First Marblehead soars as Goldman completes deal

By Joseph A. Giannone

NEW YORK (Reuters) - First Marblehead Corp (FMD.N) shares soared by more than half on Monday as a Goldman Sachs (GS.N) fund completed an equity investment in the student finance company, which has been hit hard by student loan losses and a frozen asset-backed securities market.

First Marblehead also said Daniel Meyers, who co-founded the company in 1991, would return next month as president and chief executive. It said Jack Kopnisky, who succeeded Meyers as CEO in 2005, resigned and will depart at the end of August.

In December, GS Capital Partners agreed to buy a stake in First Marblehead in two parts, starting with the purchase of $59.8 million of convertible preferred shares, to be followed by the purchase of $200.7 million of common stock.

The company, which for years made its living by packaging loans originated by other banks into securities, saw its shares reach a high of $42 last October.

But the breakdown of securitized-loan markets, plus the demise of TERI, a non-profit group that guaranteed First Marblehead's offerings, sent the company's shares tumbling more than 90 percent over the past year.

Because of the decline in First Marblehead's value, the Goldman fund cut its second purchase to $132.7 million. That investment, completed on Monday, sent First Marblehead shares soaring $1.54 to $4.54, their highest price since April.

Goldman's private equity arm now owns a little over 13.1 percent of First Marblehead.

The investment "provides First Marblehead with liquidity and financial flexibility in an environment where other institutions are stepping away from their willingness to help students," Meyers said in a statement.

In the absence of securitization deals -- First Marblehead has not completed one since last year -- the company wants to expand its direct student lending, loan processing and other services.

The company said it expects to report a net loss of $57 million, or 57 cents a share, for its fiscal fourth quarter ended June 30. Actual results, including a net loss of $235 million for fiscal 2008, will be announced on Thursday.

First Marblehead said the losses were driven largely by the continued dislocation in the market for bonds backed by private student loans.

(Editing by John Wallace and Braden Reddall)