dropped out of negotiations for a rights offering. Shareholders contended that the offering would have boosted the company’s value, but Calpine said that the proposal was risky and probably would have failed. Calpine, a San Jose, Calif.-based energy provider that has been in bankruptcy proceedings since late 2005, aims to exit bankruptcy by February.

American Home Mortgage Investment Corp. bounced property tax checks for some Maryland homeowners, local and state officials said yesterday, and they have demanded an explanation from the bankrupt mortgage lender and servicer, the Associated Press reported yesterday. The Maryland Commissioner of Financial Regulation filed an inquiry with American Home Mortgage on Friday. The Maryland regulator asked American Home Mortgage to explain why the initial checks failed to clear and to clarify the scope of the incident. In Frederick County, Md. alone, American Home Mortgage bounced two checks totaling nearly $59,000 for property taxes on 12 loans serviced by the company. Frederick County received new, certified checks Friday to cover the payments.

The United Auto Workers union opposed bankrupt Delphi Corp.’s plan to pay its executives up to $37.6 million in bonuses for the second half of 2007, Bankruptcy Law360 reported yesterday. The UAW’s agreement with General Motors Corp. and its supplier Delphi involved substantial concessions by the UAW and demanded corresponding losses on the part of Delphi’s executives. These concessions included agreeing to Delphi’s plan to sell or transfer seven plants with UAW employees, and wind down 10 others; freeze its pension plan; and do away with cost-of-living adjustments, according to the UAW.

The Senate Banking Committee today approved legislation that would revamp the Federal Housing Administration’s mortgage insurance program in a more limited fashion than the bill passed by the House on Tuesday, CongressDaily reported yesterday. The panel voted 20-1 to send the bill to the Senate floor with only Sen. Elizabeth Dole (R-N.C.) dissenting. The measure would increase FHA loan limits, currently at $362,000, to levels similar to government-sponsored enterprises Fannie Mae and Freddie Mac, which currently are at $417,000. The House bill would raise them even more to 125 percent of an area’s median home price and give the HUD secretary the discretion to bump up that level by $100,000 during periods of crisis in the home-mortgage market. The Senate measure also would lower the down payment requirement to 1.5 percent from the current 3 percent. The House bill would allow no down payment in some cases. Both bills would lift the cap on FHA reverse mortgages for elderly homeowners, though the House bill would siphon the profits from the change to finance a new affordable housing trust fund.

Homebanc Mortgage Corp. has withdrawn its Aug. 31 employee retention motion with respect to five executives, who the U.S. Trustee overseeing the chapter 11 proceedings characterized as “insiders,” Bankruptcy Law360 reported yesterday. The move follows the trustee’s objection to the debtors’ bid to pay $532,000 in retention bonuses to 15 vice presidents. Homebanc filed a supplement on Monday to the “non-insider employee retention plan” motion it lodged at the end of August. The supplement alerted the court that the five executives had been dropped from the non-insider retention motion and said that Homebanc would seek court approval to implement an incentive compensation plan with respect to those five employees.

The Bank of England has offered an emergency loan to Northern Rock after the mortgage lender became the biggest British casualty of the credit squeeze sparked by the crisis in the U.S. subprime mortgage market, Reuters reported today. The British government said on Friday it had authorized the Bank of England (BoE) to provide an unspecified amount of liquidity to Northern Rock, the UK’s eighth-largest listed bank, which had the biggest share of the new mortgage market in the first half of this year. The BoE, which has come under fire from some financial institutions for its hands-off response to market turmoil, said Northern Rock was solvent and only in need of short-term help. But queues formed outside some branches of the Newcastle, England-based bank, as customers looked to withdraw deposits. While it has no exposure to subprime loans, Northern Rock has proved vulnerable to the liquidity squeeze triggered by the U.S. subprime lending crisis because it has a small deposit base and so has to draw most of its funding from money markets.
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With officials still trying to piece together what went wrong at New Century Financial Corp., Bankruptcy Judge Kevin Carey granted the court-appointed examiner additional time to investigate the causes of the subprime mortgage giant’s implosion, Bankruptcy Law360 reported yesterday. The examiner asked the U.S. Bankruptcy Court for the District of Delaware last week to extend the deadline for his report until March 2008, arguing that the lengthy investigation could not be wrapped up in the 90-day time period, as he had previously thought. The examiner, appointed by a court order on June 1, is investigating any financial irregularities in New Century’s books prior to filing for bankruptcy, and the company’s use of cash collateral post-petition. He has also launched an investigation into KPMG LLC, New Century’s outside auditor.

Creditors of People’s Choice Home Loan Inc. asked the U.S. Bankruptcy Court for the Central District of California for approval to pursue claims against executives of the defunct mortgage lender on behalf of the estate, Bankruptcy Law360 reported on Friday. The unsecured creditors’ committee told Judge Robert Kwan that it would have to take the lead in pursuing action on behalf of the lender because the debtors’ counsel, who take direction from the very targets of the claims, had opted not to investigate the matter. The committee told the court its consultants had calculated over $100 million in failed loans claims against People’s Choice and that company executives were insured under a $90 million policy that indemnified them for losses incurred by any wrongdoing on their part. A hearing on the committee’s motion is scheduled for Sept. 13.

HSBC’s agreement to buy a majority stake in Korea Exchange Bank (KEB) is putting the South Korean banking sector under even more pressure to consolidate, amid growing prospects of privatization and sales, Reuters reported yesterday. HSBC Holdings Plc said yesterday that it agreed to buy 51 percent of the country’s sixth-largest bank by assets from U.S. private equity firm Lone Star for $6.3 billion. The deal, if finalized, will bring another strong foreign player into South Korea’s crowded banking industry, which has combined deposits of more than $750 billion. Citigroup and Standard Chartered Plc became key players by buying local rivals in 2004 and 2005, respectively. HSBC’s acquisition, which is conditional on the resolution of several legal and regulatory hurdles, comes as South Korean banks are seeking to expand into lucrative nonbanking financial services including wealth management, brokerage and insurance.