UPDATE 1-FBR says First Marblehead is potential takeout target
(Recasts; adds details, share movement)
May 22 (Reuters) - Friedman Billings Ramsey said First Marblehead (FMD.N), one of the largest securitizers of student loans, is an attractive takeover target for a buyer looking to purchase its loan database, platform and proprietary brands for a small premium, sending its shares up as much as 31 percent.
Friedman, which upgraded the company to "market perform" from "underperform," said the stock was trading near its cash value and implied almost zero value from residual receivables.
Analyst Matt Snowling said most of the bad news was reflected in the stock, particularly with early indications of a thawing in the still challenging market for student loan asset-backed securities.
The $85-billion student loan market has been hit hard by the subprime mortgage crisis and the market is reeling from a retreat by investors from securitized student loan debt after heavy losses on mortgage debt instruments.
Profitability in the market contracted last year after the United States' Congress cut subsidies paid to lenders in the federally guaranteed student loan program.
Snowling said First Marblehead was still well positioned in the attractive private loan market if it could solve its funding issues via asset-backed securities structure or a partner providing capital.
Though the company will continue to bleed cash until it is able to access the capital markets, Snowling believes the company becomes increasingly attractive as a target for its loan database and origination platform.
"While further operating losses and possible liabilities related to the failure to securitize customer loans could drive the liquidation value to the company lower, we view the potential for acquisition and/or the eventual opening of the ABS market as balancing risks," Snowling said.
Shares of the company rose to $3.90, before paring some gains to trade up 84 cents at $3.82 late Thursday morning on the New York Stock Exchange. (Reporting by Bhaswati Mukhopadhyay and Ratul Ray Chaudhuri in Bangalore; Editing by Amitha Rajan)
