As filed with the Securities and Exchange Commission on August 10, 2004
Registration No. 333-____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SLC STUDENT LOAN RECEIVABLES I, INC.
(Exact name of registrant as specified in its charters)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3598719
(I.R.S. Employer Identification No.)
750 Washington Boulevard, 9th Floor, Stamford, CT 06901
(203) 975-6923
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
Daniel McHugh
Chief Financial Officer
SLC Student Loan Receivables I, Inc.
750 Washington Boulevard, 9th Floor, Stamford, CT 06901
(203) 975-6923
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
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COPIES TO:
Malcolm P. Wattman, Esq. Richard L. Fried, Esq.
Cadwalader, Wickersham & Taft LLP Stroock & Stroock & Lavan LLP
100 Maiden Lane 180 Maiden Lane
New York, New York 10038 New York, New York 10038
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE(4)
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PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
REGISTERED REGISTERED(2) PRICE PER UNIT OFFERING PRICE(3) FEE(4)
Student Loan
Asset-Backed
Securities(1) $1,000,000 100% $1,000,000 $126.70
- -------------------- ------------- -------------- ----------------- ------------
(1) This Registration Statement includes an indeterminate amount of securities
that may be offered or sold in connection with market making activities by
affiliates of the registrants.
(2) The amount of securities being registered represents the maximum aggregate
principal amount of securities currently expected to be offered for sale.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(4) Pursuant to Rule 429 under the Securities Act of 1933, as amended, of the
$3,000,000,000 of Student Loan Asset-Backed Notes previously registered on
Form S-3 (File No. 333-75952), we are carrying forward $2,534,150,000 to
this Registration Statement. The Registrant previously paid the Commission
a filing fee of $276,000 in connection with the filing of that Form S-3 of
which $233,141.80 is attributable to the securities being carried forward.
We are therefore paying the Commission a filing fee of $126.70 in
connection with the securities not previously registered with the
Commission.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS THAT IS A PART OF THIS REGISTRATION STATEMENT RELATES TO THE STUDENT
LOAN ASSET-BACKED SECURITIES TO BE REGISTERED HEREBY AS WELL AS THE STUDENT LOAN
ASSET-BACKED NOTES THAT WERE ORIGINALLY REGISTERED (BUT NOT ISSUED) UNDER THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 333-75952 (WHICH WAS
DECLARED EFFECTIVE ON FEBRUARY 20, 2002)) AND THAT ARE BEING CARRIED FORWARD TO
THIS REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT ALSO CONSTITUTES
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 333-75952 AND SUCH
POST-EFFECTIVE AMENDMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(c) OF THE SECURITIES ACT OF 1933, AS AMENDED.
I-2
Prospectus Supplement to Prospectus dated __________, 2004
$_______________
SLC Student Loan Trust 200_-_
Issuer
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Seller, Servicer and Administrator
Student Loan Asset-Backed Notes
On __________, 200_, the trust will issue the following [six] classes:
Original Price to Underwriting Proceeds to
Class Principal Amount Interest Rate Maturity Public Discount the Depositor
- -------------- ----------------- ------------------------- -------------------- ------------ -------------- --------------
A-1 Notes..... $____________ 3-month LIBOR plus ____% __________, 20__ 100.0% ____% _____%
A-2 Notes..... $____________ 3-month LIBOR plus ____% __________, 20__ 100.0% ____% _____%
A-3 Notes..... $____________ 3-month LIBOR plus ____% __________, 20__ 100.0% ____% _____%
A-4 Notes..... $____________ 3-month LIBOR plus ____% __________, 20__ 100.0% ____% _____%
A-5 Notes..... $____________ 3-month LIBOR plus ____% __________, 20__ 100.0% ____% _____%
B Notes....... $____________ 3-month LIBOR plus ____% __________, 20__ 100.0% ____% _____%
The trust will make payments quarterly, beginning on ________, 200_, primarily
from collections on a pool of consolidation student loans. In general, the trust
will pay principal allocable to the class A notes sequentially to the class A-1
through class A-5 notes, in numeric order, until paid in full. The class B notes
will not receive principal until the stepdown date, which is scheduled to occur
on the distribution date in _________ 200_. The class B notes then will receive
principal pro rata with the class A notes, as long as a trigger event is not in
effect for the related distribution date. Interest on the class B notes will be
subordinate to interest on the class A notes and principal on the class B notes
will be subordinate to both principal and interest on the class A notes.
We are offering the notes through the underwriters at the prices shown above,
when and if issued. [We have applied for a listing of the class A-_ through
class A-_ notes on the Luxembourg Stock Exchange.]
We expect the proceeds to the depositor from the sale of the notes to be
$___________ before deducting expenses payable by the depositor estimated to be
$_______.
You should consider carefully the risk factors beginning on page S-16 of this
supplement and on page 15 of the prospectus. The notes are asset-backed
securities issued by a trust. They are not obligations of The Student Loan
Corporation, the depositor or any of their affiliates. The notes are not
guaranteed or insured by the United States or any governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities or determined whether this
supplement or the prospectus is accurate or complete. Any contrary
representation is a criminal offense.
[UNDERWRITER]
__________, 200_
TABLE OF CONTENTS
SUMMARY OF TERMS...........................................................S-5
Issuer..................................................................S-5
The Notes...............................................................S-5
Dates...................................................................S-5
Information About the Notes.............................................S-5
Indenture Trustee.......................................................S-7
Eligible Lender Trustee.................................................S-7
Indenture Administrator and Paying Agent................................S-7
Administrator and Sub-Administrator.....................................S-8
Servicer and Sub-Servicer...............................................S-8
Owner Trustee...........................................................S-8
[Luxembourg Paying Agent................................................S-8
Information About the Trust.............................................S-8
Administration of the Trust............................................S-11
Termination of the Trust...............................................S-13
Interest Rate Cap......................................................S-14
U.S. Federal Income Tax Considerations.................................S-14
ERISA Considerations...................................................S-14
Rating of the Notes....................................................S-14
[Listing Information...................................................S-15
Risk Factors...........................................................S-15
CUSIP Numbers..........................................................S-15
European Common Codes..................................................S-15
International Securities Identification Numbers (ISIN).................S-15
RISK FACTORS..............................................................S-16
DEFINED TERMS.............................................................S-17
FORMATION OF THE TRUST....................................................S-18
The Trust..............................................................S-18
Eligible Lender Trustee................................................S-19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..........................................................S-19
Sources of Capital and Liquidity.......................................S-19
Results of Operations..................................................S-19
USE OF PROCEEDS...........................................................S-19
THE TRUST STUDENT LOAN POOL...............................................S-20
Insurance of Student Loans; Guarantors of Student Loans................S-27
Cure Period for Trust Student Loans....................................S-30
Consolidation of Federal Benefit Billings and Receipts and Guarantor
Claims with Other Trusts............................................S-31
DESCRIPTION OF THE NOTES..................................................S-31
General................................................................S-31
The Notes..............................................................S-32
Determination of LIBOR.................................................S-34
Notice of Interest Rates...............................................S-34
Accounts...............................................................S-35
Servicing Compensation.................................................S-35
Distributions..........................................................S-35
Voting Rights and Remedies.............................................S-36
Credit Enhancement.....................................................S-36
Administration Fee.....................................................S-37
Interest Rate Cap......................................................S-38
U.S. FEDERAL INCOME TAX CONSEQUENCES......................................S-40
[EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME...............S-40
ERISA CONSIDERATIONS......................................................S-40
S-2
REPORTS TO SECURITYHOLDERS................................................S-41
UNDERWRITING..............................................................S-41
[LISTING INFORMATION......................................................S-43
RATINGS OF THE NOTES......................................................S-44
LEGAL MATTERS.............................................................S-44
GLOSSARY FOR PROSPECTUS SUPPLEMENT........................................S-45
S-3
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate sections of
this document that provide progressively more detailed information. These two
sections are:
o the accompanying prospectus, which begins after the end of this
prospectus supplement and which provides general information, some
of which may not apply to your particular class of notes; and
o this prospectus supplement, which describes the specific terms of
the notes being offered.
You should read both the prospectus and the prospectus supplement to fully
understand the notes.
For your convenience, we include cross-references in this prospectus
supplement and in the prospectus to captions in these materials where you can
find related information. The Tables of Contents on pages S-2 and S-3 provide
the pages on which you can find these captions.
Affiliates of the issuer expect to enter into market-making transactions
in the securities and may act as principal or agent in any of these
transactions. Any such purchases or sales will be made at prices related to
prevailing market prices at the time of sale. This prospectus supplement and the
prospectus may be used by the affiliates of the issuer in connection with these
transactions.
NOTICE TO INVESTORS
[IN CONNECTION WITH THIS ISSUE, ______________ WILL ACT AS STABILIZING
MANAGER IN RESPECT OF THE CLASS A-_ NOTES. THE STABILIZING MANAGER (OR ANY
PERSON ACTING FOR THE STABILIZING MANAGER) MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WITH A VIEW TO SUPPORTING THE MARKET PRICE OF LISTED CLASS A-_ NOTES AT A LEVEL
HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD. HOWEVER,
THERE MAY BE NO OBLIGATION ON THE STABILIZING MANAGER (OR ANY AGENT OF THE
STABILIZING MANAGER) TO DO THIS. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD.
SUCH STABILIZING WILL BE IN COMPLIANCE WITH ALL APPLICABLE LAWS, REGULATIONS AND
RULES.]
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[The notes may not be offered or sold to persons in the United Kingdom in
a transaction that results in an offer to the public within the meaning of the
securities laws of the United Kingdom.]
--------------------
[We have applied for a listing of the notes on the Luxembourg Stock
Exchange. We cannot assure you that the application will be granted. You should
consult with The Bank of New York (Luxembourg) S.A., the Luxembourg listing
agent for the notes, to determine their status.]
S-4
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SUMMARY OF TERMS
This summary highlights selected information about the notes. It does not
contain all of the information that you might find important in making your
investment decision. It provides only an overview to aid your understanding and
is qualified by the full description of the information contained in this
prospectus supplement and the attached prospectus. You should read the full
description of this information appearing elsewhere in this prospectus
supplement and in the prospectus to understand all of the terms of the offering
of the notes.
Issuer
SLC Student Loan Trust 200_-_.
The Notes
The trust is offering the following classes of notes:
Class A Notes:
o Floating Rate Class A-1 Student Loan Asset-Backed Notes in the
amount of $__________;
o Floating Rate Class A-2 Student Loan Asset-Backed Notes in the
amount of $__________;
o Floating Rate Class A-3 Student Loan Asset-Backed Notes in the
amount of $__________;
o Floating Rate Class A-4 Student Loan Asset-Backed Notes in the
amount of $__________; and
o Floating Rate Class A-5 Student Loan Asset-Backed Notes in the
amount of $__________.
Class B Notes:
o Floating Rate Class B Student Loan Asset-Backed Notes in the amount
of $__________.
We sometimes refer to the class A notes and the class B notes as the
notes.
Dates
The closing date for this offering is __________, 200_.
The information about the trust student loans in this prospectus
supplement is calculated and presented as of __________, 200_. We refer to this
date as the statistical cutoff date.
The cutoff date for the trust student loans will be the closing date,
after which time the trust will be entitled to receive all collections and
proceeds on the trust student loans.
A distribution date for each class of notes is the ____ of each ________,
________, ________ and ________, beginning in ________ 200__. If any such date
is not a business day, the distribution date will be the next business day.
Interest and principal will be payable to holders of record as of the
close of business on the record date, which is the business day before the
related distribution date.
Information About the Notes
The notes are debt obligations of the trust. The notes will receive
payments primarily from collections on a pool of trust student loans acquired by
the trust on the closing date.
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S-5
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Interest will accrue on the outstanding principal balances of the notes
during each accrual period and will be paid on the related distribution date.
Each accrual period begins on a distribution date and ends on the day
before the next distribution date. The first accrual period, however, will begin
on the closing date and end on _________, 200_, the day before the first
distribution date.
Interest Rates. Except for the first accrual period, each class of notes
will bear interest at a rate equal to the sum of three-month LIBOR and the
applicable spread listed in the table below:
Class Spread
A-1 Notes _____%
A-2 Notes _____%
A-3 Notes _____%
A-4 Notes _____%
A-5 Notes _____%
B Notes _____%
See "The Notes--The Class A Notes--Distributions of Interest" for a
description of how LIBOR is determined for the first accrual period.
The administrator will determine LIBOR as specified under "Description of
the Notes--Determination of LIBOR" in this prospectus supplement. The
administrator will calculate interest on the notes based on the actual number of
days elapsed in each accrual period divided by 360.
Interest Payments. Interest accrued on the outstanding principal balance
of the notes during each accrual period will be payable on the related
distribution date.
Principal Payments. Principal will be payable on each distribution date in
an amount generally equal to:
o the principal distribution amount for that distribution date, plus
o any shortfall in the payment of principal as of the preceding
distribution date.
Priority of Principal Payments. Prior to an event of default, we will pay
principal on each distribution date:
o first, the class A noteholders' principal distribution amount,
sequentially to the class A-1 through class A-5 notes, in that
order, until their respective principal balances are reduced to
zero; and
o second, the class B noteholders' principal distribution amount, to
the class B notes, until their principal balances are reduced to
zero.
Until the stepdown date, the class B notes will not be entitled to any
payments of principal. On each distribution date on and after the stepdown date,
provided that no trigger event is in effect, the class B notes will be entitled
to their pro rata share of principal, subject to the existence of sufficient
available funds.
The class A noteholders' principal distribution amount is equal to the
principal distribution amount multiplied by the class A percentage, which is
equal to 100% minus the class B percentage. The class B noteholders' principal
distribution amount is equal to the principal distribution amount multiplied by
the class B percentage.
See "Description of the Notes--Distributions" in this prospectus
supplement for a more detailed description of principal payments.
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S-6
Maturity Dates.
o The class A-1 notes will mature no later than __________ __, 20__;
o the class A-2 notes will mature no later than __________ __, 20__;
o the class A-3 notes will mature no later than __________ __, 20__;
o the class A-4 notes will mature no later than __________ __, 20__;
o the class A-5 notes will mature no later than __________ __, 20__;
and
o the class B notes will mature no later than __________ __, 20__.
The actual maturity of any class of notes could occur earlier if, for
example,
o there are prepayments on the trust student loans;
o the servicer exercises its option to purchase all remaining trust
student loans (which will not occur until the first distribution
date on which the pool balance is 10% or less of the initial pool
balance); or
o the indenture administrator auctions all remaining trust student
loans (which, absent an event of default under the indenture, will
not occur until the first distribution date on which the pool
balance is 10% or less of the initial pool balance).
Subordination of the Class B Notes. Payments of interest on the class B
notes will be subordinate to the payment of interest on the class A notes and
payments of principal on the class B notes will be subordinate to the payment of
both interest and principal on the class A notes. See "Description of the
Notes--The Notes--The Class B Notes--Subordination of the Class B Notes" in this
prospectus supplement.
Denominations. The class A notes will be available for purchase in minimum
denominations of $10,000 and additional increments of $1,000. The class B notes
will be available for purchase in minimum denominations of $100,000 and
additional increments of $1,000. The notes will be available only in book-entry
form through The Depository Trust Company[, Clearstream, Luxembourg and the
Euroclear System]. You will not receive a certificate representing your notes
except in very limited circumstances.
Security for the Notes. The notes will be secured by the assets of the
trust, primarily the trust student loans.
Indenture Trustee
The trust will issue the notes under an indenture to be dated as of
_________, 200_.
Under the indenture, _______________ will act as indenture trustee for the
benefit of and to protect the interests of the noteholders.
Eligible Lender Trustee
_______________ will be the eligible lender trustee under the eligible
lender trust agreement. It will hold legal title to the assets of the trust.
Indenture Administrator and Paying Agent
Under the indenture, ___________ will be the indenture administrator and
the paying agent for the notes.
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S-7
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Administrator and Sub-Administrator
The Student Loan Corporation, also referred to herein as "SLC," will act
as the administrator of the trust under an administration agreement. SLC may
transfer or subcontract some or all of its obligations as administrator. See
"Servicing and Administration--Administration Agreement" in the prospectus and
has transferred or subcontracted many of its obligations to CitiMortgage, Inc.
Servicer and Sub-Servicer
Under the servicing agreement, SLC will service the trust student loans on
behalf of the trust. Under the circumstances described in the prospectus, the
servicer may transfer or subcontract its obligations to other entities. See
"Servicing and Administration" in the prospectus.
Under the sub-servicing agreement, Citibank USA, National Association,
will sub-service the trust student loans on behalf of the trust. SLC has
outsourced a substantial portion of its operations, including the origination
and servicing of its student loan portfolio, to Citibank USA, National
Association. Citibank USA, National Association, has a facility located in Sioux
Falls, South Dakota. Employees located at this facility assist with the
origination and servicing of student loans and also provide credit card services
to Citigroup customers. This arrangement with Citibank USA, National
Association, allows SLC to utilize the substantial employee base that Citibank
USA, National Association, has in place to service its credit card customers and
creates certain operational and personnel line-balancing efficiencies that would
not otherwise be afforded SLC if SLC's loan portfolio were originated and
serviced by its own employees. As of _________, 200_, Citibank USA, National
Association, has approximately __ employees, [720] of which service student
loans on behalf of SLC. As of _________, 200_, Citibank USA, National
Association, services approximately $____ in student loans.
Citibank USA, National Association is an indirect wholly-owned subsidiary
of Citigroup. Another affiliate of Citigroup, CBNA, owns 80% of the outstanding
common stock of SLC. A number of significant transactions are carried out
between SLC, Citigroup and Citigroup's affiliates, including cash management,
data processing, income tax payments, loan servicing, employee benefits, payroll
administration and facilities management.
Owner Trustee
______________ will be the Owner Trustee under the trust agreement.
[Luxembourg Paying Agent
As long as the rules of the Luxembourg Stock Exchange require a Luxembourg
paying agent, _______________ will act as the Luxembourg paying agent with
respect to the notes listed on the Luxembourg Stock Exchange.]
Information About the Trust
Formation of the Trust
The trust is a Delaware statutory trust created under a trust agreement
dated as of __________, 200_.
The only activities of the trust are acquiring, owning and managing the
trust student loans and the other assets of the trust, issuing and making
payments on the notes, entering into the interest rate cap, described below, and
making payments thereunder, and other related activities. See "Formation of the
Trust--The Trust" in this prospectus supplement.
The depositor is SLC Student Loan Receivables I, Inc., a Delaware
corporation and a bankruptcy remote, wholly-owned special purpose subsidiary of
SLC. On the closing date, the depositor will acquire the student loans from SLC
and will sell them to the trust. _______________, as eligible lender trustee,
will hold legal title to the student loans for the depositor under an interim
trust arrangement.
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S-8
Its Assets
The assets of the trust will include:
o the trust student loans;
o collections and other payments on the trust student loans;
o funds it will hold from time to time in its trust accounts,
including the collection account, the reserve account and the
capitalized interest account; and
o its rights under the interest rate cap described under "--Interest
Rate Cap" in this prospectus supplement.
The rest of this section describes the trust student loans and trust
accounts more fully.
o Trust Student Loans. The trust student loans are education loans to
students and parents of students made under the Federal Family
Education Loan Program, known as FFELP. All of the trust student
loans are consolidation loans. [Consolidation loans are used to
combine a borrower's obligations under various federally authorized
student loan programs into a single loan.]
The trust student loans had an initial pool balance of approximately
$__________ as of the statistical cutoff date.
As of the statistical cutoff date, the weighted average annual borrower
interest rate of the trust student loans was approximately ___% and their
weighted average remaining term to scheduled maturity was approximately ___
months.
SLC originated or acquired the trust student loans in the ordinary course
of its student loan financing business. The depositor will acquire the trust
student loans from SLC on or prior to the closing date. Guarantee agencies
described in this document guarantee all of the trust student loans. They are
reinsured by the United States Department of Education.
The trust student loans have been selected from the consolidation student
loans owned by SLC based on the criteria established by the depositor, as
described in this prospectus supplement and the prospectus.
Any special allowance payments on the trust student loans are based on the
three-month financial commercial paper rate [as to approximately ___% of the
loans by principal balance and the 91-day treasury bill rate as to the remainder
of the trust student loans.]
o Collection Account. The administrator will establish and maintain
the collection account as an asset of the trust in the name of the
indenture trustee. The trust will make an initial deposit from the
net proceeds of the sale of the notes into the collection account on
the closing date. The deposit will be in cash or eligible
investments equal to approximately $__________ plus the excess, if
any, of the pool balance as of the cutoff date over the pool balance
as of the closing date. The administrator will deposit collections
on the trust student loans, interest subsidy payments and special
allowance payments into the collection account, as described in this
prospectus supplement and the prospectus.
o Reserve Account. The administrator will establish and maintain the
reserve account as an asset of the trust in the name of the
indenture trustee. The trust will make an initial deposit from the
net proceeds from the sale of the notes into the reserve account on
the closing date. The deposit will be in cash or eligible
investments equal to $__________.
Funds in the reserve account may be replenished on each distribution date
by additional funds available after all prior required distributions have been
made. See "Description of the Notes--Distributions" in this prospectus
supplement.
Amounts in the reserve account on any distribution date in excess of the
specified reserve account balance, after the payments described below, will be
deposited into the collection account for distribution on that distribution
date.
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S-9
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The specified reserve account balance is the amount required to be
maintained in the reserve account.
The specified reserve account balance for any distribution date will be
equal to the greater of:
o ___% of the pool balance at the end of the related collection
period; and
o $__________.
A collection period is the three-month period ending on the last day of
_______________, _______________, _______________ or _______________, in each
case for the distribution date in the following month. However, the first
collection period will be the period from the closing date through __________
__, 200_.
The specified reserve account balance will be subject to adjustment as
described in this prospectus supplement. In no event will it exceed the
outstanding balance of the notes.
The reserve account will be available on each distribution date to cover
any shortfalls in payments of the primary servicing fee, the administration fee,
the class A noteholders' interest distribution amount and the class B
noteholders' interest distribution amount.
In addition, the reserve account will be available:
o on the maturity date for each class of class A notes and upon
termination of the trust, to cover shortfalls in payments of the
class A noteholders' principal and accrued interest; and
o on the class B maturity date and upon termination of the trust, to
pay the class B noteholders the unpaid principal balance on the
class B notes and accrued interest and to pay the servicer any
carryover servicing fee.
The reserve account enhances the likelihood of payment to noteholders. In
certain circumstances, however, the reserve account could be depleted. This
depletion could result in shortfalls in distributions to noteholders.
If amounts on deposit in the reserve account on any distribution date are
sufficient to pay the remaining principal and interest accrued on the notes and
any carryover servicing fee, those amounts will be so applied on that
distribution date. See "Description of the Notes--Credit Enhancement-- Reserve
Account" in this prospectus supplement.
o Capitalized Interest Account. The administrator will establish and
maintain the capitalized interest account as an asset of the trust
in the name of the indenture trustee. The trust will make an initial
deposit from the net proceeds of the sale of the notes into the
capitalized interest account on the closing date. The deposit will
be in cash or eligible investments equal to $__________.
On or prior to the _______________ 200_ distribution date, funds in the
capitalized interest account will be available to cover shortfalls in payments
of interest due to the class A noteholders and, after that, shortfalls in
payments of interest to class B noteholders after application of funds available
in the collection account at the end of the related collection period but before
application of the reserve account. Funds in the capitalized interest account
will not be replenished. All remaining funds on deposit in the capitalized
interest account on the _______________ 200_ distribution date will be
transferred to the collection account and included in available funds on that
distribution date.
The capitalized interest account further enhances the likelihood of timely
interest payments to noteholders through the _______________ 200_ distribution
date. Because it will not be replenished, in certain circumstances the
capitalized interest account could be depleted. This depletion could result in
shortfalls in interest distributions to noteholders.
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S-10
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Administration of the Trust
Distributions
The administrator will instruct the indenture administrator to withdraw
funds on deposit in the collection account and, to the extent required, the
reserve account and the capitalized interest account. These funds will be
applied monthly to the payment of the primary servicing fee and on each
applicable distribution date first to pay or reimburse the indenture trustee and
the indenture administrator for all amounts due to it under the indenture for
the related distribution date, next to pay or reimburse the owner trustee for
all amounts due to it under the trust agreement for the related distribution
date and then generally as shown in the chart below.
- --------------------------------------------------------------------------------
S-11
COLLECTION ACCOUNT
|
\/
1st SERVICER
(Primary Servicing Fee)
|
\/
2nd ADMINISTRATOR
(Administration Fees)
|
\/
3rd CLASS A NOTEHOLDERS
(Class A Noteholders'
Interest Distribution Amount)
|
\/
4th CLASS B NOTEHOLDERS
(Class B Noteholders'
Interest Distribution Amount)
|
5th \/
(first to class A-1 until paid in full, then to class CLASS A NOTEHOLDERS
A-2 until paid in full, then to class A-3 until (Class A Noteholders'
paid in full, then to class A-4 until paid in full, Principal Distribution Amount)
and then to class A-5 until paid in full) |
\/
6th CLASS B NOTEHOLDERS
(after the stepdown date, (Class B Noteholders'
provided that no trigger event Principal Distribution Amount)
is in effect, pro rata with the |
class A notes) |
\/
RESERVE ACCOUNT
(Amount, if any, necessary to
reinstate the reserve account
balance to the Specified Reserve
Account Balance)
|
\/
SERVICER
(Carryover Servicing Fee, if any)
|
\/
HOLDER OF
TRUST CERTIFICATE
(any remaining amounts)
Transfer of the Assets to the Trust
Under a sale agreement, the depositor will sell the trust student loans to
the trust. The eligible lender trustee will hold legal title to the trust
student loans on behalf of the trust.
If the depositor breaches a representation under the sale agreement
regarding a trust student loan, generally the depositor will have to cure the
breach, repurchase or replace that trust student loan or reimburse the trust for
losses resulting from the breach.
Servicing of the Assets
Under a servicing agreement, The Student Loan Corporation, as servicer,
will be responsible for servicing, maintaining custody of and making collections
on the trust student loans. It will also bill and collect payments from the
guarantee agencies and the Department of Education. See "Servicing and
Administration--Servicing Procedures" and "Servicing and
Administration--Administration Agreement" in the prospectus. Under some
circumstances, the servicer may transfer its obligations as servicer. See
"Servicing and Administration--Certain Matters Regarding the Servicer" in the
prospectus.
- --------------------------------------------------------------------------------
S-12
- --------------------------------------------------------------------------------
If the servicer breaches a covenant under the servicing agreement
regarding a trust student loan, generally it will have to cure the breach,
purchase that trust student loan or reimburse the trust for losses resulting
from the breach. See "The Trust Student Loan Pool--Insurance of Student Loans;
Guarantors of Student Loans" in this prospectus supplement.
Under a sub-servicing agreement, Citibank USA, National Association, as
sub-servicer, will agree to perform some or most all of the servicer's
obligations under the servicing agreement. The servicer will engage Citibank
USA, National Association, to process the payments on the trust student loans
and compensate Citibank USA, National Association, out of its own account.
In 2003, SLC was designated as an Exceptional Performer by the Department
of Education in recognition of its exceptional level of performance in servicing
FFELP loans. As a result, instead of receiving the standard rate of 98%, SLC
receives 100% reimbursement on all eligible FFELP default claims filed for
reimbursement after December 31, 2003 on loans that SLC services including the
trust student loans, causing SLC and the trust not to be subject to the 2%
risk-sharing loss for eligible claims filed after that date. However, this 100%
reimbursement rate could be reduced as a result of a variety of factors,
including changes in FFELP or in SLC's servicing performance.
Compensation of the Servicer
The servicer will receive two separate fees: a primary servicing fee and a
carryover servicing fee.
The primary servicing fee for any month is equal to ____ of an amount not
to exceed ____% of the outstanding principal amount of the trust student loans
calculated based upon the outstanding principal amount of the trust student
loans as of the first day of the preceding calendar month.
The primary servicing fee will be payable in arrears out of available
funds and amounts on deposit in the reserve account on the ____ of each month,
or if the ___ is not a business day, then on the next business day, beginning in
____ 200__. Fees will include amounts from any prior monthly servicing payment
dates that remain unpaid.
The carryover servicing fee will be payable to the servicer on each
distribution date out of available funds in the order and priority described
above.
The carryover servicing fee is the sum of:
o the amount of specified increases in the costs incurred by the
servicer;
o the amount of specified conversion, transfer and removal fees;
o any amounts described in the first two bullets that remain unpaid
from prior distribution dates; and
o interest on any unpaid amounts.
See "Description of the Notes--Servicing Compensation" in this prospectus
supplement.
Termination of the Trust
The trust will terminate upon:
o the maturity or other liquidation of the last trust student loan and
the disposition of any amount received upon its liquidation; and
o the payment of all amounts required to be paid to the noteholders.
See "The Student Loan Pools--Termination" in the prospectus.
- --------------------------------------------------------------------------------
S-13
Optional Purchase
The servicer may purchase or arrange for the purchase of all remaining
trust student loans on any distribution date on or after the first distribution
date when the pool balance is 10% or less of the initial pool balance. The
exercise of this purchase option will result in the early retirement of the
remaining notes. The purchase price will equal the amount required to prepay in
full, including all accrued interest, the remaining trust student loans as of
the end of the preceding collection period, but not less than a prescribed
minimum purchase amount.
This prescribed minimum purchase amount is the amount that would be
sufficient to:
o pay to noteholders the interest payable on the related distribution
date; and
o reduce the outstanding principal amount of each class of notes then
outstanding on the related distribution date to zero.
See "The Student Loan Pools--Termination" in the prospectus.
Interest Rate Cap
On the closing date, the trust will purchase an interest rate cap from
________________, as cap counterparty. Under the interest rate cap, on the ____
business day before each distribution date to and including the _______ 200___
distribution date, the cap counterparty will pay to the trust an amount,
calculated on a quarterly basis, equal to the product of (a) the excess, if any,
of (1) three-month LIBOR, except for the first accrual period, as determined for
the accrual period related to the applicable distribution date over (2) ____%,
(b) a notional amount equal to $________ and (c) the actual numbers of days
elapsed for such period based on a year of 360 days. LIBOR will be calculated in
the same manner as for the notes. The interest rate cap will terminate,
generally, on the _______ 200_ distribution date.
See "Description of the Notes-- Interest Rate Cap" in this prospectus
supplement.
U.S. Federal Income Tax Considerations
For a summary of tax consequences for holders of the notes, you should
refer to "U.S. Federal Income Tax Consequences" in the prospectus.
ERISA Considerations
If the notes are treated as indebtedness without substantial equity
features, the notes are eligible for purchase by or on behalf of employee
benefit plans, retirement arrangement, individual retirement accounts and Keogh
Plans, subject to the considerations discussed under "ERISA Considerations" in
the prospectus, and only if an exemption from the prohibited transaction rules
applies. Each fiduciary who purchases any note will be deemed to represent that
such an exemption exists and applies to it.
See "ERISA Considerations" in this prospectus supplement and the
prospectus for additional information concerning the application of ERISA.
Rating of the Notes
The notes are required to be rated as follows:
Class Rating Agency
(Moody's / S&P / Fitch)
A-1 Notes ________/________/_______
A-2 Notes ________/________/_______
A-3 Notes ________/________/_______
A-4 Notes ________/________/_______
- --------------------------------------------------------------------------------
S-14
- --------------------------------------------------------------------------------
A-5 Notes ________/________/_______
B Notes ________/________/_______
See "Ratings of the Notes" in this prospectus supplement.
[Listing Information
We have applied for a listing of the notes on the Luxembourg Stock
Exchange. We cannot assure you that the application will be granted. You may
consult with _____________, the Luxembourg listing agent for the notes, to
determine their status. You can contact the listing agent at [address].
The notes have been accepted for clearance and settlement by Clearstream,
Luxembourg and Euroclear.]
Risk Factors
Some of the factors you should consider before making an investment in the
notes are described in this prospectus supplement and in the prospectus under
"Risk Factors."
CUSIP Numbers
o Class A-1 notes: __________
o Class A-2 notes: __________
o Class A-3 notes: __________
o Class A-4 notes: __________
o Class A-5 notes: __________
o Class B notes: __________
European Common Codes
o Class A-1 notes: __________
o Class A-2 notes: __________
o Class A-3 notes: __________
o Class A-4 notes: __________
o Class A-5 notes: __________
International Securities Identification Numbers (ISIN)
o Class A-1 notes: __________
o Class A-2 notes: __________
o Class A-3 notes: __________
o Class A-4 notes: __________
o Class A-5 notes: __________
o Class B notes: __________
- --------------------------------------------------------------------------------
S-15
RISK FACTORS
You should carefully consider the following factors in order to understand
the structure and characteristics of the notes and the potential merits and
risks of an investment in the notes. Potential investors must review and be
familiar with the following risk factors in deciding whether to purchase any
note. The prospectus describes additional risk factors that you should also
consider beginning on page 15 of the prospectus. These risk factors could affect
your investment in or return on the notes.
Subordination of the Class B Notes and Sequential Payment of the Notes May
Result in a Greater Risk of Loss
Class B noteholders bear a greater risk of loss than do class A
noteholders because:
o On each distribution date, distributions of interest on the class B
notes will be subordinate to the payment of interest on the class A
notes and distributions of principal of the class B notes will be
subordinate to the payment of both interest and principal on the
class A notes; and
o No principal will be paid to the class B noteholders until all
principal due to the class A noteholders on each distribution date
has been paid in full.
Holders of later maturing class A notes bear a greater risk of loss than
do holders of earlier maturing class A notes because, prior to an event of
default, no principal will be paid to any class A noteholders until each class
of the class A notes having an earlier maturity has been paid in full.
Investors in the Class B Notes Bear Greater Risk of Loss Because the Priority of
Payment of Interest and the Timing of Principal Payments on the Class B
Notes May Change Due to the Variability of Cash Flows
Interest on the class B notes generally will be paid prior to principal on
the class A notes. However, if after giving effect to all required distributions
of principal and interest on the notes on any distribution date, the outstanding
principal balance of the trust student loans, plus accrued but unpaid interest
thereon, and amounts then on deposit in the reserve account in excess of the
specified reserve account balance, would be less than the outstanding principal
balance of the class A notes, less amounts (other than investment earnings) then
on deposit in any accumulation account, interest on the class B notes will be
subordinated to the payment of principal on the class A notes on that
distribution date.
Principal on the class B notes will not begin to be paid until the
stepdown date. However, if a trigger event is in effect on any distribution
date, the class B notes will not receive any payments of principal on any
distribution date occurring or after the stepdown date unless the class A notes
have been paid in full.
Thus, investors in the class B notes will bear a greater risk of loss than
the holders of class A notes. Investors in the class B notes will also bear the
risk of any adverse changes in the anticipated yield and weighted average life
of their notes resulting from any variability in payments of principal and/or
interest on the class B notes.
The Characteristics of the Trust Student Loans May Change
The statistical information in this prospectus supplement reflects only
the characteristics of the trust student loans as of the statistical cutoff
date. The trust student loans actually sold to the trust on the closing date
will have characteristics that differ somewhat from the characteristics of the
trust student loans as of the statistical cutoff date due to payments received
and other changes in these loans that occur during the period from the
statistical cutoff date to the closing date. We do not expect the
characteristics of the trust student loans actually sold to the trust on the
closing date to differ materially from the characteristics of the trust student
loans as of the statistical cutoff date. However, in making your investment
decision, you should assume that the trust student loans will vary somewhat from
the trust student loans presented in this prospectus supplement.
S-16
Because the Initial Principal Balance of the Notes Exceeds the Trust Assets, You
May Be Adversely Affected by a High Rate of Prepayments
The initial pool balance as of the statistical cutoff date plus the
initial balance of the capitalized interest account is approximately ____% of
the aggregate principal balance of the notes. Noteholders must rely primarily on
interest payments on the trust student loans and other trust assets, in excess
of servicing, trustee and administration fees and interest payable on the notes,
to reduce the aggregate principal balance of the notes to the pool balance. The
noteholders, especially class B noteholders, could be adversely affected by a
high rate of prepayments, which would reduce the amount of interest available
for this purpose. Prepayments may increase when borrowers further consolidate or
reconsolidate their student loans (which tends to occur more frequently when
interest rates are lower than when such student loans were originated or
initially consolidated), from borrower defaults and from voluntary full or
partial prepayments, among other things. In addition, the principal balance of
the trust student loans on which interest will be collected will be less than
the principal balance of the notes for some period.
You May Incur Losses or Delays in Payments on Your Notes if Borrowers Default
on the Student Loans
SLC, which was designated as an Exceptional Performer by the Department of
Education in recognition of its exceptional level of performance in servicing
FFELP loans, receives 100% reimbursement, instead of the standard rate of 98%,
on all eligible FFELP default claims filed for reimbursement after December 31,
2003 on loans that SLC services. However, this 100% reimbursement rate could be
reduced as a result of a variety of factors, including changes in FFELP or in
SLC's servicing performance. If this 100% reimbursement rate is so reduced, the
majority of the student loans owned by the trust will be less than 100%
guaranteed. If a borrower defaults on a student loan that is less than 100%
guaranteed, the related trust will experience a loss of the difference between
100% and the actual percentage rate of reimbursement (such percentage rate of
reimbursement not to be below 98%) of the outstanding principal and accrued
interest on that student loan. If defaults occur on the trust student loans and
the credit enhancement described in this prospectus supplement is insufficient,
you may suffer a delay in payment or losses on your notes.
Your Notes May Have a Degree of Basis Risk, Which Could Compromise the Trust's
Ability to Pay Principal and Interest on Your Notes
There is a degree of basis risk associated with the notes. Basis risk is
the risk that shortfalls might occur because, among other things, the interest
rates of the trust student loans adjust on the basis of specified indices and
those of the notes adjust on the basis of a different index. If a shortfall were
to occur, the trust's ability to pay your principal and/or interest on the notes
could be compromised.
Changes in Law May Affect Student Loans and May Impact the Yield and Expected
Term to Maturity of Your Securities
Several bills have been introduced in the U.S. House of Representatives
and U.S. Senate that, if enacted into law, would permit borrowers with
outstanding consolidation loans to refinance those loans. Any legislation that
permits borrowers to refinance existing consolidation loans could significantly
increase the rate of repayments on the student loans, lower the yield with
respect to the student loans and shorten the expected term to maturity for any
class of securities that then bears interest at a floating rate. In addition, if
the legislation referred to above or any similar legislation is enacted into
law, the length of time that the securities are outstanding and their weighted
average lives may be shortened significantly.
DEFINED TERMS
In later sections, we use a few terms that we define in the Glossary at
the end of this prospectus supplement. These terms appear in bold face on their
first use and in initial capital letters in all cases.
S-17
FORMATION OF THE TRUST
The Trust
The SLC Student Loan Trust 200___-___ is a statutory trust newly formed
under Delaware law.
After its formation, the trust will not engage in any activity other than:
o acquiring, holding and managing the trust student loans and the
other assets of the trust and related proceeds;
o issuing the notes;
o making payments on the notes;
o purchasing the interest rate cap; and
o engaging in other activities that are necessary, suitable or
convenient to accomplish, or are incidental to, the foregoing.
The net proceeds from the sale of the notes will be used by the eligible
lender trustee to make the initial deposits into the collection account, the
capitalized interest account and the reserve account, to make the upfront
payment on the interest rate cap and to purchase, on behalf of the trust, the
trust student loans. It will purchase the trust student loans from the depositor
under a sale agreement to be dated as of the closing date, among the depositor,
the trust and the eligible lender trustee. On the closing date, the depositor
will use the net proceeds it receives from the sale of the trust student loans
to pay to SLC the purchase price of the trust student loans acquired from it
under the purchase agreement between the depositor and SLC.
The property of the trust will consist of:
o the pool of trust student loans, legal title to which is held by the
eligible lender trustee on behalf of the trust;
o all funds collected on trust student loans, including any special
allowance payments and interest subsidy payments, on or after the
cutoff date;
o all moneys and investments from time to time on deposit in the trust
accounts;
o its rights under the transfer and servicing agreements, including
the right to require SLC, the depositor or the servicer to
repurchase trust student loans from it or to substitute student
loans under certain conditions;
o its rights under the guarantee agreements with guarantors; and
o its rights under the interest rate cap.
The notes will be secured by the property of the trust. The collection
account will be maintained by the indenture administrator in the name of the
indenture trustee for the benefit of the noteholders. The reserve account and
the capitalized interest account will be maintained in the name of the indenture
trustee for the benefit of the noteholders. To facilitate servicing and to
minimize administrative burden and expense, the servicer will act as custodian
of the promissory notes representing the trust student loans and other related
documents.
The trust's principal offices are in ___________, in care of
__________________, as eligible lender trustee, at its address shown below.
S-18
Eligible Lender Trustee
_________________________ is the eligible lender trustee for the trust
under the trust agreement. ___________________________ is a _______________
whose corporate trust offices are located at ____________________________. The
eligible lender trustee will acquire on behalf of the trust legal title to all
the trust student loans acquired under the sale agreement. The eligible lender
trustee on behalf of the trust has entered into a separate guarantee agreement
with each of the guarantee agencies described in this prospectus supplement with
respect to the trust student loans. The eligible lender trustee qualifies as an
eligible lender and the holder of the trust student loans for all purposes under
the Higher Education Act and the guarantee agreements. Failure of the trust
student loans to be owned by an eligible lender would result in the loss of
guarantor and Department of Education payments on the trust student loans. See
"Appendix A--Federal Family Education Loan Program--Eligible Lenders, Students
and Educational Institutions" in the prospectus.
The eligible lender trustee's liability in connection with the issuance
and sale of the notes is limited solely to the express obligations of the
eligible lender trustee in the trust agreement and the sale agreement. See
"Description of the Notes" in this prospectus supplement and "Transfer and
Servicing Agreements" in the prospectus. Affiliates of the depositor maintain
banking relations with the eligible lender trustee.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sources of Capital and Liquidity
The trust's primary sources of capital will be the net proceeds from the
sale of the notes. See "Formation of the Trust--Capitalization of the Trust" in
this prospectus supplement.
The trust's primary sources of liquidity will be collections on the trust
student loans, as supplemented by:
o through the ________ 200_ distribution date, amounts on deposit in
the capitalized interest account;
o any payments received from the cap counterparty under the interest
rate cap; and
o amounts on deposit in the reserve account.
Results of Operations
The trust is newly formed and, accordingly, has no results of operations
as of the date of this prospectus supplement. Because the trust does not have
any operating history, we have not included in this prospectus supplement any
historical or pro forma ratio of earnings to fixed charges. The earnings on the
trust student loans and other assets owned by the trust and the interest costs
of the notes will determine the trust's results of operations in the future. The
income generated from the trust's assets will pay operating costs and expenses
of the trust and interest and principal on the notes. The principal operating
expenses of the trust are expected to be, but are not limited to, servicing and
administration fees.
USE OF PROCEEDS
The trust will use the net proceeds of $________ from the sale of the
notes to make the initial deposits into the collection account, the reserve
account and the capitalized interest account, to purchase the trust student
loans from the depositor on the closing date under the sale agreement and to
make the upfront payment on the interest rate cap. The depositor will then use
the proceeds paid to the depositor by the trust to pay to SLC the purchase price
due to SLC for the trust student loans purchased by the depositor. Expenses
incurred to establish the trust and issue the notes (other than fees that are
due to the underwriters) are payable by the depositor.
S-19
THE TRUST STUDENT LOAN POOL
The eligible lender trustee, on behalf of the trust, will purchase the
pool of trust student loans from the depositor on the closing date, and the
trust will be entitled to collections on and proceeds of the trust student loans
on and after that date. Unless otherwise specified, all information with respect
to the trust student loans is presented herein as of ________ __, 200__, which
is the statistical cutoff date.
The depositor will purchase the trust student loans from SLC under the
purchase agreement. SLC originated or acquired the trust student loans.
The trust student loans were selected from SLC's portfolio of
consolidation student loans by employing several criteria, including
requirements that each trust student loan as of the statistical cutoff date:
o is guaranteed as to principal and interest by a guarantee agency
under a guarantee agreement and the guarantee agency is, in turn,
reinsured by the Department of Education in accordance with the
FFELP;
o contains terms in accordance with those required by FFELP, the
guarantee agreements and other applicable requirements;
o is more than 180 days past the final disbursement;
o is not more than 210 days past due;
o does not have a borrower who is noted in the related records of the
servicer as being currently involved in a bankruptcy proceeding; and
o has special allowance payments, if any, based on the three-month
commercial paper rate or the 91-day treasury bill rate.
No trust student loan as of the statistical cutoff date was subject to any
prior obligation to sell that loan to a third party.
The following tables provide a description of specified characteristics of
the trust student loans as of the statistical cutoff date. The aggregate
outstanding principal balance of the loans in each of the following tables
includes the principal balance due from borrowers, plus accrued interest to be
capitalized of $_________ as of the statistical cutoff date.
The distribution by weighted average interest rate applicable to the trust
student loans on any date following the statistical cutoff date may vary
significantly from that in the following tables as a result of variations in the
effective rates of interest applicable to the trust student loans. Moreover, the
information below about the weighted average remaining term to maturity of the
trust student loans as of the statistical cutoff date may vary significantly
from the actual term to maturity of any of the trust student loans as a result
of prepayments or the granting of deferral and forbearance periods on any of the
trust student loans.
The following tables also contain information concerning the total number
of loans and the total number of borrowers in the portfolio of trust student
loans. For ease of administration, the servicer separates a consolidation loan
on its system into two separate loan segments representing subsidized and
unsubsidized segments of the same loan. The following tables reflect those loan
segments within the number of loans. Percentages and dollar amounts in any table
may not total 100% or the trust student loan balance, as applicable, due to
rounding.
S-20
COMPOSITION OF THE TRUST STUDENT LOANS
AS OF THE STATISTICAL CUTOFF DATE
Aggregate Outstanding Principal Balance.............................. $__________
Aggregate Outstanding Principal Balance--Treasury Bill............ $__________
Aggregate Outstanding Principal Balance--Commercial Paper......... $__________
Number of Borrowers.................................................. __________
Average Outstanding Principal Balance Per Borrower................... $__________
Number of Loans...................................................... __________
Average Outstanding Principal Balance Per Loan--Treasury Bill........ $__________
Average Outstanding Principal Balance Per Loan--Commercial Paper..... $__________
Weighted Average Remaining Term to Scheduled Maturity................ ___ months
Weighted Average Annual Borrower Interest Rate....................... ___%
Weighted Average Margin--Treasury Bill............................... ___%
Weighted Average Margin--Commercial Paper............................ ___%
We determined the weighted average remaining term to maturity shown in the
table from the statistical cutoff date to the stated maturity date of the
applicable trust student loan without giving effect to any deferral or
forbearance periods that may be granted in the future. See Appendix A to the
prospectus and "The Student Loan Pools--The Student Loan Corporation's Student
Loan Business" in the prospectus.
For this purpose, the three-month commercial paper rate is the average of
the bond equivalent rates of the three-month commercial paper (financial) rates
in effect for each of the days in a calendar quarter as reported by the Federal
Reserve in Publication H.15 (or its successor) for that calendar quarter. The
91-day treasury bill rate is the weighted average per annum discount rate,
expressed on a bond equivalent basis and applied on a daily basis, for direct
obligations of the United States with a maturity of thirteen weeks, as reported
by the U.S. Department of the Treasury.
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY BORROWER INTEREST RATES AS OF THE STATISTICAL CUTOFF DATE
Percent of
Aggregate Pool by
Outstanding Outstanding
Principal Principal
Interest Rates Number of Loans Balance Balance
- ---------------------------------------------------------- ------------------ ----------------- ---------------
Less than or equal to ___%........................... _____ $ __________ ____%
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
___% to ___%......................................... _____ __________ ____
Equal to or greater than ___%........................ ____
------------------ ----------------- ---------------
Total $ %
================== ================= ===============
We determined the interest rates shown in the table above using the interest
rates applicable to the trust student loans as of the statistical cutoff date.
[Because most of the trust student loans bear interest at variable rates of
interest that reset annually, this information will not remain applicable to the
trust student loans after the statistical cutoff date.] See Appendix A to the
prospectus and "The Student Loan Pools--The Student Loan Corporation's Student
Loan Business" in the prospectus.
S-21
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY OUTSTANDING PRINCIPAL BALANCE PER BORROWER
AS OF THE STATISTICAL CUTOFF DATE
Percent of
Aggregate Pool by
Outstanding Outstanding
Range of Outstanding Number of Principal Principal
Principal Balance Borrowers Balance Balance
- ---------------------------------------------------------- ------------------ ----------------- ---------------
Less than $5,000.00................................... $ %
$ 5,000.00 - $ 9,999.99...............................
$10,000.00 - $14,999.99...............................
$15,000.00 - $19,999.99...............................
$20,000.00 - $24,999.99...............................
$25,000.00 - $29,999.99...............................
$30,000.00 - $34,999.99...............................
$35,000.00 - $39,999.99...............................
$40,000.00 - $44,999.99...............................
$45,000.00 - $49,999.99...............................
$50,000.00 - $54,999.99...............................
$55,000.00 - $59,999.99...............................
$60,000.00 - $64,999.99...............................
$65,000.00 - $69,999.99...............................
$70,000.00 - $74,999.99...............................
$75,000.00 - $79,999.99...............................
$80,000.00 - $84,999.99...............................
$85,000.00 - $89,999.99...............................
$90,000.00 - $94,999.99...............................
$95,000.00 - $99,999.99...............................
$100,000.00 and greater...............................
------------------ ----------------- ---------------
Total $ %
================== ================= ===============
S-22
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool
Aggregate by Outstanding
Number of Months Remaining Outstanding Principal
to Scheduled Maturity Number of Loans Principal Balance Balance
- ---------------------------------------------------------- ------------------ ------------------ ---------------
0 to 3............................................... $ %
4 to 12..............................................
13 to 24.............................................
25 to 36.............................................
37 to 48.............................................
49 to 60.............................................
61 to 72.............................................
73 to 84.............................................
85 to 96.............................................
97 to 108............................................
109 to 120...........................................
121 to 132...........................................
133 to 144...........................................
145 to 156...........................................
157 to 168...........................................
169 to 180...........................................
181 to 192...........................................
193 to 204...........................................
205 to 216...........................................
217 to 228...........................................
229 to 240...........................................
241 to 252...........................................
253 to 264...........................................
265 to 276...........................................
277 to 288...........................................
289 to 300...........................................
301 to 312...........................................
313 to 324...........................................
325 to 336...........................................
337 to 348...........................................
349 to 360...........................................
361 and greater......................................
------------------- ----------------- --------------
Total............................................ $ %
=================== ================= ==============
We have determined the numbers of months remaining to scheduled maturity
shown in the table from the statistical cutoff date to the stated maturity date
of the applicable trust student loan without giving effect to any deferral or
forbearance periods that may be granted in the future. See Appendix A to the
prospectus and "The Student Loan Pools--The Student Loan Corporation's Student
Loan Business" in the prospectus.
S-23
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY CURRENT BORROWER PAYMENT STATUS AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool
Aggregate by Outstanding
Number of Outstanding Principal
Current Borrower Payment Status Loans Principal Balance Balance
- -------------------------------------------------------- ------------------- ------------------- ----------------
Deferral............................................... $ %
Forbearance............................................
Repayment
First year in repayment.............................
Second year in repayment............................
Third year in repayment.............................
More than 3 years in repayment......................
------------------- ------------------- ----------------
Total............................................ $ %
=================== =================== ================
Current borrower payment status refers to the status of the borrower of
each trust student loan as of the statistical cutoff date. The borrower:
o may still be attending school--in-school;
o [may be in a grace period after completing school and prior to
repayment commencing--grace;]
o may have temporarily ceased repaying the loan through a deferral or
a forbearance period; or
o may be currently required to repay the loan--repayment.
See Appendix A to the prospectus and "The Student Loan Pools--The Student
Loan Corporation's Student Loan Business" in the prospectus.
The weighted average number of months in repayment for all trust student
loans currently in repayment is approximately ____, calculated as the term to
maturity at the commencement of repayment less the number of months remaining to
scheduled maturity as of the statistical cutoff date.
SCHEDULED WEIGHTED AVERAGE REMAINING MONTHS IN STATUS OF THE
TRUST STUDENT LOANS BY CURRENT BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE
Scheduled Months in Status
----------------------------------------------------------------
Current Borrower Payment Status Deferral Forbearance Repayment
- ------------------------------------------------- ---------------------- ------------------ ----------------------
Deferral........................................
Forbearance.....................................
Repayment.......................................
We have determined the scheduled months in status shown in the table without
giving effect to any deferral or forbearance periods that may be granted in the
future. See Appendix A to the prospectus and "The Student Loan Pools--The
Student Loan Corporation's Student Loan Business" in the prospectus.
S-24
GEOGRAPHIC DISTRIBUTION OF THE
TRUST STUDENT LOANS AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool
Aggregate by Outstanding
Outstanding Principal
State Number of Loans Principal Balance Balance
- ------------------------------------------------------------ ------------------- ------------------ ----------------
Alabama................................................... $ %
Alaska....................................................
Arizona...................................................
Arkansas..................................................
California................................................
Colorado..................................................
Connecticut...............................................
Delaware..................................................
District of Columbia......................................
Florida...................................................
Georgia...................................................
Hawaii....................................................
Idaho.....................................................
Illinois..................................................
Indiana...................................................
Iowa......................................................
Kansas....................................................
Kentucky..................................................
Louisiana.................................................
Maine.....................................................
Maryland..................................................
Massachusetts.............................................
Michigan..................................................
Minnesota.................................................
Mississippi...............................................
Missouri..................................................
Montana...................................................
Nebraska..................................................
Nevada....................................................
New Hampshire.............................................
New Jersey................................................
New Mexico................................................
New York..................................................
North Carolina............................................
North Dakota..............................................
Oklahoma..................................................
Oregon....................................................
Pennsylvania..............................................
Rhode Island..............................................
South Carolina............................................
South Dakota..............................................
Tennessee.................................................
Texas.....................................................
Utah......................................................
Vermont...................................................
Virginia..................................................
Washington................................................
West Virginia.............................................
Wisconsin.................................................
Wyoming...................................................
Other.....................................................
------------------- ------------------ ----------------
Total............................................... $ %
=================== ================== ================
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We have based the geographic distribution shown in the table on the
billing addresses of the borrowers of the trust student loans shown on the
servicer's records as of the statistical cutoff date.
Each of the trust student loans provides or will provide for the
amortization of its outstanding principal balance over a series of regular
payments. Except as described below, each regular payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the trust student loan. The amount received is applied
first to interest accrued to the date of payment and the balance of the payment,
if any, is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular installment before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if a borrower pays a
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In addition, if a borrower pays a monthly installment
after its scheduled due date, the borrower may owe a fee on that late payment.
If a late fee is applied, such payment will be applied first to the applicable
late fee, second to interest and third to principal. As a result, the portion of
the payment applied to reduce the unpaid principal balance may be less than it
would have been had the payment been made as scheduled.
In either case, subject to any applicable deferral periods or forbearance
periods, and except as provided below, the borrower pays a regular installment
until the final scheduled payment date, at which time the amount of the final
installment is increased or decreased as necessary to repay the then outstanding
principal balance of that trust student loan.
SLC currently offers two incentive programs to borrowers of student loans
it holds. One incentive program allows for a 0.25% interest rate reduction to
borrowers who elect to have their installments deducted automatically from their
bank accounts. Another incentive program provides a 1.00% interest rate
reduction to borrowers who, starting with their first installment, pay a
specified number of installments on time and in succession. This benefit is lost
if a borrower is delinquent with respect to any subsequent installment. As of
the statistical cutoff date, the effect of borrower benefits is currently a
reduction of approximately 0.09% in the weighted average borrower interest rate,
which number may increase or decrease depending upon the eligibility or
disqualification of participants. In addition, through the servicer, SLC makes
payment terms available to borrowers of student loans it holds that may result
in the lengthening of the remaining term of the student loans. For example, not
all of the loans owned by SLC provide for level payments throughout the
repayment term of the loans. Some student loans provide for interest only
payments to be made for a designated portion of the term of the loans, with
amortization of the principal of the loans occurring only when payments increase
in the latter stage of the term of the loans. Other loans provide for a
graduated phase in of the amortization of principal with a greater portion of
principal amortization being required in the latter stages than would be the
case if amortization were on a level payment basis. SLC also offers, through the
servicer, an income-sensitive repayment plan, under which repayments are based
on the borrower's income, and an extended repayment plan, under which certain
borrowers may extend their repayment term up to 25 years.
The following table provides certain information about trust student loans
subject to the repayment terms described in the preceding paragraphs.
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY LOAN TYPE AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent of Pool by
Outstanding Outstanding
Loan Type Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------- ---------------- ------------------- -----------------
Subsidized............................................... $ %
Unsubsidized.............................................
---------------- ------------------- -----------------
Total................................................. $ %
================ =================== =================
S-26
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY REPAYMENT TERMS AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent of Pool by
Outstanding Outstanding
Loan Repayment Terms Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------- ---------------- --------------------- -----------------
Level Payment(1)......................................... $ %
Other Repayment Options(2)...............................
---------------- --------------------- -----------------
Total................................................. $ %
================ ===================== =================
- --------------------
(1) Also includes in-school and in-grace loans.
(2) Includes, among others, graduated repayment, income-sensitive and
interest-only period loans.
The servicer, at the request of SLC and on behalf of the trust, may in the
future offer repayment terms similar to those described above to borrowers of
loans in the trust who are not entitled to these repayment terms as of the
statistical cutoff date. If repayment terms are offered to and accepted by
borrowers, the weighted average life of the securities could be lengthened.
The following table provides information about the trust student loans
regarding date of disbursement.
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY DATE OF DISBURSEMENT AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent of Pool by
Number of Outstanding Outstanding
Disbursement Date Loans Principal Balance Principal Balance
- ------------------------------------------------------------- -------------- --------------------- -----------------
Pre-October 1, 1993...................................... $ %
October 1, 1993 and thereafter...........................
-------------- --------------------- -----------------
Total................................................. $ %
============== ===================== =================
Student Loans disbursed prior to October 1, 1993 are 100% guaranteed by
the applicable guarantor, and reinsured against default by the Department of
Education. Student loans disbursed on or after October 1, 1993 are 98%
guaranteed by the applicable guarantor, and reinsured against default by the
Department of Education. [However, SLC, which was designated as an Exceptional
Performer by the Department of Education in recognition of its exceptional level
of performance in servicing FFELP loans, receives 100% reimbursement, instead of
the standard rate of 98%, on all eligible FFELP default claims filed for
reimbursement after December 31, 2003 on loans that SLC services.] See "Appendix
A--Federal Family Education Loan Program--Guarantee Agencies under the FFELP" in
the prospectus.
Insurance of Student Loans; Guarantors of Student Loans
General. Each trust student loan is required to be guaranteed as to at
least 98% of the principal and interest by one of the guarantee agencies
described below and reinsured by the Department of Education under the Higher
Education Act and must be eligible for special allowance payments and, in the
case of some trust student loans, interest subsidy payments by the Department of
Education.
No insurance premium is charged to a borrower or a lender in connection
with a consolidation loan. However, FFELP lenders must pay a monthly rebate fee
to the Department at an annualized rate of 1.05% on principal of and interest on
consolidation loans disbursed on or after October 1, 1993, or at an annualized
rate of 0.62% on consolidation loans for which consolidation loan applications
were received between October 1, 1998 and January 31, 1999. The trust will pay
this consolidation loan rebate prior to calculating Available Funds.
Guarantee Agencies for the Trust Student Loans. The eligible lender
trustee has entered into a separate guarantee agreement with each of the
guarantee agencies listed below, under which each of the guarantors has agreed
to serve as guarantor for specified trust student loans.
Under the Higher Education Amendments of 1992, if the Department of
Education has determined that a guarantee agency is unable to meet its insurance
obligations, a loan holder may submit claims directly to the
S-27
Department of Education and the Department of Education is required to pay the
full guarantee payment in accordance with guarantee claim processing standards
no more stringent than those of the guarantee agency. However, the Department of
Education's obligation to pay guarantee claims directly in this fashion is
contingent upon the Department of Education making the determination referred to
above. We cannot assure you that the Department of Education would ever make
such a determination with respect to a guarantee agency or, if such a
determination was made, whether that determination or the ultimate payment of
guarantee claims would be made in a timely manner. See "Appendix A--Federal
Family Education Loan Program--Guarantee Agencies under the FFELP" in the
prospectus.
The following table provides information with respect to the portion of
the trust student loans guaranteed by each guarantor:
DISTRIBUTION OF THE TRUST STUDENT LOANS BY
GUARANTEE AGENCY AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent of Pool
Outstanding by Outstanding
Number of Principal Balance Principal
Loans of Loans Balance
Name of Guarantee Agency Guaranteed Guaranteed Guaranteed
- ----------------------------------------------------------------- ---------------- ----------------- ----------------
$ %
---------------- ----------------- ----------------
Total..................................................... $ %
================ ================= ================
Some historical information about each of the guarantee agencies that
guarantees trust student loans comprising at least 10% of the initial Pool
Balance is provided below. For purposes of the following tables we refer to
these guarantee agencies as the "Significant Guarantors." The information shown
for the Significant Guarantors relates to all student loans, including but not
limited to trust student loans, guaranteed by the Significant Guarantor.
We obtained the information in these tables from various sources,
including from the Significant Guarantors themselves or, if not available from
the Significant Guarantors, from Department of Education publications and data.
None of the depositor, SLC or the underwriters have not audited or independently
verified this information for accuracy or completeness.
Guarantee Volume. The following table describes the approximate aggregate
principal amount of federally reinsured student loans, excluding consolidation
loans, that first became guaranteed by the Significant Guarantors and by all
guarantee agencies, including but not limited to those guaranteeing trust
student loans, in each of the five federal fiscal years shown:
S-28
Loans Guaranteed
--------------------------------------------------------------------------------------
Federal Fiscal Year
--------------------------------------------------------------------------------------
Name of Guarantee Agency 1999 2000 2001 2002 2003
- ------------------------------- ---------------- ----------------- ---------------- ----------------- ----------------
$ $ $ $ $
$ $ $ $ $
Reserve Ratio. A Significant Guarantor's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. For this purpose:
o Cumulative cash reserves are cash reserves plus (1) sources of
funds, including insurance premiums, state appropriations, federal
advances, federal reinsurance payments, administrative cost
allowances, collections on claims paid and investment earnings,
minus (2) uses of funds, including claims paid to lenders, operating
expenses, lender fees, the Department of Education's share of
collections on claims paid, returned advances and reinsurance fees.
o The original principal amount of outstanding loans consists of the
original principal amount of loans guaranteed by the guarantor minus
the original principal amount of loans cancelled, claims paid, loans
paid in full and loan guarantees transferred to the guarantor from
other guarantors.
The following table shows the Significant Guarantors' reserve ratios for
the last five federal fiscal years as well as the average reserve ratio for all
guarantors for the same periods for which information is available:
Reserve Ratio as of Close of
Federal Fiscal Year
------------------------------------------------------------
Guarantors 1999 2000 2001 2002 2003
- -------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
% % % % %
Recovery Rates. A guarantor's recovery rate, which provides a measure of
the effectiveness of the collection efforts against defaulting borrowers after
the guarantee claim has been satisfied, is determined for each year by dividing
the cumulative amount recovered from borrowers by the guarantor by the
cumulative aggregate amount of default claims paid by the guarantor. The table
below shows the cumulative recovery rates for the Significant Guarantors for the
last five federal fiscal years for which information is available:
Recovery Rate
Federal Fiscal Year
------------------------------------------------------------
Guarantors 1999 2000 2001 2002 2003
- -------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
% % % % %
S-29
Claims Rate. The following table shows the claims rates of the Significant
Guarantors for the last five federal fiscal years:
Claims Rate
Federal Fiscal Year
------------------------------------------------------------
Guarantors 1999 2000 2001 2002 2003
- -------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
% % % % %
The Department of Education is required to make reinsurance payments to
guarantors with respect to FFELP loans in default. This requirement is subject
to specified reductions when the guarantor's claims rate for a fiscal year
equals or exceeds certain trigger percentages of the aggregate original
principal amount of FFELP loans guaranteed by that guarantor that are in
repayment on the last day of the prior fiscal year. See "Appendix A--Federal
Family Education Loan Program" to the prospectus.
Each guarantee agency's guarantee obligations with respect to any trust
student loan is conditioned upon the satisfaction of all the conditions in the
applicable guarantee agreement. These conditions include, but are not limited
to, the following:
o the origination and servicing of the trust student loan being
performed in accordance with the FFELP the Higher Education Act, the
guarantee agency's rules and other applicable requirements;
o the timely payment to the guarantee agency of the guarantee fee
payable on the trust student loan; and
o the timely submission to the guarantee agency of all required
pre-claim delinquency status notifications and of the claim on the
trust student loan.
Failure to comply with any of the applicable conditions, including those
listed above, may result in the refusal of the guarantee agency to honor its
guarantee agreement on the trust student loan, in the denial of guarantee
coverage for certain accrued interest amounts or in the loss of certain interest
subsidy payments and special allowance payments.
Prospective investors may consult the Department of Education Data Books
for further information concerning the guarantors.
Cure Period for Trust Student Loans
SLC, the depositor or the servicer, as applicable, will be obligated to
purchase, or to substitute qualified substitute student loans for, any trust
student loan in the event of a material breach of certain representations,
warranties or covenants concerning the trust student loan, following a period
during which the breach may be cured. For purposes of trust student loans the
cure period will be 210 days. However, in the case of breaches that may be cured
by the reinstatement of the guarantor's guarantee of the trust student loan, the
cure period will be 360 days. In each case the cure period begins on the earlier
of the date on which the breach is discovered and the date of the servicer's
receipt of the guarantor reject transmittal form with respect to the trust
student loan. The purchase or substitution will be made not later than the end
of the 210-day cure period or not later than the 60th day following the end of
the 360-day cure period, as applicable.
Notwithstanding the foregoing, if as of the last business day of any month
the aggregate principal amount of trust student loans for which claims have been
filed with and rejected by a guarantor as a result of a breach by the depositor
or the servicer or for which the servicer determines that claims cannot be filed
pursuant to the Higher Education Act as a result of such a breach exceeds 1% of
the pool balance, then the servicer or the depositor, as applicable, will be
required to purchase, within 30 days of a written request by the owner trustee
or the indenture trustee, such affected trust student loans in an aggregate
principal amount so that after the purchases the aggregate principal amount of
affected trust student loans is less than 1% of the pool balance. The trust
student loans to be purchased by the servicer or the depositor pursuant to the
preceding sentence will be based on the date of claim
S-30
rejection, with the trust student loans with the earliest of these dates to be
purchased first. See "Servicing and Administration--Servicer Covenants" and
"Transfer and Servicing Agreements--Sale of Student Loans to the Trust;
Representations and Warranties of the Depositor" and "--Purchase of Student
Loans by the Depositor; Representations and Warranties of The Student Loan
Corporation" in the prospectus.
Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims with
Other Trusts
Due to a Department of Education policy limiting the granting of new
lender identification numbers, the eligible lender trustee will be allowed under
the trust agreement to permit other trusts established by the depositor to
securitize student loans to use the Department of Education lender
identification number applicable to the trust. In that event, the billings
submitted to the Department of Education for interest subsidy and special
allowance payments on loans in the trust would be consolidated with the billings
for the payments for student loans in other trusts using the same lender
identification number and payments on the billings would be made by the
Department of Education in lump sum form. These lump sum payments would then be
allocated among the various trusts using the same lender identification number.
In addition, the sharing of the lender identification number with other
trusts may result in the receipt of claim payments from guarantee agencies in
lump sum form. In that event, these payments would be allocated among the trusts
in a manner similar to the allocation process for interest subsidy and special
allowance payments.
The Department of Education regards the eligible lender trustee as the
party primarily responsible to the Department of Education for any liabilities
owed to the Department of Education or guarantee agencies resulting from the
eligible lender trustee's activities in the FFELP. As a result, if the
Department of Education or a guarantee agency were to determine that the
eligible lender trustee owes a liability to the Department of Education or a
guarantee agency on any student loan included in a trust using the shared lender
identification number, the Department of Education or that guarantee agency
would be likely to collect that liability by offset against amounts due the
eligible lender trustee under the shared lender identification number, including
amounts owed in connection with the trust.
In addition, other trusts using the shared lender identification number
may in a given quarter incur consolidation origination fees that exceed the
interest subsidy and special allowance payments payable by the Department of
Education on the loans in the other trusts, resulting in the consolidated
payment from the Department of Education received by the eligible lender trustee
under the lender identification number for that quarter equaling an amount that
is less than the amount owed by the Department of Education on the loans in the
trust for that quarter.
The servicing agreement for the trust and the servicing agreements for the
other trusts established by the depositor that share the lender identification
number to be used by the trust will require any trust to indemnify the other
trusts against a shortfall or an offset by the Department of Education or a
guarantee agency arising from the student loans held by the eligible lender
trustee on the trust's behalf.
DESCRIPTION OF THE NOTES
General
The notes will be issued under an indenture substantially in the form
filed as an exhibit to the registration statement of which this prospectus
supplement is a part. The following summary describes some terms of the notes,
the indenture, the trust agreement and the interest rate cap. The prospectus
describes other terms of the notes. See "Description of the Notes" and "Certain
Information Regarding the Securities" in the prospectus. The following summary
does not cover every detail and is subject to the provisions of the notes, the
indenture, the trust agreement and the interest rate cap.
S-31
The Notes
The Class A Notes.
Distributions of Interest. Interest will accrue on the outstanding
principal balances of the class A notes at their respective interest rates.
Interest will accrue during each applicable accrual period and will be payable
to the class A noteholders on each distribution date. Interest accrued as of any
distribution date but not paid on that distribution date will be due on the next
distribution date together with an amount equal to interest on the unpaid amount
at the applicable rate per annum specified in the definition of Class A Note
Interest Shortfall in the Glossary. Interest payments on the class A notes for
any distribution date will generally be funded from Available Funds and the
other sources of funds for payment described in this prospectus supplement
(subject to all prior required distributions). See "--Distributions" and
"--Credit Enhancement" in this prospectus supplement. If these sources are
insufficient to pay the Class A Noteholders' Interest Distribution Amount for
that distribution date, the shortfall will be allocated pro rata to the class A
noteholders, based upon the total amount of interest then due on each class of
class A notes.
The interest rate for each class of class A notes for each accrual period
will be equal to the sum of three-month LIBOR, except for the first accrual
period, and the following applicable spread:
Class of Notes Spread
---------------------------------------------- ---------
Class A-1.................................... %
Class A-2.................................... %
Class A-3.................................... %
Class A-4.................................... %
Class A-5.................................... %
LIBOR for the first accrual period will be determined by the following
formula:
x + [___/___ x (y - x)]
where:
x = [___]-month LIBOR, and
y = [___]-month LIBOR.
The administrator will determine LIBOR for the specified maturity for each
accrual period on the second business day before the beginning of that accrual
period, as described under "--Determination of LIBOR" below.
Distributions of Principal. Principal payments will be made to the class A
noteholders on each distribution date in an amount generally equal to the
Principal Distribution Amount multiplied by the Class A Percentage for that
distribution date, until the principal balance of each class of the class A
notes is reduced to zero. Principal payments on the class A notes will generally
be funded from Available Funds and the other sources of funds for payment
described in this prospectus supplement (subject to all prior required
distributions). See "--Distributions," "--Credit Enhancement" and "--The Class B
Notes--Subordination of the Class B Notes" in this prospectus supplement. If
these sources are insufficient to pay the Class A Noteholders' Principal
Distribution Amount for a distribution date, the shortfall will be added to the
principal payable to the class A noteholders with respect to principal on
subsequent distribution dates. Amounts on deposit in the reserve account, other
than amounts in excess of the Specified Reserve Account Balance, will not be
available to make principal payments on the class A notes except at maturity of
the applicable class of notes or on the final distribution upon termination of
the trust.
Principal payments will be applied on each distribution date in the
priorities set forth under "--Distributions" below.
However, notwithstanding any other provision to the contrary, following
the occurrence of an event of default and the exercise by the indenture trustee
of remedies under the indenture, principal payments on the class A notes will be
made pro rata, without preference or priority.
S-32
The aggregate outstanding principal balance of each class of class A notes
will be due and payable in full on its maturity date. The actual date on which
the aggregate outstanding principal and accrued interest of a class of class A
notes is paid may be earlier than its maturity date, based on a variety of
factors as described in "You Will Bear Prepayment and Extension Risk Due To
Actions Taken By Individual Borrowers And Other Variables Beyond Our Control"
under "Risk Factors" in the prospectus.
The Class B Notes.
Distributions of Interest. Interest will accrue on the principal balance
of the class B notes at the class B interest rate. Interest will accrue during
each accrual period and will be payable to the class B noteholders on each
distribution date. Interest accrued as of any distribution date but not paid on
that distribution date will be due on the next distribution date, together with
an amount equal to interest on the unpaid amount at the class B interest rate.
Interest payments on the class B notes for any distribution date will generally
be funded from Available Funds and the other sources of funds for payment
described in this prospectus supplement (subject to all prior required
distributions). See "--Distributions," "--Credit Enhancement-- Reserve Account"
and "--The Class B Notes--Subordination of the Class B Notes" below.
The interest rate for the class B notes with respect to each accrual
period will be equal to three-month LIBOR plus ___%, except for the first
accrual period. The administrator will determine LIBOR for the class B notes for
each accrual period in the same manner as for the class A notes.
Distributions of Principal. Principal payments will be made to the class B
noteholders on each distribution date on and after the Stepdown Date, provided
that a Trigger Event has not occurred and is continuing, in an amount generally
equal to the Class B Noteholders' Principal Distribution Amount for that
distribution date. Principal payable on any distribution date will generally be
funded from the portion of Available Funds and the other sources of funds for
payment described in this prospectus supplement (subject to all prior required
distributions). Amounts on deposit in the reserve account (other than amounts in
excess of the Specified Reserve Account Balance) will not be available to make
principal payments on the class B notes except at their maturity and on the
final distribution upon termination of the trust. See "--Distributions" and
"--Credit Enhancement--Reserve Account" in this prospectus supplement.
The outstanding principal balance of the class B notes will be due and
payable in full on the class B maturity date. The actual date on which the final
distribution on the class B notes will be made may be earlier than the class B
maturity date, however, based on a variety of factors.
Subordination of the Class B Notes. On any distribution date,
distributions of interest on the class B notes will be subordinated to the
payment of interest on the class A notes, and principal payments on the class B
notes will be subordinated to the payment of both interest and principal on the
class A notes. Consequently, on any distribution date, Available Funds, amounts
on deposit in the reserve account remaining after payment of the primary
servicing fee and the administration fee and, through the _____ 200__
distribution date, amounts on deposit in the capitalized interest account will
be applied to the payment of interest on the class A notes prior to any payment
of interest on the class B notes, and no payments of the principal balance on
the class B notes will be made on such distribution date until the class A notes
have been retired.
Notwithstanding the foregoing, if
(1) on any distribution date following distributions under clauses (a)
through (i) under "--Distributions--Distributions from the Collection Account"
to be made on that distribution date, the outstanding principal balance of the
class A notes, would be in excess of:
o the outstanding principal balance of the trust student loans plus
o any accrued but unpaid interest on the trust student loans as of the
last day of the related collection period plus
S-33
o the balance of the capitalized interest account on the distribution
date following those distributions made with respect to clauses (c)
and (d) under "--Distributions--Distributions from the Collection
Account" below plus
o the balance of the reserve account on the distribution date
following those distributions made under clauses (a) through (i)
"--Distributions--Distributions from the Collection Account" below
minus
o the Specified Reserve Account Balance for that distribution date, or
(2) an event of default relating to payment or bankruptcy under the
indenture affecting the class A notes has occurred and is continuing,
then, until the conditions described in (1) or (2) above no longer exist, the
amounts on deposit in the collection account and the reserve account will be
applied on that distribution date to the payment of the Class A Noteholders'
Distribution Amount before any amounts are applied to the payment of the Class B
Noteholders' Distribution Amount.
Determination of LIBOR
LIBOR, for any accrual period, will be the London interbank offered rate
for deposits in U.S. Dollars having the specified maturity commencing on the
first day of the accrual period, which appears on Telerate Page 3750 as of 11:00
a.m. London time, on the related LIBOR Determination Date. If an applicable rate
does not appear on Telerate Page 3750, the rate for that day will be determined
on the basis of the rates at which deposits in U.S. Dollars, having the
specified maturity and in a principal amount of not less than U.S. $1,000,000,
are offered at approximately 11:00 a.m., London time, on that LIBOR
Determination Date, to prime banks in the London interbank market by the
Reference Banks, The administrator will request the principal London office of
each Reference Bank to provide a quotation of its rate. If the Reference Banks
provide at least two quotations, the rate for that day will be the arithmetic
mean of the quotations. If the Reference Banks provide fewer than two
quotations, the rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the administrator, at
approximately 11:00 a.m. New York time, on that LIBOR Determination Date, for
loans in U.S. Dollars to leading European banks having the specified maturity
and in a principal amount of not less than U.S. $1,000,000. If the banks
selected as described above are not providing quotations, LIBOR in effect for
the applicable accrual period will be LIBOR for the specified maturity in effect
for the previous accrual period.
For this purpose:
o "LIBOR Determination Date" means, for each accrual period, the
second business day before the beginning of that accrual period.
o "Telerate Page 3750" means the display page so designated on the
Moneyline Telerate Service or any other page that may replace that
page on that service for the purpose of displaying comparable rates
or prices.
o "Reference Banks" means four major banks in the London interbank
market selected by the administrator.
For purposes of calculating LIBOR, a business day is any day on which
banks in New York City and the City of London are open for the transaction of
international business. Interest due for any accrual period will always be
determined based on the actual number of days elapsed in the accrual period over
a 360-day year.
Notice of Interest Rates
Information concerning the past and current LIBOR and the interest rates
applicable to the notes will be available on SLC's website at
http://www.studentloan.com or by telephoning the administrator at (800) 967-2400
between the hours of 9 a.m. and 4 p.m. Eastern time on any business day and will
also be available through Moneyline Telerate Service or Bloomberg L.P. [If the
notes are listed on the Luxembourg Stock Exchange, the administrator will also
notify the Luxembourg paying agent, and will cause the Luxembourg Stock Exchange
to be notified, of the current interest rate for each class of notes listed on
the exchange prior to the first day of each accrual period.]
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Accounts
The administrator will establish and maintain the collection account for
the benefit of the noteholders, in the name of the indenture trustee, into which
all payments on the trust student loans will be deposited. The administrator
will also establish the reserve account and the capitalized interest account for
the benefit of the noteholders, in the name of the indenture trustee.
The indenture administrator will invest funds in the collection account,
the capitalized interest account and the reserve account in eligible investments
as provided in the indenture. Eligible investments are generally limited to
investments acceptable to the rating agencies as being consistent with the
ratings of the notes. Subject to some conditions, eligible investments may
include debt instruments or other obligations (including asset-backed
securities) issued by SLC, the depositor or their affiliates, other trusts
originated by the depositor or their affiliates or third parties and repurchase
obligations of such persons with respect to federally guaranteed student loans
that are serviced by the servicer or an affiliate thereof. Eligible investments
are limited to obligations or debt instruments that are expected to mature not
later than the business day immediately preceding the next distribution date,
or, with respect to the collection account only, the next monthly servicing fee
payment date, to the extent of the primary servicing fee.
Servicing Compensation
The servicer will be entitled to receive the servicing fee in an amount
equal to the primary servicing fee and the carryover servicing fee as
compensation for performing the functions as servicer for the trust. The primary
servicing fee will be payable on each monthly servicing payment date and will be
paid solely out of Available Funds and amounts on deposit in the reserve account
on that date. The carryover servicing fee will be payable to the servicer on
each distribution date out of Available Funds after payment on that distribution
date of clauses (a) through (k) under "--Distributions--Distributions from
Collection Account" in this prospectus supplement. The carryover servicing fee
will be subject to increase agreed to by the administrator, the eligible lender
trustee and the servicer to the extent that a demonstrable and significant
increase occurs in the costs incurred by the servicer in providing the services
to be provided under the servicing agreement, whether due to changes in
applicable governmental regulations, guarantor program requirements or
regulations, or postal rates. The servicer will be solely responsible for the
payment of fees due to the sub-servicer.
Distributions
Deposits into the Collection Account. On the closing date, the trust will
make an initial deposit into the collection account of cash or eligible
investments equal to approximately $___________ plus the excess, if any, of the
pool balance as of the statistical cutoff date over the pool balance as of the
closing date.
On or before the business day immediately prior to each distribution date,
the servicer and the administrator will provide the indenture administrator with
certain information as to the preceding collection period, including the amount
of Available Funds received from the trust student loans and the aggregate
purchase amount of the trust student loans to be purchased by SLC, the depositor
or the servicer.
Except as provided in the next paragraph, the servicer will deposit all
payments on student loans and all proceeds of student loans collected by it
during each collection period into the collection account within two business
days of receipt. Except as provided in the next paragraph, the eligible lender
trustee will deposit all interest subsidy payments and all special allowance
payments on the student loans received by it for each collection period into the
collection account within two business days of receipt.
Distributions from the Collection Account. On each monthly servicing
payment date that is not a distribution date, the administrator will instruct
the indenture administrator to pay to the servicer the primary servicing fee due
for the period from and including the preceding monthly servicing payment date
from amounts on deposit in the collection account.
On or before each distribution date, the administrator will instruct the
indenture administrator to first pay or reimburse itself and the indenture
trustee for all amounts due to it and the indenture trustee under the indenture
for the related distribution date, next pay or reimburse the owner trustee for
all amounts due to it under the trust
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agreement for the related distribution date and then make the following deposits
and distributions in the amounts and in the order of priority shown below,
except as otherwise provided under "Description of the Notes--The Notes--The
Class B Notes--Subordination of the Class B Notes" and "--The Notes--The Class A
Notes--Distributions of Principal", to the extent of the Available Funds for
that distribution date, amounts transferred from the capitalized interest
account through the ______ 200__ distribution date with respect to clauses (c)
and (d) below for that distribution date and amounts transferred from the
reserve account with respect to that distribution date:
(a) to the servicer, the primary servicing fee due on that distribution
date;
(b) to the administrator, the administration fee due on that
distribution date and all prior unpaid administration fees;
(c) to the class A noteholders, the Class A Noteholders' Interest
Distribution Amount, pro rata, based on the amounts payable as Class
A Noteholders' Interest Distribution Amount;
(d) to the class B noteholders, the Class B Noteholders' Interest
Distribution Amount;
(e) sequentially, to the class A-1, class A-2, class A-3, class A-4 and
class A-5 noteholders, in that order, until each such class is paid
in full, the Class A Noteholders' Principal Distribution Amount;
(f) on each distribution date on and after the Stepdown Date, and
provided that no Trigger Event is in effect on such distribution
date, to the class B noteholders until paid in full the Class B
Noteholders' Principal Distribution Amount;
(g) to the reserve account, the amount, if any, necessary to reinstate
the balance of the reserve account to the Specified Reserve Account
Balance;
(h) to the servicer, the aggregate unpaid amount of the carryover
servicing fee, if any; and
(i) to the excess distribution certificateholder (initially, the
depositor or an affiliate thereof), any remaining amounts after
application of the preceding clauses.
Notwithstanding the foregoing, in the event the trust student loans are
not sold on the trust auction date, on each subsequent distribution date on
which the Pool Balance is equal to 10% or less of the initial Pool Balance, the
administrator will direct the indenture administrator to distribute as
accelerated payments of principal on the notes all amounts that would otherwise
be paid to the excess distribution certificateholder.
Voting Rights and Remedies
Noteholders will have the voting rights and remedies described in the
prospectus. The class B notes will have no voting rights so long as any class A
notes are outstanding. See "Description of the Notes--The Indenture--Events of
Default; Rights Upon Event of Default" in the prospectus.
Credit Enhancement
Reserve Account. The reserve account will be created with an initial
deposit by the trust on the closing date of cash or eligible investments in an
amount equal to $_________. The reserve account may be replenished on each
distribution date, by deposit into it of the amount, if any, necessary to
reinstate the balance of the reserve account to the Specified Reserve Account
Balance from the amount of Available Funds remaining after payment for that
distribution date under clauses (a) through (f) under
"--Distributions--Distributions from Collection Account" in this prospectus
supplement.
If the market value of securities and cash in the reserve account on any
distribution date is sufficient to pay the remaining principal balance of and
interest accrued on the notes and any carryover servicing fee, these assets will
be so applied on that distribution date.
If the amount on deposit in the reserve account on any distribution date
after giving effect to all deposits or withdrawals from the reserve account on
that distribution date is greater than the Specified Reserve Account
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Balance for that distribution date, the administrator will instruct the
indenture administrator to deposit the amount of the excess into the collection
account for distribution on that distribution date.
Amounts held from time to time in the reserve account will continue to be
held for the benefit of the trust. Funds will be withdrawn from cash in the
reserve account on any distribution date or, in the case of the payment of any
primary servicing fee, on any monthly servicing payment date, to the extent that
the amount of Available Funds and the amount on deposit in the capitalized
interest account on that distribution date or monthly servicing payment date is
insufficient to pay any of the items specified in clauses (a) through (d) under
"--Distributions--Distributions from Collection Account" above. These funds also
will be withdrawn at maturity of a class of notes or on the final distribution
upon termination of the trust to the extent that the amount of Available Funds
at that time is insufficient to pay any of the items specified in clauses (e)
through (f) and, in the case of the final distribution upon termination of the
trust, clause (h) under "--Distributions--Distributions from Collection Account"
above. These funds will be paid from the reserve account to the persons and in
the order of priority specified for distributions out of the collection account
in clauses (a) through (d), clauses (e) through (f) and clause (h), as
applicable.
The reserve account is intended to enhance the likelihood of timely
distributions of interest to the noteholders and to decrease the likelihood that
the noteholders will experience losses. In some circumstances, however, the
reserve account could be reduced to zero. Except on the final distribution upon
termination of the trust, amounts on deposit in the reserve account, other than
amounts in excess of the Specified Reserve Account Balance, will not be
available to cover any carryover servicing fees. Amounts on deposit in the
reserve account will be available to pay principal on the notes and accrued
interest at the maturity of the notes, and to pay the carryover servicing fee
and carry-over amounts on the final distribution upon termination of the trust.
Capitalized Interest Account. The capitalized interest account will be
created with an initial deposit by the trust on the closing date of cash or
eligible investments in an amount equal to $________. The initial deposit will
not be replenished.
Amounts held from time to time in the capitalized interest account will be
held for the benefit of the class A noteholders and the class B noteholders, as
applicable. If on any distribution date through the ________ 200_ distribution
date, the amount of Available Funds is insufficient to pay or allocate any of
the items specified in clauses (c) and (d) under "--Distributions--Distributions
from the Collection Account" above, amounts on deposit in the capitalized
interest account on that distribution date will be withdrawn by the indenture
administrator to cover such shortfalls, to the extent of funds on deposit
therein, and will be allocated in the same order of priority shown under
"--Distributions--Distributions from the Collection Account" above.
All remaining funds on deposit in the capitalized interest account on the
________ 200_ distribution date will be transferred to the collection account
and included in Available Funds on that distribution date.
The capitalized interest account is intended to enhance the likelihood of
timely distributions of interest to the noteholders through the ________ 200_
distribution date.
Subordination of the Class B Notes. On any distribution date,
distributions of interest on the class B notes will be subordinated to the
payment of interest on the class A notes and distributions of principal on the
class B notes will be subordinated to the payment of both interest and principal
on all of the class A notes. See "Description of the Notes--The Notes--The Class
B Notes--Subordination of the Class B Notes" in this prospectus supplement.
Administration Fee
As compensation for the performance of the administrator's obligations
under the administration agreement and as reimbursement for its related
expenses, the administrator will be entitled to an administration fee in an
amount equal to $_______ per collection period payable in arrears on each
distribution date. The administrator will be solely responsible for the payment
of fees due to the sub-administrator.
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Interest Rate Cap
On the closing date, the trust will purchase an interest rate cap from
_____________, as cap counterparty. The interest rate cap will be documented
under a 1992 ISDA Master Agreement (Multicurrency-Cross Border) modified to
reflect the terms of the notes, the indenture and the trust agreement.
The interest rate cap will terminate on the ________ 200___ distribution
date. It may terminate earlier if a termination event or an event of default
occurs under the 1992 ISDA Master Agreement.
Under the terms of the interest rate cap, the trust will pay the cap
counterparty, from the net proceeds from the sale of the notes an upfront
payment of $_____. On or before the ____ business day immediately preceding each
distribution date to and including the _______ 200___ distribution date, the cap
counterparty will pay to the trust for deposit into the collection account an
amount, calculated on each distribution date, equal to the product of:
o the excess, if any, of (1) three-month LIBOR, except for the first
accrual period, as determined for the accrual period related to the
applicable distribution date over (2) ____%;
o a notional amount equal to $_________; and
o Actual/360.
LIBOR for the first accrual period will be determined using the same
formula as applies to the notes. Three-month LIBOR for each subsequent accrual
period will be determined as of the LIBOR determination date for the applicable
accrual period in the same manner as applies to the notes, as described in
"Description of the Notes--Determination of LIBOR" in this prospectus
supplement.
Modifications and Amendment of the Interest Rate Cap. The trust agreement
and the indenture will contain provisions permitting the owner trustee, with the
consent of the indenture trustee, to enter into an amendment to the interest
rate cap to cure any ambiguity in, or correct or supplement any provision of,
the interest rate cap, so long as the eligible lender trustee determines, and
the indenture trustee agrees in writing, that the amendment will not adversely
affect the interest of the noteholders, and provided further that the Rating
Agency Condition is satisfied.
Default Under the Interest Rate Cap. Events of default under the interest
rate cap, or defaults, are limited to:
o the failure of the cap counterparty to pay any amount when due under
the interest rate cap after giving effect to the applicable grace
period,
o the occurrence of events of insolvency or bankruptcy of the trust or
the cap counterparty,
o an acceleration of the principal of the notes following an event of
default under the indenture (other than an event of default relating
to a breach of any covenant or a violation of any representation or
warranty) which acceleration has become non-rescindable and
non-waivable,
o an acceleration of the principal of the notes following an event of
default under the indenture for a breach of any covenant or a
violation of any representation or warranty which acceleration has
become non-rescindable and non-waivable, and pursuant to which the
indenture trustee has liquidated the trust student loans, and
o the following other standard events of default under the 1992 ISDA
Master Agreement: "Credit Support Default" (not applicable to the
trust) and "Merger Without Assumption" (not applicable to the
trust), as described in Sections 5(a)(iii) and 5(a)(viii) of the
1992 ISDA Master Agreement.
Termination Events. The interest rate cap will contain usual and customary
termination events and will also include an additional termination event
relating to the withdrawal or downgrade of the credit rating of the cap
counterparty or its credit support provider, if applicable, below the specified
trigger level. This additional termination event will occur if the cap
counterparty has not, within 30 days of a ratings event, procured a collateral
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arrangement (and delivered any collateral required to be delivered at that
time), a replacement transaction, guarantee or a ratings reaffirmation.
The ratings events that may cause this additional termination event are
o (1) the short-term debt rating of the cap counterparty or its credit
support provider, as the case may be, is withdrawn or downgraded
below "A-1" (or in the absence of a short-term debt rating, the
long-term senior debt rating is withdrawn or downgraded below "A+")
by S&P; (2)(a) the long-term senior debt rating of the cap
counterparty or its credit support provider, as the case may be, is
withdrawn, downgraded below "A1" or put on watch for downgrade when
rated at that level by Moody's where the cap counterparty or its
credit support provider, as the case may be, has only a long-term
debt rating or counterparty rating, or (b) either the long-term
senior debt rating or the short-term debt rating of the cap
counterparty or its credit support provider, as the case may be, is
withdrawn, downgraded below "A1" or "P-1", respectively, or put on
watch for downgrade when rated at that level by Moody's where the
cap counterparty or its credit support provider, as the case may be,
has both long-term and short-term debt ratings; or (3) the
short-term debt rating of the cap counterparty or its credit support
provider, as the case may be, is withdrawn or downgraded below "F1"
by Fitch; and
For purposes of this additional termination event:
A "collateral arrangement" means any of:
o A collateral agreement executed between the parties naming a
third-party collateral agent, in form and substance satisfactory to
the applicable rating agency at closing, providing for the
collateralization of the cap counterparty's obligations under the
interest rate cap as measured by the net present value of the cap
counterparty's marked-to-market obligations; or
o A letter of credit, guaranty or surety bond or insurance policy
covering the cap counterparty's obligations under the interest rate
cap from a bank, guarantor or insurer having a short-term debt,
long-term debt, counterparty or claims paying rating equal to or
above the ratings set forth above.
A "replacement transaction" means a transaction with a replacement cap
counterparty (which replacement cap counterparty shall meet the ratings criteria
described in the preceding paragraph) who assumes the cap counterparty's
position under the interest rate cap on substantially the same terms or with
such other amendments to the terms of the interest rate cap as may be approved
by the parties and each of the rating agencies together with a ratings
reaffirmation from each applicable rating agency.
A "rating reaffirmation" means a written acknowledgement from the rating
agency whose rating was downgraded, withdrawn or put on watch that,
notwithstanding that action by the rating agency, the then-current ratings of
the notes will not be lowered.
Early Termination of the Interest Rate Cap. Upon the occurrence of any
default under the interest rate cap or a termination event, the non-defaulting
party or the non-affected party, as the case may be, will have the right to
designate an early termination date.
Upon an early termination of the interest rate cap, either the trust or
the cap counterparty may be liable to make a termination payment to the other,
regardless of which party has caused that termination. The amount of that
termination payment will be based on the value of the transaction computed in
accordance with the procedures in the interest rate cap. In the event that the
trust is required to make a termination payment, the termination payment will be
subordinate to the right of the noteholders to receive full payment of principal
of and interest on the notes and to the replenishment of the reserve account to
the Specified Reserve Account Balance.
Cap Counterparty. [Description of Cap Counterparty]
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U.S. FEDERAL INCOME TAX CONSEQUENCES
For a summary of tax consequences for holders of the notes, you should
refer to "U.S. Federal Income Tax Consequences" in the prospectus.
[EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME
The European Union has adopted a Directive regarding the taxation of
savings income. Subject to a number of important conditions being met, it is
proposed that Member States will be required from a date not earlier than
January 1, 2005 to provide to the tax authorities of other Member States details
of payments of interest and other similar income paid by a person to an
individual in another Member State, except that Austria, Belgium and Luxembourg
will instead impose a withholding system for a transitional period unless during
such period they elect otherwise.
The withholding tax provisions of the Directive could apply to payments on
notes made through the Luxembourg paying agent. It is expected that holders will
be able to take steps to keep payments from being subject to such withholding
tax, for example, by receiving payments from a paying agent within the European
Union but outside Luxembourg, Belgium and Austria (such as from the United
Kingdom), although we cannot preclude the possibility that withholding tax will
eventually be levied in some situations. In any event, details of payments made
from a Member State on the notes will likely have to be reported to the tax or
other relevant authorities under the Directive or local law, including, for
example, to Member States in cases where recipients are located in the
jurisdiction where payments are actually made.]
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended,
("ERISA"), and Section 4975 of the Code impose certain restrictions on employee
benefit plans or other retirement arrangements (including individual retirement
accounts and Keogh plans) and any entities whose underlying assets include plan
assets by reason of a plan's investment in these plans or arrangements
(including certain insurance company general accounts) (collectively, "Plans").
ERISA also imposes various duties on persons who are fiduciaries of Plans
subject to ERISA and prohibits certain transactions between a Plan and its
so-called Parties in Interest under ERISA or Disqualified Persons under the Code
("Parties in Interest"). Certain Parties in Interest that participate in a
prohibited transaction may be subject to a penalty (or excise tax) imposed
pursuant to ERISA or the Code unless a statutory or administrative exemption is
available.
Although there can be no certainty in this regard, the notes, which are
denominated as debt, should be treated as debt and not as "equity interests" for
purposes of the Plan Asset Regulations, as further described in the prospectus.
However, acquisition of the notes could still cause prohibited transactions
under Section 406 of ERISA and Section 4975 of the Code if a note is acquired or
held by a Plan with respect to which any of the trust or any owner of an equity
interest therein is a Party in Interest. Accordingly, before making an
investment in the notes, a Plan investor must determine whether, and each
fiduciary causing the notes to be purchased by, on behalf of or using the assets
of a Plan, will be deemed to have represented that, the Plan's purchase and
holding of the notes will not constitute or otherwise result in a non-exempt
prohibited transaction in violation of Section 406 of ERISA or Section 4975 of
the Code which is not covered by a class or other applicable exemption from the
prohibited transaction rules as described in the prospectus.
Before making an investment in the notes, prospective Plan investors
should consult with their legal advisors concerning the impact of ERISA and the
Code and the potential consequences of the investment in their specific
circumstances. Moreover, in addition to determining whether the investment
constitutes a direct or indirect prohibited transaction with a Party in Interest
and whether exemptive relief is available to cover such transaction, each Plan
fiduciary should take into account, among other considerations:
o whether the fiduciary has the authority to make the investment;
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o the diversification by type of asset of the Plan's portfolio;
o the Plan's funding objectives; and
o whether under the general fiduciary standards of investment
procedure and diversification an investment in the notes is
appropriate for the Plan, taking into account the overall investment
policy of the Plan and the composition of the Plan's investment
portfolio.
REPORTS TO SECURITYHOLDERS
Quarterly and annual reports concerning the trust will be delivered to
noteholders. [These reports will be available at the office of the Luxembourg
paying agent or Luxembourg listing agent.] The first such quarterly distribution
report is expected to be available on or about ________ ___, 200__. See "Reports
to Securityholders" in the prospectus.
Except in very limited circumstances, you will not receive these reports
directly from the trust. Instead, you will receive them through Cede & Co., as
nominee of DTC and registered holder of the notes. See "Certain Information
Regarding the Securities--Book-Entry Registration" in the prospectus.
UNDERWRITING
The notes listed below are offered [severally] by the underwriter[s],
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that the notes will be ready for
delivery in book-entry form only through the facilities of DTC[, Clearstream,
Luxembourg and the Euroclear System], on or about ____ ___, 200___ against
payment in immediately available funds.
Subject to the terms and conditions in the underwriting agreement dated
____ __, 200__, the depositor has agreed to cause the trust to sell to each of
the underwriters named below, and each of the underwriters has severally agreed
to purchase, the principal amounts of the notes shown opposite its name:
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5 Class B
Underwriter Notes Notes Notes Notes Notes Notes
- ------------------------------------ ------------ ------------- ------------- ------------- ------------- ------------
$ $ $ $ $ $
------------ ------------- ------------- ------------- ------------- ------------
Total.................... $ $ $ $ $ $
============ ============= ============= ============= ============= ============
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase all of the notes listed above if any of the
notes are purchased. The underwriters have advised the depositor that they
propose initially to offer the notes to the public at the prices listed below,
and to certain dealers at these prices less concessions not in excess of the
concessions listed below. The underwriters may allow and such dealers may
reallow concessions to other dealers not in excess of the reallowances listed
below. After the initial public offering, these prices and concessions may be
changed.
Initial Public Underwriting Proceeds to
Offering Price Discount The Depositor Concession Reallowance
------------------ --------------- ----------------- --------------- ---------------
Per Class A-1 Note........ 100.0% % % % %
Per Class A-2 Note........ 100.0% % % % %
Per Class A-3 Note........ 100.0% % % % %
Per Class A-4 Note........ 100.0% % % % %
Per Class A-5 Note........ 100.0% % % % %
Per Class B Note.......... 100.0% % % % %
Total................. $ $ $
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The prices and proceeds shown in the table do not include any accrued
interest. The actual prices and proceeds will include interest, if any, from the
closing date. The proceeds shown are before deducting estimated expenses of
$________ payable by the depositor.
The depositor and SLC have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The notes are new issues of securities with no established trading market.
The seller has been advised by the underwriters that the underwriters intend to
make a market in the notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes.
In the ordinary course of their business, the underwriters and certain of
their affiliates have in the past, and may in the future, engage in commercial
and investment banking activities with SLC, the depositor and their affiliates.
The trust may, from time to time, invest the funds in the trust accounts
in eligible investments acquired from the underwriters.
During and after the offering, the underwriters may engage in
transactions, including open market purchases and sales, to stabilize the prices
of the notes.
The underwriters, for example, may over-allot the notes for the account of
the underwriting syndicate to create a syndicate short position by accepting
orders for more notes than are to be sold.
In addition, the underwriters may impose a penalty bid on the
broker-dealers who sell the notes. This means that if an underwriter purchases
notes in the open market to reduce a broker-dealer's short position or to
stabilize the prices of the notes, it may reclaim the selling concession from
the broker-dealers who sold those notes as part of the offering.
In general, over-allotment transactions and open market purchases of the
notes for the purpose of stabilization or to reduce a short position could cause
the price of a note to be higher than it might be in the absence of such
transactions.
Each underwriter has represented and agreed that:
o it has not offered or sold and will not offer or sell any notes to
persons in the United Kingdom prior to the expiration of the period
of six months from the issue date of the notes except to persons
whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments, as principal or agent, for the
purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in
the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, as amended (the "POS Regs");
o it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement
to engage in investment activity, within the meaning of section 21
of the Financial Services and Markets Act 2000 (the "FSMA"),
received by it in connection with the issue or sale of any notes in
circumstances in which section 21(1) of the FSMA does not apply to
the issuer; and
o it has complied and will comply with all applicable provisions of
the FSMA with respect to anything done by it in relation to the
notes in, from or otherwise involving the United Kingdom.
No action has been or will be taken by the depositor or the underwriters
that would permit a public offering of the notes in any country or jurisdiction
other than in the United States, where action for that purpose is required.
Accordingly, the notes may not be offered or sold, directly or indirectly, and
neither the prospectus, this prospectus supplement nor any circular, prospectus,
form of application, advertisement or other material may be distributed in or
from or published in any country or jurisdiction, except under circumstances
that will result in compliance with any applicable laws and regulations. Persons
into whose hands this prospectus supplement comes are required by the
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depositor and the underwriters to comply with all applicable laws and
regulations in each country or jurisdiction in which they purchase, sell or
deliver the notes or have in their possession or distribute such prospectus
supplement, in all cases at their own expense.
The depositor has not authorized any offer of the notes to the public in
the United Kingdom within the meaning of the POS Regs and the FSMA. The notes
may not lawfully be offered or sold to persons in the United Kingdom except in
circumstances which do not result in an offer to the public in the United
Kingdom within the meaning of these regulations or otherwise in compliance with
all applicable provisions of these regulations and the FSMA.
[LISTING INFORMATION
We have applied for a listing of the notes on the Luxembourg Stock
Exchange. We cannot assure you that this application will be granted. You should
consult with _____________, the Luxembourg listing agent for the notes, at
___________________, phone number _________, to determine whether or not the
notes are listed on the Luxembourg Stock Exchange. In connection with the
listing application, the certificate of formation and the limited liability
company operating agreement of the depositor, as well as legal notice relating
to the issuance of the notes together with copies of the indenture, the trust
agreement, the form of the notes, the administration agreement, the interest
rate cap and other basic documents will be deposited with the Trade and
Companies Register (Registre de Commerce et des Societes) in Luxembourg, where
copies of those documents may be obtained upon request. Copies of the indenture,
the trust agreement, the forms of the notes, the administration agreement, the
servicing agreement[, the sub-servicing agreement] and the other basic documents
will be available at the offices of the Luxembourg paying agent or the
Luxembourg listing agent. Once the notes have been listed, trading may be
effected on the Luxembourg Stock Exchange. So long as any class of the notes is
listed on the Luxembourg Stock Exchange, and its rules so require, notices will
also be published in a leading newspaper having general circulation in
Luxembourg (which is expected to be The Luxemburger Wort).
The notes, the indenture, the administration agreement and the interest
rate cap are governed by the laws of the State of New York. The trust agreement
is governed by the laws of the State of Delaware. The interest rate cap contains
provisions under which the parties to such agreement agree to the non-exclusive
jurisdiction of the New York courts.
If the notes are listed on the Luxembourg Stock Exchange and definitive
notes are issued and the rules of the Luxembourg Stock Exchange require a
Luxembourg paying and transfer agent, a Luxembourg paying and transfer agent
will be appointed and notices will also published in a leading newspaper having
general circulation in Luxembourg (which is expected to be The Luxemburger
Wort). We will maintain such a Luxembourg paying and transfer agent as long as
required by the Luxembourg Stock Exchange.
As long as are listed on the Luxembourg Stock Exchange, quarterly
distribution reports and annual servicing and administration reports concerning
the trust and its activities will be available at the office of the Luxembourg
paying agent or the Luxembourg listing agent. The first such quarterly
distribution report is expected to be available not later than _____ ___,
200___.
The European Union Transparency Obligations Directive is currently being
finalized and may be implemented in a manner that is unduly burdensome for the
trust. In particular, the trust may be required to publish financial statements
in the European Union prepared in accordance with, or reconciled to,
international financial reporting standards. In such circumstances the
administrator may decide to seek an alternative listing for the notes on a stock
exchange of international standing outside the European Union as the
administrator may select after consultation with the underwriters.
As of the date of this prospectus supplement, none of the trust, the
eligible lender trustee, the indenture trustee or the indenture administrator is
involved in any litigation or arbitration proceeding relating to the issuance of
the notes. The depositor is not aware of any proceedings relating to the
issuance of the notes, whether pending or threatened.
The depositor has taken all reasonable care to confirm that the
information contained in this prospectus supplement and the attached prospectus
is true and accurate in all material respects. In relation to the depositor, the
S-43
trust, SLC and the notes, the depositor accepts full responsibility for the
accuracy of the information contained in this prospectus supplement and the
attached prospectus. Having made all reasonable inquiries, the depositor
confirms that, to the best of its knowledge, there have not been omitted
material facts the omission of which would make misleading any statements of
fact or opinion contained in this prospectus supplement or the attached
prospectus, when taken as a whole.
The depositor confirms that there has been no material adverse change in
the assets of the trust since ____ __, 200__, which is the statistical cutoff
date, and the date of the information with respect to the assets of the trust
set forth in this prospectus supplement.]
RATINGS OF THE NOTES
The notes are required to be rated as follows:
Class Rating Agency
(Moody's / S&P / Fitch)
A-1 Notes ________/________/_______
A-2 Notes ________/________/_______
A-3 Notes ________/________/_______
A-4 Notes ________/________/_______
A-5 Notes ________/________/_______
B Notes ________/________/_______
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
LEGAL MATTERS
Cadwalader, Wickersham & Taft LLP, as counsel to the trust, SLC, the
servicer, the depositor and the administrator, will give opinions on specified
legal matters for the trust, SLC, the depositor, the servicer and the
administrator. Cadwalader, Wickersham & Taft LLP will give an opinion on
specified federal income tax matters for the trust. Richards, Layton & Finger,
P.A., as Delaware tax counsel for the trust, will give an opinion on specified
Delaware state income tax matters for the trust. Stroock & Stroock & Lavan LLP
also will give opinions on specified legal matters for the underwriters.
S-44
GLOSSARY
FOR PROSPECTUS SUPPLEMENT
"Actual/360" means, with respect to an accrual period, the actual number
of days elapsed in such period based on a year of 360 days.
"Adjusted Pool Balance" means, for any distribution date, the sum of that
Pool Balance and [all other accounts under the trust estate] for that
distribution date.
"Available Funds" means, as to a distribution date or any related monthly
servicing payment date, the sum of the following amounts received with respect
to the related collection period or, in the case of a monthly servicing payment
date, the applicable portion of these amounts:
o all collections on the trust student loans, including any guarantee
payments received on the trust student loans, but net of:
(a) any collections in respect of principal on the trust student
loans applied by the trust to repurchase guaranteed loans from the
guarantors under the guarantee agreements, and
(b) amounts required by the Higher Education Act to be paid to the
Department of Education or to be repaid to borrowers, whether or not in
the form of a principal reduction of the applicable trust student loan, on
the trust student loans for that collection period , if any;
o any interest subsidy payments and special allowance payments with
respect to the trust student loans during that collection period;
o all proceeds of the liquidation of defaulted trust student loans
which were liquidated during that collection period in accordance
with the servicer's customary servicing procedures, net of expenses
incurred by the servicer related to their liquidation and any
amounts required by law to be remitted to the borrower on the
liquidated student loans, and all recoveries on liquidated student
loans which were written off in prior collection periods or during
that collection period;
o the aggregate purchase amounts received during that collection
period for those trust student loans repurchased by the depositor or
purchased by the servicer or for trust student loans sold to another
eligible lender pursuant to the servicing agreement;
o the aggregate purchase amounts received during that collection
period for those trust student loans purchased by SLC;
o the aggregate amounts, if any, received from any of SLC, the
depositor or the servicer, as the case may be, as reimbursement of
non-guaranteed interest amounts, or lost interest subsidy payments
and special allowance payments, on the trust student loans pursuant
to the sale agreement or the servicing agreement;
o amounts received by the trust pursuant to the servicing agreement
during that collection period as to yield or principal adjustments;
o any interest remitted by the administrator to the collection account
prior to such distribution date or monthly servicing payment date;
o investment earnings for that distribution date earned on amounts on
deposit in each trust account;
o payments received under the interest rate cap;
o on the ___________ 200_ distribution date, all funds then on deposit
in the capitalized interest account that are transferred into the
collection account on that distribution date;
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o amounts transferred from the reserve account in excess of the
Specified Reserve Account Balance as of that distribution date; and
o as to the first distribution date, the collection account initial
deposit;
provided that if on any distribution date there would not be sufficient funds,
after application of Available Funds, as defined above, and application of
amounts available from the capitalized interest account and the reserve account,
to pay any of the items specified in clauses (a) through (d) under "Description
of the Notes--Distributions--Distributions from the Collection Account" (but
excluding clause (d), and including clauses (e) and (f), in the event that a
condition exists as described in either (1) or (2) under "Description of the
Notes--The Notes--The Class B Notes--Subordination of the Class B Notes,") then
Available Funds for that distribution date will include, in addition to the
Available Funds as defined above, amounts on deposit in the collection account,
or amounts held by the administrator, or which the administrator reasonably
estimates to be held by the administrator, for deposit into the collection
account which would have constituted Available Funds for the distribution date
succeeding that distribution date, up to the amount necessary to pay such items,
and the Available Funds for the succeeding distribution date will be adjusted
accordingly.
"Capitalized Interest" means, for any distribution date through and
including the ___________ 200_ distribution date:
o if neither of conditions (1) and (2) described under "Description of
the Notes-- The Notes-- The Class B Notes-- Subordination of the
Class B Notes" above are in effect, the amount on deposit in the
capitalized interest account on the distribution date following
those distributions with respect to clauses (c) and (d) under
"--Distributions-- Distributions from the Collection Account" above;
or
o if either of conditions (1) or (2) described under "Description of
the Notes-- The Notes-- The Class B Notes-- Subordination of the
Class B Notes" above is in effect, the excess, if any, of (x) the
amount on deposit in the capitalized interest account on the
distribution date following those distributions with respect to
clause (c) under "--Distributions-- Distributions from the
Collection Account" above over (y) the Class B Noteholders' Interest
Distribution Amount.
"Class A Note Interest Shortfall" means, for any distribution date, the
excess of:
o the Class A Noteholders' Interest Distribution Amount on the
preceding distribution date, over
o the amount of interest actually distributed to the class A
noteholders on that preceding distribution date,
plus interest on the amount of that excess, to the extent permitted by law, at
the interest rate applicable for each such class of notes from that preceding
distribution date to the current distribution date.
"Class A Note Principal Shortfall" means, as of the close of any
distribution date, the excess of:
o the Class A Noteholders' Principal Distribution Amount on that
distribution date, over
o the amount of principal actually distributed to the class A
noteholders on that distribution date.
"Class A Noteholders' Distribution Amount" means, for any distribution
date, the sum of the Class A Noteholders' Interest Distribution Amount and the
Class A Noteholders' Principal Distribution Amount for that distribution date.
"Class A Noteholders' Interest Distribution Amount" means, for any
distribution date, the sum of:
o the amount of interest accrued at the class A note interest rates
for the related accrual period on the aggregate outstanding
principal balances of all classes of class A notes on the
immediately preceding distribution date (or in the case of the first
distribution date, the closing date) after giving effect to all
principal distributions to class A noteholders on that preceding
distribution date, and
S-46
o the Class A Note Interest Shortfall for that distribution date.
"Class A Noteholders' Principal Distribution Amount" means, for any
distribution date, the Principal Distribution Amount multiplied by the Class A
Percentage for that distribution date, plus any Class A Note Principal Shortfall
as of the close of business on the preceding distribution date; provided that
the Class A Noteholders' Principal Distribution Amount will not exceed the
outstanding principal balance of the class A notes, less all amounts, other than
investment earnings, on deposit in any related accumulation account. In
addition, on the maturity date for any class of class A notes, the principal
required to be distributed to the related noteholders will include the amount
required to reduce the outstanding balance of that class to zero.
"Class A Percentage" means 100% minus the Class B Percentage.
"Class B Note Interest Shortfall" means, for any distribution date, the
excess of:
o the Class B Noteholders' Interest Distribution Amount on the
preceding distribution date, over
o the amount of interest actually distributed to the class B
noteholders on that preceding distribution date,
plus interest on the amount of that excess, to the extent permitted by law, at
the class B note interest rate from that preceding distribution date to the
current distribution date.
"Class B Note Principal Shortfall" means, as of the close of any
distribution date, the excess of:
o the Class B Noteholders' Principal Distribution Amount on that
distribution date, over
o the amount of principal actually distributed to the class B
noteholders on that distribution date.
"Class B Noteholders' Distribution Amount" means, for any distribution
date, the sum of the Class B Noteholders' Interest Distribution Amount and the
Class B Noteholders' Principal Distribution Amount for that distribution date.
"Class B Noteholders' Interest Distribution Amount" means, for any
distribution date, the sum of:
o the amount of interest accrued at the class B note rate for the
related accrual period on the outstanding principal balance of the
class B notes on the immediately preceding distribution date (or in
the case of the first distribution date, the closing date), after
giving effect to all principal distributions to class B noteholders
on that preceding distribution date, and
o the Class B Note Interest Shortfall for that distribution date.
"Class B Noteholders Principal Distribution Amount" means, for any
distribution date, the Principal Distribution Amount multiplied by the Class B
Percentage for that distribution date, plus any Class B Note Principal Shortfall
as of the close of business on the preceding distribution date; provided that
the Class B Noteholders' Principal Distribution Amount will not exceed the
principal balance of the class B notes. In addition, on the class B maturity
date, the principal required to be distributed to the class B noteholders will
include the amount required to reduce the outstanding principal balance of the
class B notes to zero.
"Class B Percentage" with respect to any distribution date, means:
o prior to the Stepdown Date or with respect to any distribution date
on which a Trigger Event is in effect, zero; and
o on and after the Stepdown Date and provided that no Trigger Event is
in effect, a fraction expressed as a percentage, the numerator of
which is the aggregate principal balance of the class B notes
immediately prior to that distribution date and the denominator of
which is the aggregate principal balance of all outstanding notes,
immediately prior to that distribution date.
"DTC" means The Depository Trust Company, or any successor thereto.
S-47
"Fitch" means Fitch, Inc., also known as Fitch Ratings, or any successor
rating agency.
"Moody's" means Moody's Investors Service, Inc., or any successor rating
agency.
"Pool Balance" means, for any date, the aggregate principal balance of the
trust's student loans on that date, including accrued interest, plus amounts on
deposit in the Collection Account, as reduced by the principal portion of:
o all payments received by the trust through that date from borrowers,
the guarantee agencies and the Department of Education;
o all amounts received by the trust through that date from repurchases
of the trust student loans by SLC, the depositor or the servicer;
o all liquidation proceeds and Realized Losses on the trust student
loans liquidated through that date;
o the amount of any adjustments to balances of the trust student loans
that the servicer makes under the servicing agreement through that
date; and
o the amount by which guarantor reimbursements of principal on
defaulted trust student loans through that date are reduced from
100% to 98%, or other applicable percentage, as required by the risk
sharing provisions of the Higher Education Act.
"Principal Distribution Amount" means, for each quarterly distribution
date, the amount by which the aggregate outstanding principal amount of all the
notes immediately prior to that quarterly distribution date exceeds the quotient
obtained by dividing the Adjusted Pool Balance, as of the last day of the
related collection period, by 100.50%.
"Rating Agency Condition" means, with respect to any intended action, that
each rating agency then rating a class of notes shall have been given 10 days'
prior written notice thereof and that each such rating agency shall have
notified the administrator, the servicer, the eligible lender trustee, the
indenture trustee and the indenture administrator in writing that such proposed
action will not result in and of itself in the reduction or withdrawal of its
then-current rating of any class of notes.
"Realized Loss" means the excess of the principal balance, including any
interest that had been or had been expected to be capitalized, of any liquidated
student loan over liquidation proceeds for a student loan to the extent
allocable to principal, including any interest that had been or had been
expected to be capitalized.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor rating agency.
"Significant Guarantors" means the guarantee agencies that each guarantee
trust student loans comprising at least 10% of the initial Pool Balance.
"Specified Reserve Account Balance" means for any distribution date, the
greater of:
(a)___% of the Pool Balance as of the close of business on the last
day of the related collection period; and
(b) $_______;
provided that in no event will that balance exceed the aggregate outstanding
principal balance of the notes.
"Stepdown Date" means the earlier of (i) the distribution date in
_________ 200_ and (ii) the first date on which no class A notes remain
outstanding.
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"Trigger Event" means, with respect to any distribution date, a situation
where the outstanding principal balance of the notes, after giving effect to
distributions required to be made on that distribution date, exceeds the
Adjusted Pool Balance for that distribution date.
S-49
PRINCIPAL OFFICES
DEPOSITOR
SLC Student Loan Receivables I, Inc.
750 Washington Boulevard, 9th Floor
Stamford, Connecticut 06901
ADMINISTRATOR
THE STUDENT LOAN CORPORATION
[Address]
SLC STUDENT LOAN TRUST 200__-__
__________________ _______________ _______________
as Eligible Lender Trustee as Indenture as Indenture Administrator
[Address] Trustee [Address]
[Address]
PAYING AGENTS
____________________
[Address]
[LUXEMBOURG PAYING AGENT AND LUXEMBOURG LISTING AGENT]
_______________________________
[Address]
LEGAL ADVISORS TO THE DEPOSITOR, THE TRUST AND THE ADMINISTRATOR
CADWALADER, WICKERSHAM & TAFT LLP
100 Maiden Lane
New York, New York 10038
RICHARDS, LAYTON & FINGER, PA.
920 King Street
Wilmington, Delaware 19801
LEGAL ADVISORS TO UNDERWRITERS
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
INDEPENDENT PUBLIC ACCOUNTANTS
_________________________
[Address]
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PROSPECTUS
The SLC Student Loan Trusts
Student Loan Asset-Backed Notes
Student Loan Asset-Backed Certificates
------------------------
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Seller, Servicer and Administrator
------------------------
The Depositor
SLC Student Loan Receivables I, Inc., a Delaware corporation, is the depositor.
The depositor is a wholly-owned, special-purpose subsidiary of The Student Loan
Corporation.
The Securities
The depositor intends to form trusts periodically to issue student loan
asset-backed securities. These securities may be in the form of notes or
certificates. Each issue will have its own characteristics and series
designation. We will sell the securities in amounts, at prices and on terms
determined at the time of offering and sale.
Each series may include:
o one or more classes of certificates that represent ownership
interests in the assets of the trust for that issue; and
o one or more classes of notes secured by the assets of that trust.
A class of certificates or notes may:
o be senior or subordinate to other classes; and
o receive payments from one or more forms of credit or cash flow
enhancements designed to reduce the risk to investors caused by
shortfalls in payments on the related student loans.
Each class of certificates or notes has the right to receive payments of
principal and interest at the rates, on the dates and in the manner described in
the applicable supplement to this prospectus.
Trust Assets
The assets of each trust will include:
o education loans to students or parents of students made under the
Federal Family Education Loan Program, known as FFELP; and
o other moneys, investments and property.
A supplement to this prospectus will describe the specific amounts, prices and
terms of the notes and certificates of each series. The supplement will also
give details of the specific student loans, credit enhancement, and other assets
of the trust.
You should consider carefully the risk factors described in this prospectus
beginning on page 14 and in the prospectus supplement that accompanies this
prospectus.
Each issue of securities represents obligations of, or interests in, the
applicable trust only. They do not represent interests in or obligations of The
Student Loan Corporation, the depositor or any of their affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
__________, 2004
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail:
o this prospectus, which provides general information, some of which
may not apply to your series of securities; and
o the related prospectus supplement that describes the specific terms
of your series of securities, including:
o the timing of interest and principal payments;
o financial and other information about the student loans and
the other assets owned by the trust;
o information about credit enhancement;
o the ratings; and
o the method of selling the securities.
You should rely only on the information contained or incorporated in this
prospectus and the prospectus supplement. We have not authorized anyone to
provide you with different information. We are not offering the securities in
any state or other jurisdiction where the offer is prohibited. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date appearing on the front cover of
these documents.
We have made cross-references to captions in this prospectus and the
accompanying prospectus supplement under which you can find further related
discussions. The following table of contents and the table of contents in the
related prospectus supplement indicate where these captions are located.
2
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...........................................................6
Principal Parties.........................................................6
The Notes.................................................................7
The Certificates..........................................................8
Assets of the Trust.......................................................9
Collection Account........................................................9
Pre-Funding Account.......................................................9
Reserve Account..........................................................10
Credit and Cash Flow or other Enhancement or Derivative Arrangements.....10
Purchase Agreements......................................................11
Sale Agreements..........................................................11
Servicing Agreements.....................................................11
Servicing Fee............................................................11
Administration Agreement.................................................11
Administration Fee.......................................................12
Representations and Warranties of the Depositor..........................12
Representations and Warranties of The Student Loan Corporation under
the Purchase Agreements...............................................13
Covenants of the Servicer................................................13
Optional Purchase........................................................14
Auction of Trust Assets..................................................14
U.S Federal Income Tax Considerations....................................14
ERISA Considerations.....................................................14
Ratings..................................................................14
RISK FACTORS................................................................15
Special Note Regarding Forward Looking Statements...........................21
FORMATION OF THE TRUSTS.....................................................22
The Trusts...............................................................22
Eligible Lender Trustee..................................................22
USE OF PROCEEDS.............................................................23
THE STUDENT LOAN CORPORATION, THE DEPOSITOR AND THE SERVICER AND THE
SUB-SERVICER.............................................................23
The Seller, Servicer and Administrator...................................23
The Depositor............................................................23
The Sub-Servicer.........................................................24
The Sub-Administrator....................................................24
THE STUDENT LOAN POOLS......................................................24
The Student Loan Corporation's Student Loan Business.....................25
Delinquencies, Defaults, Claims and Net Losses...........................26
Payment of Notes.........................................................27
Termination..............................................................27
TRANSFER AND SERVICING AGREEMENTS...........................................28
General..................................................................28
Purchase of Student Loans by the Depositor; Representations and
Warranties of The Student Loan Corporation............................28
Sale of Student Loans to the Trust; Representations and Warranties
of the Depositor......................................................29
Custodian of Promissory Notes............................................29
Additional Fundings......................................................29
Amendments to Transfer and Servicing Agreements..........................29
SERVICING AND ADMINISTRATION................................................30
General..................................................................30
Accounts.................................................................30
3
Servicing Procedures.....................................................30
Payments on Student Loans................................................31
Servicer Covenants.......................................................31
Servicing Compensation...................................................32
Net Deposits.............................................................33
Evidence as to Compliance................................................33
Certain Matters Regarding the Servicer...................................33
Servicer Default.........................................................34
Rights Upon Servicer Default.............................................34
Waiver of Past Defaults..................................................34
Administration Agreement.................................................35
Administrator Default....................................................35
Rights Upon Administrator Default........................................36
Statements to Indenture Trustee, Indenture Administrator and Trust.......36
Evidence as to Compliance................................................37
TRADING INFORMATION.........................................................37
Pool Factors.............................................................38
DESCRIPTION OF THE NOTES....................................................38
General..................................................................38
Principal and Interest on the Notes......................................38
The Indenture............................................................39
DESCRIPTION OF THE CERTIFICATES.............................................42
General..................................................................42
Distributions on the Certificate Balance.................................42
CERTAIN INFORMATION REGARDING THE SECURITIES................................43
Fixed Rate Securities....................................................43
Floating Rate Securities.................................................43
Auction Rate Securities..................................................43
Distributions............................................................46
Credit and Cash Flow or other Enhancement or Derivative Arrangements.....46
Book-Entry Registration..................................................47
Definitive Securities....................................................49
List of Securityholders..................................................50
Reports to Securityholders...............................................50
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS..................................50
Transfer of Student Loans................................................50
Consumer Protection Laws.................................................51
Loan Origination and Servicing Procedures Applicable to Student Loans....51
Student Loans Generally Not Subject to Discharge in Bankruptcy...........52
U.S. FEDERAL INCOME TAX CONSEQUENCES........................................52
General..................................................................52
Tax Characterization of the Trust........................................52
Tax Consequences to U.S. Holders.........................................52
Tax-Exempt Organizations.................................................54
Foreign..................................................................54
Backup Withholding and Information Reporting.............................55
Disclosure Requirements for U.S. Holders Recognizing Significant
Losses or Experiencing Significant Book-Tax Differences...............55
State, Local And Foreign Taxes...........................................55
ERISA CONSIDERATIONS........................................................57
AVAILABLE INFORMATION.......................................................58
REPORTS TO SECURITYHOLDERS..................................................58
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................59
THE PLAN OF DISTRIBUTION....................................................59
LEGAL MATTERS...............................................................60
4
APPENDIX A Federal Family Education Loan Program..........................A-1
APPENDIX B Global Clearance, Settlement and Tax Documentation Procedures..B-1
5
PROSPECTUS SUMMARY
This summary highlights selected information concerning the securities. It
does not contain all of the information that you might find important in making
your investment decision. You should read the full description of this
information appearing elsewhere in this document and in the prospectus
supplement for your particular securities.
Principal Parties
Issuer....................... A Delaware statutory trust to be formed for each
series of securities under a trust agreement
between the depositor and an owner trustee.
Owner Trustee................ For each series of securities, the related
prospectus supplement will specify the owner
trustee for the related trust.
Depositor.................... The depositor is SLC Student Loan Receivables I,
Inc. The depositor is a wholly-owned, special
purpose subsidiary of The Student Loan
Corporation, formed to acquire student loans
originated or acquired by The Student Loan
Corporation and to transfer to, and deposit the
student loans in, issuer trusts. An eligible
lender trustee specified in the prospectus
supplement for your securities will hold legal
title to the student loans on our behalf.
References to the "depositor" also include the
eligible lender trustee where the context involves
the holding or transferring of legal title to the
student loans.
Eligible Lender Trustee...... For each series of securities, the related
prospectus supplement will specify the eligible
lender trustee for the related trust. See
"Formation of the Trusts--Eligible Lender Trustee"
in this prospectus.
Servicer..................... The servicer is The Student Loan Corporation or
another servicer specified in the prospectus
supplement for your securities.
Under the circumstances described in this
prospectus, the servicer may transfer its
obligations to other entities. It may also
contract with various other servicers or
sub-servicers. The related prospectus supplement
will describe any sub-servicers. Actions described
in this prospectus or any prospectus supplement as
being taken by the servicer may be taken by the
sub-servicer or other servicers on behalf of the
servicer. See "Servicing and
Administration--Certain Matters Regarding the
Servicer" in this prospectus.
Sub-servicer................. For each series of securities, the related
prospectus supplement will specify the
sub-servicer for your securities.
Indenture Trustee............ For each series of securities, the related
prospectus supplement will specify the indenture
trustee for the notes. See "Description of the
Notes--The Indenture--The Indenture Trustee" in
this prospectus.
Indenture Administrator...... For each series of securities, the related
prospectus supplement will specify the indenture
administrator. See "Description of the Notes--The
Indenture--The Indenture Administrator" in this
prospectus.
Administrator................ The Student Loan Corporation will act as
administrator of each trust. Under the
circumstances described in this prospectus, it may
transfer its obligations as administrator. See
"Servicing and Administration--Administration
Agreement."
6
Sub-administrator............ The Student Loan Corporation will transfer many of
its obligations as administrator to CitiMortgage,
Inc. Actions described in this prospectus or any
prospectus supplement as being taken by the
administrator may be taken by the
sub-administrator on behalf of the administrator.
See "Servicing and Administration--Administration
Agreement."
The Notes
Each series of securities will include one or more
classes of student loan asset-backed notes. The
notes will be issued under an indenture among the
trust, the indenture trustee, the eligible lender
trustee and the indenture administrator. We may
offer each class of notes publicly or privately,
as specified in the related prospectus supplement.
The notes will be available for purchase in the
denominations provided in the related prospectus
supplement. They will be available initially in
book-entry form only. Investors who hold the notes
in book-entry form will be able to receive
definitive notes only in the limited circumstances
described in this prospectus or in the related
prospectus supplement. See "Certain Information
Regarding the Securities--Book-Entry Registration"
and "--Definitive Securities."
Each class of notes will have a stated principal
amount and will bear interest at a specified rate.
Classes of notes may also have different interest
rates. The interest rate may be:
o fixed,
o variable,
o adjustable,
o reset,
o auction-determined, or
o any combination of these rates.
The related prospectus supplement will specify:
o the principal amount of each class of notes;
and
o the interest rate for each class of notes or
the method for determining the interest rate.
See "Description of the Notes--Principal and
Interest on the Notes."
If a series includes two or more classes of notes:
o timing and priority of payments, seniority,
interest rates or amount of payments of
principal or interest may differ for each
class; or
o payments of principal or interest on a class
may or may not be made, depending on whether
specified events occur.
The related prospectus supplement will provide
this information.
7
The Certificates
Each series of securities may also include one or
more classes of certificates. The certificates
will be issued under the trust agreement for that
series. We may offer each class of certificates
publicly or privately, as specified in the related
prospectus supplement.
If issued, certificates will be available for
purchase in a minimum denomination of $100,000 and
additional increments of $1,000. They will be
available initially in book-entry form only.
Investors who hold the certificates in book-entry
form will be able to receive definitive
certificates only in the limited circumstances
described in this prospectus or in the related
prospectus supplement. See "Certain Information
Regarding the Securities--Book-Entry Registration"
and "--Definitive Securities."
Each class of certificates will have a stated
certificate balance. The certificates will yield a
return on that balance at a specified certificate
rate. The rate of return may be:
o fixed,
o variable,
o adjustable,
o reset,
o auction-determined, or
o any combination of these rates.
The related prospectus supplement will specify:
o the certificate balance for each class of
certificates; and
o the rate of return for each class of
certificates or the method for determining the
rate of return.
If a series includes two or more classes of
certificates:
o timing and priority of distributions,
seniority, allocations of losses, certificate
rates or distributions on the certificate
balance may differ for each class; and
o distributions on a class may or may not be
made, depending on whether specified events
occur.
The related prospectus supplement will provide
this information. See "Description of the
Certificates--Distributions on the Certificate
Balance."
Distributions on the certificates may be
subordinated in priority of payment to payments of
principal and interest on the notes. If this is
the case, the related prospectus supplement will
provide this information.
8
Assets of the Trust
The assets of each trust will consist primarily of
a pool of education loans to students or parents
of students made under FFELP.
Student loans owned by a specific trust are called
"trust student loans".
The assets of the trust will include rights to
receive payments made on these student loans and
any proceeds related to them.
We will purchase the student loans from The
Student Loan Corporation under a purchase
agreement. We sometimes refer to The Student Loan
Corporation as SLC. The student loans will be
selected based on criteria listed in that purchase
agreement. We will sell the student loans to the
trust under a sale agreement. The related
prospectus supplement will specify the aggregate
principal balance of the loans sold as of a
specified statistical cutoff date. The property of
each trust also will include amounts on deposit in
specific trust accounts, including a collection
account, any reserve account, any pre-funding
account and any other account identified in the
applicable prospectus supplement and the right to
receive payments under any swap agreements entered
into by the trust. See "Formation of the
Trusts--The Trusts."
Each student loan sold to a trust will be at least
98% guaranteed--or 100% for student loans
disbursed before October 1, 1993--as to the
payment of principal and interest by a state
guaranty agency or a private non-profit guarantor.
These guarantees are contingent upon compliance
with specific origination and servicing procedures
as prescribed by various federal and guarantor
regulations. Each guarantor is reinsured by the
Department of Education for between 75% and 100%
of claims paid by that guarantor for a given
federal fiscal year. The reinsured amount depends
on a guarantor's claims experience and the year in
which the loans subject to the claims were
disbursed. The percentage of the claims paid by a
guarantor that are reinsured could change in the
future by legislation. See "Appendix A--Federal
Family Education Loan Program--Guarantee Agencies
under FFELP."
A trust may also have among its assets various
agreements with counterparties providing for
swaps, caps and similar financial contracts. These
agreements will be described in the prospectus
supplement for that trust.
Collection Account
For each trust, the administrator will establish
and maintain one or more accounts to hold all
payments made on the trust student loans. We refer
to these accounts collectively as the collection
account. The collection account will be in the
name of the indenture trustee on behalf of the
holders of the notes and the certificates. The
prospectus supplement will describe the permitted
uses of funds in the collection account and the
conditions for their application.
Pre-Funding Account
A prospectus supplement may indicate that a
portion of the net proceeds of the sale of the
securities may be kept in a pre-funding
9
account for a period of time and used to purchase
additional student loans. If a pre-funding account
is established, it will be in the name of the
indenture trustee and will be an asset of the
trust. The prospectus supplement will describe the
permitted uses of any funds in the pre-funding
account and the conditions to their application.
Reserve Account
The administrator will establish an account for
each series called the reserve account. This
account will be in the name of the indenture
trustee and will be an asset of the trust. On the
closing date, we will make a deposit into the
reserve account, as specified in the prospectus
supplement. The initial deposit into the reserve
account may also be supplemented from time to time
by additional deposits. The prospectus supplement
will describe the amount of these additional
deposits.
The prospectus supplement for each trust will
describe how amounts in the reserve account will
be available to cover shortfalls in payments due
on the securities. It will also describe how
amounts on deposit in the reserve account in
excess of the required reserve account balance
will be distributed.
Credit and Cash Flow or
other Enhancement or
Derivative Arrangements
Credit or cash flow enhancement for any series of
securities may include one or more of the
following:
o subordination of one or more classes of
securities;
o a reserve account or a cash collateral account;
o overcollateralization;
o letters of credit, credit or liquidity
facilities;
o surety bonds;
o guaranteed investment contracts;
o interest rate, currency or other swaps,
exchange agreements, interest rate protection
agreements, re-purchase obligations, put or
call options and other yield protection
agreements;
o agreements providing for third party payments;
or
o other support, deposit or derivative
arrangements;
If any credit or cash flow enhancement applies to
a trust or any of the securities issued by that
trust, the related prospectus supplement will
describe the specific enhancement as well as the
conditions for their application. A credit or cash
flow enhancement may have limitations and
exclusions from coverage. If applicable, the
related prospectus supplement will describe these
limitations or exclusions.
10
See "Certain Information Regarding the
Securities--Credit and Cash Flow or other
Enhancement or Derivative Arrangements" in this
prospectus.
Purchase Agreements
For each trust, the depositor will acquire the
related student loans under a purchase agreement.
The depositor will assign its rights under the
purchase agreement to the eligible lender trustee
on behalf of the trust. The trust will further
assign these rights to the indenture trustee as
collateral for the notes. See "Transfer and
Servicing Agreements" in this prospectus.
Sale Agreements
The depositor will sell the trust student loans to
the trust under a sale agreement. The eligible
lender trustee will hold legal title to the trust
student loans. The trust will assign its rights
under the sale agreement to the indenture trustee
as collateral for the notes. See "Transfer and
Servicing Agreements" in this prospectus.
Servicing Agreements
The servicer will enter into one or more servicing
agreements covering the student loans held by each
trust. Under the servicing agreement, the servicer
will be responsible for servicing, managing,
maintaining custody of, and making collections on
the trust student loans. In addition, it will file
with the Department of Education and the
guarantors all appropriate claims to collect
interest subsidy payments, special allowance
payments and guarantee payments owed on the trust
student loans. See "Servicing and Administration"
in this prospectus.
The servicer will enter into a sub-servicing
agreement with the sub-servicer. Under the
sub-servicing agreement, the sub-servicer will
agree to perform some or most all of the
obligations of the servicer under the servicing
agreement. The servicing agreement and the
sub-servicing agreement are collectively referred
to as the "servicing agreements."
Servicing Fee
The servicer will receive a servicing fee
specified in the related prospectus supplement.
The servicer will also receive reimbursement for
expenses and charges, as specified in that
prospectus supplement. These amounts will be
payable monthly. The servicing fee and any portion
of the servicing fee that remains unpaid from
prior dates will be payable before any payments
are made on the related securities unless any
portion of the servicing fee is expressly
subordinated to payments on the securities, as
specified in the related prospectus supplement.
See "Servicing and Administration--Servicing
Compensation" in this prospectus.
Administration Agreement
The Student Loan Corporation, in its capacity as
administrator, will enter into a separate
administration agreement with each trust, the
11
servicer and the indenture trustee. Under each
agreement, The Student Loan Corporation will
undertake specific administrative duties for each
trust. See "Servicing and
Administration--Administration Agreement" in this
prospectus.
Administration Fee
The administrator will receive an administration
fee specified in the related prospectus
supplement. It also may receive reimbursement for
expenses and charges, as specified in the related
prospectus supplement. These amounts will be
payable before any payments are made on the
related securities, as specified in the related
prospectus supplement. See "Servicing and
Administration--Administration Agreement" in this
prospectus.
Representations and
Warranties of
the Depositor
Under the sale agreement for each trust, the
depositor, as the seller of the student loans to
the trust, will make specific representations and
warranties to the trust concerning the student
loans. The depositor will have an obligation to
repurchase any trust student loan if the trust is
materially and adversely affected by a breach of
these representations or warranties, unless it can
cure the breach within the period specified in the
applicable prospectus supplement. Alternatively,
the depositor may substitute qualified substitute
student loans rather than repurchasing the
affected loans. Qualified substitute student loans
are student loans that comply, on the date of
substitution, with all of the representations and
warranties made by the depositor in the sale
agreement. Qualified substitute student loans must
also be substantially similar on an aggregate
basis to the loans they are being substituted for
with regard to the following characteristics:
o principal balance;
o status--in-school, grace, deferment,
forbearance or repayment;
o program type--Unsubsidized Stafford, Subsidized
Stafford, PLUS, SLS or Consolidation loans;
o school type;
o total return; and
o remaining term to maturity.
Any required repurchase or substitution will occur
no later than the date the next collection period
ends after the applicable cure period has expired.
In addition, the depositor will have an obligation
to reimburse the trust for:
o any shortfall between the balance of the
qualified substitute student loans and the
balance of the loans being replaced, together
with any unamortized premium on such shortfall
(based on the
12
percentage premium paid by the depositor for
the loans being replaced), and
o any accrued interest not guaranteed by, or that
is required to be refunded to, a guarantor and
any program payments lost as a result of a
breach of our representations and warranties.
See "Transfer and Servicing Agreements--Sale of
Student Loans to the Trust; Representations and
Warranties of the Depositor."
Representations and
Warranties of The
Student Loan
Corporation under the
Purchase Agreements
In each purchase agreement, SLC will make
representations and warranties to the depositor
concerning the student loans covered by that
purchase agreement. These representations and
warranties will be similar to the representations
and warranties made by the depositor under the
related sale agreement. SLC will have repurchase,
substitution and reimbursement obligations under
the purchase agreement that match those of the
depositor under the sale agreement. These
obligations may be transferred if certain
conditions are satisfied. See "Transfer and
Servicing Agreements--Purchase of Student Loans by
the Depositor; Representations and Warranties of
The Student Loan Corporation."
Covenants of the Servicer
The servicer will agree to service the trust
student loans in compliance with the servicing
agreement and the Higher Education Act, if
applicable. It will have an obligation to purchase
from a trust, or substitute qualified substitute
student loans for, any trust student loan if the
trust is materially and adversely affected by a
breach of any covenant of the servicer concerning
that student loan. Any breach that relates to
compliance with the Higher Education Act or the
requirements of a guarantor, but that does not
affect that guarantor's obligation to guarantee
payment of a trust student loan, will not be
considered to have a material adverse effect.
If the servicer does not cure a breach within the
period specified in the applicable prospectus
supplement, the purchase or substitution will be
made no later than the date the next collection
period ends after the applicable cure period has
expired, or as described in the related prospectus
supplement.
In addition, the servicer has an obligation to
reimburse the trust for:
o any shortfall between the balance of the
qualified substitute student loans and the
balance of the loans being replaced, and
o any accrued interest not guaranteed by, or that
is required to be refunded to, a guarantor and
any program payments lost as a result of a
breach of the servicer's covenants.
See "Servicing and Administration--Servicer
Covenants."
13
Optional Purchase
Subject to any limitations described in the
applicable prospectus supplement, the servicer or
another entity specified in the prospectus
supplement may, at its option, purchase, or
arrange for the purchase of, all remaining student
loans owned by a trust on any distribution date
when their pool balance is 10% or less of the
initial pool balance, together with the aggregate
initial principal balances of all trust student
loans acquired during any applicable pre-funding
period, plus accrued interest to be capitalized as
of the applicable cutoff dates. The exercise of
this purchase option will result in the early
retirement of the securities issued by that trust.
See "The Student Loan Pools--Termination" in this
prospectus.
Auction of Trust Assets
The indenture administrator will offer for sale
all remaining trust student loans at the end of
the collection period when their pool balance
reduces to 10% or less of the initial pool
balance. An auction will occur only if the entity
with the optional purchase right has first waived
its optional purchase right. The auction of the
remaining trust student loans will result in the
early retirement of the securities issued by that
trust. See "The Student Loan Pools--Termination"
in this prospectus.
U.S Federal Income Tax
Considerations
SLC will receive an opinion of tax counsel that
the trust will not be treated as an association
(or publicly traded partnership) taxable as a
corporation. Unless otherwise specified in the
related prospectus supplement, SLC will receive an
opinion of tax counsel that the notes will be
treated as indebtedness for federal income tax
purposes.
SLC and the trust will treat the notes as
indebtedness for federal income tax purposes. By
acquiring a note, you will agree to treat that
note as indebtedness for federal income tax
purposes.
See the discussion under the heading "U.S. Federal
Income Tax Consequences" in this prospectus.
ERISA Considerations
A fiduciary of any employee benefit plan or other
retirement arrangement subject to Title I of ERISA
or Section 4975 of the Internal Revenue Code,
should carefully review with its legal advisors
whether the plan's purchase or holding of any
class of securities could give rise to a
transaction prohibited or otherwise impermissible
under ERISA or the Internal Revenue Code. See
"ERISA Considerations" in this prospectus and in
the related prospectus supplement.
Ratings
All of the securities will be rated in one of the
four highest rating categories. The related
prospectus supplement will specify the ratings for
the securities.
14
RISK FACTORS
You should carefully consider the following risk factors in deciding
whether to purchase any securities. You should also consider the additional risk
factors described in each prospectus supplement. All of these risk factors could
affect your investment in or return on the securities.
Because The Securities May Not Provide Regular or Predictable Payments, You May
Not Receive The Return on Investment That You Expected
The securities may not provide a regular or predictable schedule of
payments or payment on any specific date. Accordingly, you may not receive the
return on investment that you expected.
If a Secondary Market For Your Securities Does Not Develop, The Value of Your
Securities May Diminish
The securities will be a new issue without an established trading market.
We do not intend to list the securities on any national exchange. As a result,
we cannot assure you that a secondary market for the securities will develop. If
a secondary market does not develop, the spread between the bid price and the
asked price for your securities may widen, thereby reducing the net proceeds to
you from the sale of your securities.
The Trust Will Have Limited Assets From Which To Make Payments On The
Securities, Which May Result In Losses
The trust will not have, nor will it be permitted to have, significant
assets or sources of funds other than the trust student loans, the guarantee
agreements, and, if so provided in the related prospectus supplement, a reserve
account, any other accounts established in the trust's name, any derivative
contracts and other credit or cash flow enhancements.
Consequently, you must rely upon payments on the trust student loans from
the borrowers and guarantors, and, if available, amounts on deposit in the trust
accounts, amounts received from derivative counterparties and any other credit
or cash flow enhancements to repay your securities. If these sources of funds
are insufficient to repay your securities, you may experience a loss on your
investment.
If A Guarantor Of The Student Loans Experiences Financial Deterioration Or
Failure, You May Suffer Delays In Payment Or Losses On Your Securities
All of the student loans will be unsecured. As a result, the primary
security for payment of a student loan is the guarantee provided by the
applicable guarantor. Student loans acquired by each trust will be subject to
guarantee agreements with a number of individual guarantors. A deterioration in
the financial status of a guarantor and its ability to honor guarantee claims
could result in a failure of that guarantor to make its guarantee payments to
the eligible lender trustee in a timely manner. A guarantor's financial
condition could be adversely affected by a number of factors including:
o the continued voluntary waiver by the guarantor of the guarantee fee
payable by a borrower upon disbursement of a student loan;
o the amount of claims made against that guarantor as a result of
borrower defaults;
o the amount of claims reimbursed to that guarantor from the
Department of Education, which range from 75% to 100% of the 98%
guaranteed portion of the loan depending on the date the loan was
made and the performance of the guarantor; and
o changes in legislation that may reduce expenditures from the
Department of Education that support federal guarantors or that may
require guarantors to pay more of their reserves to the Department
of Education.
If the financial condition of a guarantor deteriorates, it may fail to make
guarantee payments in a timely manner. In that event, you may suffer delays in
payment or losses on your securities.
15
The Department Of Education's Failure To Make Reinsurance Payments May
Negatively Affect The Timely Payment Of Principal And Interest On Your
Securities
If a guarantor is unable to meet its guarantee obligations, the trust may
submit claims directly to the Department of Education for payment. The
Department of Education's obligation to pay guarantee claims directly is
dependent upon it determining that the guarantor is unable to meet its
obligations. If the Department of Education delays in making this determination,
you may suffer a delay in the payment of principal and interest on your
securities. In addition, if the Department of Education determines that the
guarantor is able to meet its obligations, the Department of Education will not
make guarantee payments to the trust. The Department of Education may or may not
make the necessary determination or, if it does, it may or may not make this
determination or the ultimate payment of the guarantee claims in a timely
manner. This could result in delays or losses on your investment.
You Will Bear Prepayment And Extension Risk Due To Actions Taken By Individual
Borrowers And Other Variables Beyond Our Control
A borrower may prepay a student loan in whole or in part at any time. The
rate of prepayments on the student loans may be influenced by a variety of
economic, social, competitive and other factors, including changes in interest
rates, the availability of alternative financings and the general economy. With
respect to Stafford and PLUS loans, the likelihood of prepayments is higher as a
result of various loan consolidation programs. In addition, a trust may receive
unscheduled payments due to defaults and to purchases by the servicer or the
depositor. Because a pool will include thousands of student loans, it is
impossible to predict the amount and timing of payments that will be received
and paid to securityholders in any period. Consequently, the length of time that
your securities are outstanding and accruing interest may be shorter than you
expect.
On the other hand, the trust student loans may be extended as a result of
grace periods, deferment periods and, under some circumstances, forbearance
periods. This may lengthen the remaining term of the student loans and delay
principal payments to you. In addition, the amount available for distribution to
you will be reduced if borrowers fail to pay timely the principal and interest
due on the student loans. Consequently, the length of time that your securities
are outstanding and accruing interest may be longer than you expect.
Any optional purchase right, any provision for the auction of the student
loans, and, if applicable, the possibility that any pre-funded amount may not be
fully used to purchase additional student loans create additional uncertainty
regarding the timing of payments to securityholders.
The effect of these factors is impossible to predict. To the extent they
create reinvestment risk, you will bear that risk.
You May Be Unable To Reinvest Principal Payments At The Yield You Earn On The
Securities
Asset-backed securities usually produce increased principal payments to
investors when market interest rates fall below the interest rates on the
collateral--student loans in this case--and decreased principal payments when
market interest rates rise above the interest rates on the collateral. As a
result, you may receive more money to reinvest at a time when other investments
generally are producing lower yields than the yield on the securities.
Similarly, you may receive less money to reinvest when other investments
generally are producing higher yields than the yield on the securities.
A Failure To Comply With Student Loan Origination And Servicing Procedures
Could Jeopardize Guarantor, Interest Subsidy And Special Allowance
Payments On The Student Loans, Which May Result In Delays In Payment Or
Losses On Your Securities
The Higher Education Act requires lenders making and servicing student
loans and the guarantors guaranteeing those loans to follow specified
procedures, including due diligence procedures, to ensure that the student loans
are properly made, disbursed and serviced.
Failure to follow these procedures may result in:
o the Department of Education's refusal to make reinsurance payments
to the applicable guarantor or to make interest subsidy payments and
special allowance payments on the trust student loans; or
o the guarantors' inability or refusal to make guarantee payments on
the trust student loans.
16
Loss of any program payments could adversely affect the amount of
available funds and the trust's ability to pay principal and interest on your
securities.
The Inability Of The Depositor Or The Servicer To Meet Its Repurchase
Obligation May Result In Losses On Your Securities
Under some circumstances, the trust has the right to require the depositor
or the servicer to purchase or substitute for a trust student loan. This right
arises generally if a breach of the representations, warranties or covenants of
the depositor or the servicer, as applicable, has a material adverse effect on
the trust, if the breach is not cured within the applicable cure period. We
cannot guarantee you, however, that we or the servicer will have the financial
resources to make a purchase or substitution. In this case, you will bear any
resulting loss.
The Noteholders' Right To Waive Defaults May Adversely Affect
Certificateholders
The noteholders have the ability, with specified exceptions, to waive
defaults by the servicer or the administrator, including defaults that could
materially and adversely affect the certificateholders.
Subordination Of The Certificates Or Some Classes Of Notes Results In A Greater
Risk Of Losses Or Delays In Payment On Those Securities
Payments on the certificates may be subordinated to payments due on the
notes of that series. In addition, some classes of notes may be subordinate to
other classes. Consequently, holders of the certificates and the holders of some
classes of notes may bear a greater risk of losses or delays in payment. The
prospectus supplement will describe the nature and the extent of any
subordination.
The Securities May Be Repaid Early Due To An Auction Sale Or The Exercise Of
The Purchase Option. If This Happens, Your Yield May Be Affected And You
Will Bear Reinvestment Risk
The securities may be repaid before you expect them to be if:
o the indenture administrator successfully conducts an auction sale or
o the servicer or other applicable entity exercises its option to
purchase all the trust student loans.
Either event would result in the early retirement of the securities
outstanding on that date. If this happens, your yield on the securities may be
affected. You will bear the risk that you cannot reinvest the money you receive
in comparable securities at as high a yield.
The Principal Of The Student Loans May Amortize Faster Because Of Incentive
Programs
Various incentive programs may be available to borrowers from SLC. One
incentive program allows for a 0.25% interest rate reduction to borrowers who
elect to have their installments deducted automatically from their bank
accounts. Another incentive program provides a 1.00% interest rate reduction to
borrowers who, starting with their first installment, pay a specified number of
installments on time and in succession. This benefit is lost if a borrower is
delinquent with respect to any subsequent installment. Any incentive program
that effectively reduces borrower payments or principal balances on trust
student loans and is not required by the Higher Education Act will be applicable
to the trust student loans only if the servicer receives payment in an amount
sufficient to offset the effective yield reductions. If these benefits are made
available to borrowers with trust student loans, the principal of the affected
trust student loans may amortize faster than anticipated.
Payment Offsets By Guarantors Or The Department Of Education Could Prevent The
Trust From Paying You The Full Amount Of The Principal And Interest Due On
Your Securities
The eligible lender trustee may use the same Department of Education
lender identification number for student loans in a trust as it uses for other
student loans it holds on behalf of other trusts established by the depositor.
If so, the billings submitted to the Department of Education and the claims
submitted to the guarantors will be consolidated with the billings and claims
for payments for trust student loans under other trusts using the same lender
identification number. Payments on those billings by the Department of Education
as well as claim payments by the applicable guarantors will be made to the
eligible lender trustee, or to the servicer on behalf of the eligible
17
lender trustee, in a lump sum. Those payments must be allocated by the
administrator among the various trusts that reference the same lender
identification number.
If the Department of Education or a guarantor determines that the eligible
lender trustee owes it a liability on any trust student loan, including loans it
holds on behalf of the trust for your securities or other trusts, the Department
or the applicable guarantor may seek to collect that liability by offsetting it
against payments due to the eligible lender trustee under the terms of the
trust. Any offsetting or shortfall of payments due to the eligible lender
trustee could adversely affect the amount of available funds for any collection
period and thus the trust's ability to pay you principal and interest on the
securities.
The servicing agreement for your securities and other servicing agreements
of the depositor will contain provisions for cross-indemnification concerning
those payments and offsets. Even with cross-indemnification provisions, however,
the amount of funds available to the trust from indemnification would not
necessarily be adequate to compensate the trust and investors in the securities
for any previous reduction in the available funds.
A Servicer Default May Result In Additional Costs, Increased Servicing Fees
By A Substitute Servicer Or A Diminution In Servicing Performance, Any Of
Which May Have An Adverse Effect On Your Securities
If a servicer default occurs, the indenture trustee or the noteholders in
a given series of securities may remove the servicer without the consent of the
eligible lender trustee or any of the certificateholders of that series. Only
the indenture trustee or the noteholders, and not the eligible lender trustee or
the certificateholders, have the ability to remove the servicer if a servicer
default occurs. In the event of the removal of the servicer and the appointment
of a successor servicer, we cannot predict:
o the cost of the transfer of servicing to the successor,
o ability of the successor to perform the obligations and duties of
the servicer under the servicing agreement, or
o the servicing fees charged by the successor.
In addition, the noteholders have the ability, with some exceptions, to
waive defaults by the servicer, including defaults that could materially and
adversely affect the certificateholders.
The Bankruptcy Of The Depositor Or The Student Loan Corporation Could Delay Or
Reduce Payments On Your Securities
We have taken steps to assure that the voluntary or involuntary
application for relief by SLC under the United States Bankruptcy Code or other
insolvency laws will not result in consolidation of the assets and liabilities
of the depositor with those of SLC. However, we cannot guarantee that our
activities will not result in a court concluding that our assets and liabilities
should be consolidated with those of SLC in a proceeding under any insolvency
law. If a court were to reach this conclusion or a filing were made under any
insolvency law by or against us, or if an attempt were made to litigate this
issue, then delays in distributions on the securities or reductions in these
amounts could result.
SLC and the depositor intend that each transfer of student loans to the
depositor will constitute a true sale. If a transfer constitutes a true sale,
the student loans and their proceeds would not be property of SLC should it
become the subject of any insolvency proceeding.
If SLC were to become subject to an insolvency proceeding, and a creditor,
a trustee-in-bankruptcy or SLC were to take the position that the sale of
student loans should instead be treated as a pledge of the student loans to
secure a borrowing of SLC, delays in payments on the securities could occur. In
addition, if the court ruled in favor of this position, reductions in the
amounts of these payments could result.
If the transfer of student loans by SLC to us is treated as a pledge
instead of a sale, a tax or government lien on the property of SLC arising
before the transfer of those student loans to us may have priority over that
trust's interest in the student loans.
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The Indenture Trustee May Have Difficulty Liquidating Student Loans After An
Event Of Default
Generally, if an event of default occurs under an indenture, the indenture
trustee may sell the trust student loans, without the consent of the
certificateholders. However, the indenture trustee may not be able to find a
purchaser for the trust student loans in a timely manner or the market value of
those loans may not be high enough to make securityholders whole, especially
certificateholders.
The Federal Direct Student Loan Program Could Result In Reduced Revenues For
The Servicer And The Guarantors
The federal direct student loan program, established under the Higher
Education Act, may result in reductions in the volume of loans made under FFELP.
If so, the servicer may experience increased costs due to reduced economies of
scale. These cost increases could reduce the ability of the servicer to satisfy
its obligations to service the trust student loans. This increased competition
from the federal direct student loan program could also reduce revenues of the
guarantors that would otherwise be available to pay claims on defaulted student
loans. The level of demand currently existing in the secondary market for loans
made under FFELP could be reduced, resulting in fewer potential buyers of the
student loans and lower prices available in the secondary market for those
loans. The Department of Education also has implemented a direct consolidation
loan program, which may reduce the volume of loans outstanding under FFELP and
result in prepayments of student loans held by the trust.
Proposed Changes to the Higher Education Act May Result In Increased Prepayments
On, Or Other Adverse Changes To, The Student Loans
The Higher Education Act in the past has been the subject of many changes
and amendments that have affected its programs. The Higher Education Act is
currently subject to reauthorization. During that process, which is ongoing,
proposed amendments to the Higher Education Act are more commonplace and a
number of proposals have been introduced in Congress. As part of such process,
the Chairman of the House Education and Workforce Committee has recently
introduced HR 4283, which, if enacted in its present form, would make various
changes to the Higher Education Act in the future, including changing loan
limits, changing interest rate provisions and decreasing origination and loan
fees. Bills also have been introduced in the House of Representatives that, if
enacted into law, would permit borrowers under most consolidation loans to
refinance their student loans at lower interest rates.
Any legislation that permits borrowers to refinance existing consolidation
loans at lower interest rates could increase the rate of prepayments on the
financed student loans. A faster rate of prepayments would decrease the amount
of excess interest available to redeem notes. In addition, if the legislation
described above or any similar legislation is enacted into law, the length of
time that the notes are outstanding and their weighted average lives may be
shortened significantly.
It is not possible to predict whether or when any of such proposals,
including HR 4283, may be adopted, in what form they may be adopted, or the
final content of any such proposals and their effect upon the financed student
loans.
A Decline In The Financial Health Of A Derivative Product Provider Could
Reduce The Amount Of Funds Available To Pay Principal And Interest On Your
Notes
Our ability to make principal and interest payments on the notes may be
affected by the ability of a derivative product provider to meet its payment
obligation under a derivative product, such as an interest rate cap agreement or
a swap. Developing an effective strategy for dealing with movements in interest
rates is complex, and no strategy can completely insulate a trust estate from
risks associated with interest rate fluctuations. As a result, there can be no
assurance that the derivative product agreement will effectively mitigate
interest rate exposure.
The Use Of Master Promissory Notes May Compromise The Indenture Trustee's
Security Interest In Certain Student Loans
Beginning for loans disbursed on or after July 1, 1999, a master
promissory note may evidence any Federal Stafford student loan made to a
borrower under FFELP. The master promissory note may be used for Federal PLUS
Loans for loans disbursed beginning on or after July 1, 2003, and must be used
for all Federal PLUS Loans for loans disbursed beginning on or after July 1,
2004, or for any Federal PLUS Loan certified on or after July 1, 2004,
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regardless of the loan period. If a master promissory note is used, a borrower
executes only one promissory note with each lender. Subsequent student loans
from that lender are evidenced by a confirmation sent to the student. Therefore,
if a lender originates multiple student loans to the same student, all the
student loans are evidenced by a single promissory note.
Under the Higher Education Act, each student loan made under a master
promissory note may be sold independently of any other student loan made under
that same master promissory note. Each student loan is separately enforceable on
the basis of an original or copy of the master promissory note. Also, a security
interest in these student loans may be perfected through filing of a financing
statement. Prior to the master promissory note, each student loan made under
FFELP was evidenced by a separate note. Assignment of the original note was
required to effect a transfer and possession of a copy did not perfect a
security interest in the loan.
Federal consolidation loans are not originated with master promissory
notes. Each of those loans are made under standard loan applications and
promissory notes required by the Department of Education.
It is possible that student loans transferred to a trust may be originated
under a master promissory note. If the servicer were to deliver a copy of the
master promissory note, in exchange for value, to a third party that did not
have knowledge of the indenture trustee's lien, that third party may also claim
an interest in the student loan. It is possible that the third party's interest
could be prior to or on a parity with the interest of the indenture trustee.
The Securities May Be Issued Only In Book-Entry Form
We expect that each class of securities of each series will be initially
represented by one or more certificates registered in the name of Cede & Co.,
the nominee for The Depository Trust Company, and will not be registered in your
name or the name of your nominee. If we elect to issue definitive securities
registered in the name of the holder for a class or series of the securities, we
will so state in the related prospectus supplement. Unless and until definitive
securities are issued, holders of the securities will not be recognized by the
indenture trustee or the indenture administrator as registered owners as that
term is used in the related indenture. Unless and until definitive securities
are issued, holders of the securities will only be able to exercise the rights
of registered owners indirectly through The Depository Trust Company and its
participating organizations. See "Certain Information Regarding the
Securities--Book-Entry Registration" in this prospectus.
Withdrawal Or Downgrade Of Initial Ratings May Decrease The Prices Of Your
Securities
The prospectus supplement for your securities will specify the required
ratings for the securities. A security rating is not a recommendation to buy,
sell or hold securities. Similar ratings on different types of securities do not
necessarily mean the same thing. You should analyze the significance of each
rating independently from any other rating. A rating agency may revise, withdraw
or qualify its rating at any time if it believes circumstances have changed. A
subsequent downward change in rating is likely to decrease the price a
subsequent purchaser will be willing to pay for your securities.
Certain Actions Can Be Taken Without Noteholder Approval
The transaction documents provide that certain actions may be taken based
upon receipt by the indenture trustee of confirmation from each of the rating
agencies then rating the notes that the then current ratings assigned by such
rating agencies will not be impaired by those actions. To the extent those
actions are taken after issuance of the notes, investors in the notes will be
depending on the evaluation by the rating agencies of those actions and the
impact of those actions on credit quality.
The United States Military Build-Up May Result In Delayed Payments From
Borrowers Called To Active Military Service
The recent build-up of the United States military has increased the number
of citizens who are in active military service. The Servicemembers Civil Relief
Act, as amended, or the Relief Act, was signed into law by the President on
December 19, 2003 and updates and replaces the Solders' and Sailors' Civil
Relief Act of 1940. The Relief Act limits the ability of a lender under FFELP to
take legal action against a borrower during the borrower's period of active duty
and, in some cases, during an additional three month period thereafter. In
addition, the United States Department of Education has issued guidelines that
would extend the in-school status, in school deferment status, grace period
status or forbearance status of certain borrowers ordered to active duty.
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We do not know how many student loans have been or may be affected by the
application of the Relief Act and the United States Department of Education's
guidelines. Payments on student loans acquired by us may be delayed as a result
of these requirements, which may reduce the funds available to us to pay
principal and interest on the notes.
The Higher Education Relief Opportunities for Students Act of 2003 (HEROES
Act of 2003) authorizes the Secretary of Education, during the period ending
September 30, 2005, to waive or modify any statutory or regulatory provisions
applicable to student financial aid programs under Title IV of the Higher
Education Act as the Secretary deems necessary to ensure that student loan
borrowers who: are servicing on active military duty during a war or other
military operation or national emergency, are serving on National Guard duty
during a war or other military operation or national emergency, reside or are
employed in an area that is declared by any federal, state, or local official to
be a disaster area in connection with a national emergency, or suffered direct
economic hardship as a direct result of war or other military operation or
national emergency, as determined by the Secretary, to ensure that such
recipients of student financial assistance are not placed in a worse financial
position in relation to that assistance, to ensure that administrative
requirements in relation to that assistance are minimized, to ensure that
calculations used to determine need for such assistance accurately reflect the
financial condition of such individuals, to provide for amended calculations of
overpayment, and to ensure that institutions of higher education, eligible
lenders, guaranty agencies and other entities participating in such student
financial aid programs that are located in, or whose operations are directly
affected by, areas that are declared to be disaster areas by any federal, state
or local official in connection with a national emergency may be temporarily
relieved from requirements that are rendered infeasible or unreasonable. The
Secretary was given this same authority under Public Law 107-122, signed by the
President on January 15, 2001 but the Secretary has yet to use this authority to
provide specific relief to servicepersons with loan obligations who are called
to active duty.
The number and aggregate principal balance of student loans that may be
affected by the application of the HEROES Act of 2003 is not known at this time.
Accordingly, payments received by us on financed student loans made to a
borrower who qualifies for such relief may be subject to certain limitations. If
a substantial number of borrowers of the financial student loans become eligible
for the relief provided under the HEROES Act of 2003, there could be an adverse
effect on the total collections on the financed student loans and our ability to
pay interest in the notes if there are insufficient funds in the reserve
account.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus and the prospectus supplement relating to
your securities, including those concerning our expectations as to our ability
to acquire eligible student loans, to structure and to issue competitive
securities, and certain of the information presented in this prospectus and the
prospectus supplement relating to your securities, constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Actual results may vary materially from our expectations. For a discussion
of the factors which could cause actual results to differ from expectations,
please see the caption entitled "Risk Factors" in this prospectus and in the
prospectus supplement relating to your securities.
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FORMATION OF THE TRUSTS
The Trusts
The depositor will establish a separate trust for each series of
securities. Each trust will be formed under a trust agreement. It will perform
only the following activities:
o acquire, hold, sell and manage trust student loans, the other trust
assets and related proceeds;
o issue the securities;
o make payments on the securities; and
o engage in other incidental or related activities.
Each trust will have only nominal initial capital. On behalf of each
trust, the eligible lender trustee will use the net proceeds from the sale of
the related securities to purchase the trust student loans.
Following the purchase of the trust student loans, the assets of the trust
will include:
o the trust student loans themselves, legal title to which the
eligible lender trustee will hold;
o all funds collected on the trust student loans on or after the date
specified in the prospectus supplement, including any guarantor and
Department of Education payments;
o all moneys and investments on deposit in the collection account, any
reserve account, any pre-funding account and any other trust
accounts or any other form of credit enhancement;
o rights under the related transfer and servicing agreements,
including the right to require The Student Loan Corporation, the
depositor or the servicer to repurchase trust student loans from it
or to substitute student loans under some conditions;
o rights under the guarantee agreements with guarantors; and
o any other property described in the prospectus supplement.
The certificates will represent beneficial ownership of the assets of the
trust and the notes will represent indebtedness of the trust secured by its
assets. To facilitate servicing and to minimize administrative burden and
expense, the servicer, directly or through subservicers, will retain possession
of the promissory notes and other documents related to the student loans as
custodian for the trust and the eligible lender trustee.
Eligible Lender Trustee
The eligible lender trustee for a trust will be the bank or trust company
specified in the related prospectus supplement. It will acquire legal title to
all trust student loans on behalf of that trust and will enter into a guarantee
agreement with each of the guarantors of those loans. The eligible lender
trustee must qualify as an eligible lender under the Higher Education Act and
the guarantee agreements.
The liability of the eligible lender trustee in connection with the
issuance and sale of any securities will consist solely of its express
obligations in the trust agreement and sale agreement. An eligible lender
trustee may resign at any time. If it does, the administrator must appoint a
successor. The administrator may also remove an eligible lender trustee if the
eligible lender trustee becomes insolvent or ceases to be eligible to continue
as trustee. In that event, the administrator must appoint a successor. The
resignation or removal of an eligible lender trustee and appointment of a
successor will become effective only when a successor accepts its appointment.
The prospectus supplement will specify the principal office of each trust
and eligible lender trustee.
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USE OF PROCEEDS
On the closing date specified in the applicable prospectus supplement, the
eligible lender trustee, on behalf of the trust, will use the net proceeds of
the sale of the securities to purchase student loans from us and make an initial
deposit into the collection account, the reserve account and any other account
specified in the related prospectus supplement. The eligible lender trustee may
also apply the net proceeds for other purposes to the extent described in the
related prospectus supplement. We will use the money we receive for general
company purposes, including purchasing the student loans and acquiring any
credit or cash flow enhancement specified in the related prospectus supplement.
THE STUDENT LOAN CORPORATION, THE DEPOSITOR AND
THE SERVICER AND THE SUB-SERVICER
The Seller, Servicer and Administrator
The Student Loan Corporation, the seller, servicer and administrator,
originates, manages and services federally insured student loans through a trust
agreement with Citibank USA, National Association (CBNA), an indirect wholly
owned subsidiary of Citigroup Inc. (Citigroup). The Student Loan Corporation is
one of the nation's largest originators and holders of student loans guaranteed
under FFELP, authorized by the U.S. Department of Education (the Department)
under the Federal Higher Education Act of 1965, as amended (the Act). Student
Loan Corporation also holds student loans that are not insured under the Act,
primarily CitiAssist Loans.
The Student Loan Corporation was incorporated in Delaware on November 4,
1992 and commenced operations on December 22, 1992. For more than 25 years prior
to December 22, 1992, The Student Loan Corporation operated as a division of
Citibank (New York State) (CNYS). On December 22, 1992, the assets of the
division were exchanged with CNYS for 20 million shares of The Student Loan
Corporation's common stock and The Student Loan Corporation's agreement to pay
approximately $2.8 billion to CNYS and to assume certain obligations of CNYS. On
December 23, 1992, CNYS sold four million shares of its holdings of The Student
Loan Corporation's common stock in an initial public offering, retaining an 80%
ownership interest in The Student Loan Corporation. In August 2003, CNYS merged
with CBNA, and CBNA succeeded CNYS as the principal shareholder of The Student
Loan Corporation. At the effective date of the merger, CBNA became a party to
all intercompany agreements that The Student Loan Corporation had previously
entered into with CNYS. CBNA succeeded to all of the rights and assumed all of
the obligations of CNYS under such intercompany agreements.
The Depositor
SLC Student Loan Receivables I, Inc., the depositor, is a bankruptcy
remote wholly-owned, special purpose subsidiary of The Student Loan Corporation,
formed to purchase student loans originated or acquired by The Student Loan
Corporation and to transfer these student loans to the trust. Because the
depositor is not an institution eligible to hold legal title to student loans,
an eligible lender trustee specified in the related prospectus supplement will
hold legal title to the student loans on behalf of the depositor.
By forming the depositor to acquire the student loans being transferred to
the trust, The Student Loan Corporation has taken steps intended to prevent any
application for relief under any insolvency law from resulting in consolidation
of the assets and liabilities of the depositor with those of The Student Loan
Corporation. As a separate, limited-purpose entity, the depositor's
incorporation documents contain limitations including:
o restrictions on the nature of its business; and
o a restriction on its ability to commence a voluntary case or
proceeding under any insolvency law without the unanimous
affirmative vote of all of its directors.
Among other things, the depositor will maintain its separate corporate
identity by:
o maintaining records and books of accounts separate from those of The
Student Loan Corporation;
o refraining from commingling its assets with the assets of The
Student Loan Corporation; and
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o refraining from holding itself out as having agreed to pay, or being
liable for, the debts of The Student Loan Corporation.
We have structured the transactions described in this prospectus to assure
that the transfer of the student loans by The Student Loan Corporation to the
depositor constitutes a "true sale" of the student loans to the depositor. If
the transfer constitutes a "true sale" the student loans and related proceeds
would not be property of The Student Loan Corporation should it become subject
to any insolvency proceeding.
Upon each issuance of securities, the transferring depositor will receive
the advice of counsel that, subject to various facts, assumptions and
qualifications, the transfer of the student loans by The Student Loan
Corporation to the depositor would be characterized as a "true sale" and the
student loans and related proceeds would not be property of The Student Loan
Corporation under the insolvency laws.
The transferring depositor will also represent and warrant that each
transfer of student loans by the depositor to the trust is a valid sale and
contribution of those loans. The transferring depositor and The Student Loan
Corporation will take all actions that are required so the eligible lender
trustee will be treated as the legal owner of the student loans while they are
held beneficially by either the depositor or the trust.
The Sub-Servicer
For each series of securities, SLC is expected to contract with a
sub-servicer to sub- the trust student loans on behalf of the related trust. The
related prospectus supplement will specify the sub-servicer for your securities.
The Sub-Administrator
CitiMortgage, Inc. will act as sub-administrator of each trust.
CitiMortgage, Inc. will provide various notices and perform other administrative
obligations required by the administration agreement and the indenture. These
services include directing the indenture administrator to make the required
distributions from the trust accounts, preparing and providing, based on
periodic data received from the servicer, periodic distribution statements to
the owner trustee, the eligible lender trustee, the indenture trustee and the
indenture administrator and providing any related federal income tax reporting
information.
CitiMortgage, Inc. was incorporated in Delaware in 1979 and began making
mortgage loans in 1980. On March 1, 2003, following Citigroup's 2002 acquisition
of Golden State Bancorp, First Nationwide Mortgage Corporation, which had been a
subsidiary of Golden State Bancorp, was merged into CitiMortgage, Inc.
CitiMortgage, Inc. derives income primarily from interest on mortgages that it
owns, secondary mortgage market sales, mortgage loan servicing fees and mortgage
origination fees and charges. CitiMortgage, Inc. has been approved as a
mortgagee and seller/servicer by the Federal Housing Administration, the
Veterans Administration, Fannie Mae, Ginnie Mae, and Freddie Mac.
The prospectus supplement for a series may contain additional information
concerning the administrator, the sub-administrator, the depositor, the servicer
or the sub-servicer.
THE STUDENT LOAN POOLS
The depositor will purchase the trust student loans from The Student Loan
Corporation out of the portfolio of student loans held by SLC. Unless otherwise
specified in the related prospectus supplement for any trust, the trust student
loans must meet several criteria, including:
o Each loan is guaranteed as to principal and interest by a guarantor
and is reinsured by the Department of Education under FFELP.
o Each loan was originated in the United States, its territories or
its possessions in accordance with a FFELP program.
o Each loan contains terms required by the program and the applicable
guarantee agreements.
o Each loan provides for periodic payments that will fully amortize
the amount financed over its term to maturity, exclusive of any
deferral or forbearance periods.
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o Each loan satisfies any other criteria described in the related
prospectus supplement.
The prospectus supplement for each series will provide information about
the student loans in the related trust that will include:
o the composition of the pool,
o the distribution of the pool by loan type, payment status, interest
rate basis and remaining term to maturity,
o the borrowers' states of residence, and
o the percentages of the student loans guaranteed by the applicable
guarantors.
The Student Loan Corporation's Student Loan Business
SLC originates, manages and services student loans insured under federally
sponsored programs. "Appendix A--Federal Family Education Loan Program" to this
prospectus describes these federally sponsored programs.
Student Loans. SLC's student loan portfolio is composed of both FFELP
loans and loans originated through alternative programs, such as CitiAssist. SLC
is currently eligible to make the following types of FFELP loans: subsidized
Federal Stafford, unsubsidized Federal Stafford, Federal Parent Loans to
Undergraduate Students (PLUS) and Federal Consolidation Loans. Subsidized
Federal Stafford Loans are generally made to students who pass certain need
criteria. Unsubsidized Federal Stafford Loans are designed for students who do
not qualify for subsidized Federal Stafford Loans due to parental and/or student
income and assets in excess of permitted amounts or whose need exceeds the basic
Stafford limit. Federal PLUS Loans are made to parents of students who are
dependents. The Federal Consolidation Loan Program allows multiple federal
loans, including those of both FFELP and the Federal Direct Student Loan
Program, to be combined into one single aggregate insured loan. Federal
Consolidation Loans may include government-guaranteed loans formerly held by
other lenders. Prior to consolidation, any loan balances that are not already
owned by SLC are purchased at face value from other lenders. A Federal
Consolidation Loan is allowed an extended repayment term of up to 30 years,
depending on the loan balance.
In addition, SLC's portfolio includes Federal Supplemental Loans for
Students (SLS Loans). SLS Loans were originated prior to July 1994, when new
loan disbursements through this program were discontinued. Federal SLS Loans
include loans to graduate, professional and independent undergraduate students,
and, under certain circumstances, dependent undergraduate students. In 1994, the
SLS Program was replaced with an expanded unsubsidized Federal Stafford Loan
program. SLC also owns a portfolio of Health Education Assistance Loans (HEAL
Loans), composed of guaranteed student loans for borrowers in designated health
professions under a federally insured loan program administered by the U.S.
Department of Health and Human Services. Although no new loans are being
originated under this program, SLC has pursued acquisition of HEAL Loans from
other holders.
The Department administers FFELP under Title IV of the Act. In order to
comply with the provisions of the Act, all of SLC's FFELP loans are held, and
all new FFELP loans are originated, by SLC through a trust established solely
for the benefit of SLC. An institution, such as SLC, that does not fall within
the Act's definition of "eligible lender" may hold and originate FFELP loans
only through a trust or similar arrangement with an eligible lender. SLC's trust
agreement is with CBNA, a national banking association and an eligible lender
under the provisions of the Act.
SLC's alternative loan programs, such as CitiAssist, are available for
students who either do not qualify for government student loan programs or need
additional financial assistance beyond that available through government
programs. Alternative loans are offered based on the borrower's or co-signer's
creditworthiness, in addition to financial need as established by the
educational institution. Most are insured by private insurers.
SLC also participates in the secondary student loan market through
purchases of loans that consist of subsidized Federal Stafford Loans,
unsubsidized Federal Stafford Loans, PLUS Loans, Federal Consolidation Loans and
HEAL Loans. Most Federal Consolidation Loans are generated through third party
marketing channels. Loans acquired through these channels generally have lower
yields than student loans sourced through school lender lists and other primary
channels.
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Origination of FFELP Loans. SLC is one of the nation's largest originators
and holders of student loans guaranteed under FFELP. SLC's student loan volume
primarily results from SLC's marketing efforts, repeat borrowers, Internet leads
and college fair participants.
A student must attend an eligible educational institution in order to
participate in FFELP. Eligible institutions can be divided into three
categories: four-year colleges and universities, two-year institutions and
proprietary (vocational) schools. In addition to other criteria, school
eligibility is determined by the default rate on guaranteed loans to its
students. Under the Act, eligible lenders, subject to certain restrictions, may
choose not to make loans to students attending certain schools, defined by
school type, geographic location or default experience.
For Stafford Loans, the student and school complete a Master Promissory
Note and send it either to SLC or directly to the guaranty agency (guarantor).
For PLUS Loans, the school, parent and student complete a combined
application/promissory note. The loan application process is either completed
online at www.studentloan.com or through submission of a paper application. Both
the guarantor and SLC must approve the loan request. Upon guarantor approval,
the guarantor sends a notice of guarantee to SLC. After receiving the notice of
guarantee, SLC makes disbursements of the loan directly to the school and sends
a disclosure statement to the borrower confirming the terms of the loan.
SLC also originates loans under "blanket guarantee" agreements with
certain guarantors, under which SLC is eligible to retain guarantees on certain
loan originations without having to obtain loan approval on each individual
loan.
Origination of CitiAssist Loans. In order to comply with certain legal
requirements, CitiAssist Loans are originated by CBNA, SLC 's principal
shareholder, and are serviced by SLC or a related party servicer. Expenses
incurred by SLC to underwrite, disburse and service CitiAssist Loans for CBNA
are charged to CBNA in an origination and servicing fee in accordance with the
provisions of an intercompany agreement. Following full disbursement, SLC
purchases all qualified CitiAssist Loans at the amount of CBNA's carrying value
at the time of purchase, plus contractual fees.
The CitiAssist Loan program is designed to assist undergraduate, graduate,
and health professions students, as well as others, by providing education
financing in addition to financial aid available under FFELP. In order to meet
the needs of medical students, additional products, such as the CitiAssist
Health Professions Loan and the CitiAssist Health Professions Residency Loan are
also available. The CitiAssist K-12 Loan program was designed to assist parents
in financing their children's private primary or secondary school education. The
CitiAssist Bar Study Loan is offered to law students in their final year of law
school and for a certain post-graduation period.
CitiAssist Loans are installment loans that are credit based and subject
to state laws and federal consumer banking regulations. Most loans are insured
by a private insurer and are not reinsured by the federal government.
Students and co-signers, if applicable, complete and submit CitiAssist
Loan applications either online at www.studentloan.com or by mail. In addition
to general eligibility criteria, a certification of enrollment from the school
is required and a co-signer may also be necessary. Upon initial credit approval
by SLC, most loans are submitted to a private third party insurer, which insures
SLC against loss in cases of default, bankruptcy or death of the borrower. These
insured loans are subject to risk-sharing losses of 5% - 20% of the default
claim amount, depending on the insurer and the type of loan. Some CitiAssist
Loans are not insured against loss. However, approximately two-thirds of the
carrying amounts of the uninsured CitiAssist Loans are supported by risk-sharing
agreements with investment-grade universities. SLC is at risk for the
non-insured and non-risk-shared portions of the CitiAssist Loan portfolio. SLC
makes the majority of the loan disbursements directly to the school and sends a
disclosure statement to the borrower and co-signer confirming the terms of the
loan.
Delinquencies, Defaults, Claims and Net Losses
Information about delinquencies, defaults, guarantee claims and net losses
on student loans is available in the Department of Education's Loan Programs
Data Books, called DOE Data Books. The delinquency, default, claim and net loss
experience on any pool of trust student loans may not be comparable to this
information.
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Payment of Notes
Upon the payment in full of all outstanding notes of a given series, the
eligible lender trustee will succeed to all the rights of the indenture trustee,
and the certificateholders will succeed to all the rights of the noteholders
under the related sale agreement.
Termination
For each trust, the obligations of the servicer, the depositor, the
administrator, the eligible lender trustee and the indenture trustee under the
transfer and servicing agreements will terminate upon:
o the maturity or other liquidation of the last trust student loan and
the disposition of any amount received upon liquidation of any
remaining trust student loan, and
o the payment to the securityholders of all amounts required to be
paid to them.
The servicer or another entity specified in the related prospectus
supplement, at its option, may repurchase or arrange for the purchase of all
remaining trust student loans as of the end of any collection period if the
outstanding pool balance is 10% or less of the sum of the initial pool balance,
as defined in the related prospectus supplement, together with the aggregate
initial principal balances of all trust student loans acquired during any
applicable pre-funding period, plus accrued interest to be capitalized as of the
applicable cutoff dates. The purchase price will not be less than the minimum
purchase amount specified in the related prospectus supplement. These amounts
will be used to retire the related notes and certificates. Upon termination of
the trust, any remaining assets of that trust, after giving effect to final
distributions to the securityholders, will be transferred to the reserve account
and paid as provided in the related prospectus supplement.
The indenture administrator will try to auction any trust student loans
remaining in the trust at the end of the collection period preceding the trust
auction date specified in the related prospectus supplement. SLC, its affiliates
and unrelated third parties may make bids to purchase these trust student loans
on the trust auction date; however, SLC or its affiliates may offer bids only if
the pool balance at that date is 10% or less of the sum of the initial pool
balance together with the aggregate initial principal balances of all trust
student loans acquired during any applicable pre-funding period plus accrued
interest to be capitalized as of the applicable cutoff dates. The trust auction
date will be the ___ business day(s) before the related distribution date. An
auction will be consummated only if the servicer has first waived its optional
purchase right. The servicer will waive its option to purchase the remaining
trust student loans if it fails to notify the eligible lender trustee, the
indenture trustee and the indenture administrator, in writing, that it intends
to exercise its purchase option before the indenture administrator accepts a bid
to purchase the trust student loans.
If at least two bids are received, the indenture administrator will
solicit and re-solicit new bids from all participating bidders until only one
bid remains or the remaining bidders decline to resubmit bids. The indenture
administrator will accept the highest of the remaining bids if it equals or
exceeds the greater of:
o the minimum purchase amount described under "Optional Purchase" in
the prospectus supplement; or
o the fair market value of the trust student loans as of the end of
the related collection period.
If at least two bids are not received or the highest bid after the
re-solicitation process does not equal or exceed that amount, the indenture
administrator will not complete the sale. The indenture administrator may, and
at the direction of the depositor will be required to, consult with a financial
advisor, including an underwriter of the securities or the administrator, to
determine if the fair market value of the trust student loans has been offered.
The indenture administrator may engage a financial advisor to conduct any
auction sale and will be entitled to the reimbursement of all of its and its
agent's fees, expenses and costs whether or not such auction sale is
consummated.
The net proceeds of any auction sale will be used to retire any
outstanding notes on the related distribution date.
If the sale is not completed, the indenture administrator may, but will
not be under any obligation to, solicit bids for sale of the trust student loans
after future collection periods upon terms similar to those described above,
including the servicer's waiver of its option to purchase the remaining trust
student loans.
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The indenture administrator may or may not succeed in soliciting
acceptable bids for the trust student loans either on the trust auction date or
subsequently.
If the trust student loans are not sold as described above, on each
subsequent distribution date, if the amount on deposit in the reserve account
after giving effect to all withdrawals, except withdrawals payable to the
depositor, exceeds the specified reserve account balance, the administrator will
direct the indenture administrator to distribute the amount of the excess as
accelerated payments of note principal.
Upon termination of the trust, any remaining assets of that trust, after
giving effect to final distributions to the securityholders, will be transferred
to the reserve account and paid as provided in the related prospectus
supplement.
TRANSFER AND SERVICING AGREEMENTS
General
The following is a summary of the important terms of the sale agreements
under which the trusts will purchase student loans from the depositor, and the
purchase agreements under which the depositor will acquire the student loans
from SLC. We have filed forms of the sale agreement and purchase agreement as
exhibits to the registration statement of which this prospectus is a part. The
summary does not cover every detail of these agreements, and it is subject to
all of the provisions of the sale agreements and the purchase agreements. We
refer to the purchase agreements, the sale agreements, the servicing agreements
and the administration agreements collectively as the "transfer and servicing
agreements."
Purchase of Student Loans by the Depositor; Representations and Warranties of
The Student Loan Corporation
On the closing date, The Student Loan Corporation will sell to the
depositor, without recourse, its entire interest in the student loans and all
collections received on and after the cutoff date specified in the prospectus
supplement. An exhibit to the purchase agreement will list each student loan.
In each purchase agreement, SLC will make representations and warranties
concerning the student loans. These include, among other things, that:
o each student loan is free and clear of all security interests and
other encumbrances and no offsets, defenses or counterclaims have
been asserted or threatened,
o the information provided about the student loans is true and correct
as of the cutoff date,
o each student loan complies in all material respects with applicable
federal and state laws and applicable restrictions imposed by FFELP
or under any guarantee agreement; and
o each student loan is guaranteed by the applicable guarantor.
Upon discovery of a breach of any representation or warranty that has a
materially adverse effect on the depositor, SLC will repurchase the affected
student loan unless the breach is cured within the applicable cure period
specified in the related prospectus supplement. The purchase amount will be
equal to the amount required to prepay in full that student loan including all
accrued interest. Alternatively, rather than repurchasing the trust student
loan, SLC may, in its discretion, substitute qualified substitute student loans
for that loan. In addition, SLC will have an obligation to reimburse the
depositor for any shortfall between:
o the purchase amount of the qualified substitute student loans;
o the purchase amount of the trust student loans being replaced; and
o for any accrued interest amounts not guaranteed by, or that are
required to be refunded to, a guarantor and any interest subsidy
payments or special allowance payments lost as a result of the
breach.
The repurchase or substitution and reimbursement obligations of SLC
constitute the sole remedy available to the depositor for any uncured breach.
SLC's repurchase or substitution and reimbursement obligations are
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contractual obligations that the depositor or trust may enforce against SLC, but
the breach of these obligations will not constitute an event of default under
the indenture. In cases where the obligations the trust is seeking to enforce
are based on a violation of the Higher Education Act, a finding by the
Department of Education that the Higher Education Act was violated may be
required prior to the trust being able to enforce the agreement.
Sale of Student Loans to the Trust; Representations and Warranties of the
Depositor
On the closing date, the depositor will sell to the eligible lender
trustee, on behalf of that trust, without recourse, its entire interest in the
student loans acquired by the depositor from SLC. Each student loan will be
listed in an exhibit to the sale agreement. The eligible lender trustee
concurrently with that sale will issue the certificates and notes. The trust
will apply net proceeds from the sale of the notes and certificates to purchase
the student loans from the depositor.
In each sale agreement, the depositor will make representations and
warranties concerning the student loans to the related trust for the benefit of
securityholders, including representatives and warranties that are substantially
the same as those made by SLC to the depositor.
Upon discovery of a breach of any representation or warranty that has a
materially adverse effect on the trust, the depositor will have repurchase or
substitution and reimbursement obligations that are substantially the same as
those of SLC.
The repurchase or substitution and reimbursement obligations of the
depositor will constitute the sole remedy available to the securityholders for
any uncured breach. The depositor's repurchase or substitution and reimbursement
obligations are contractual obligations that the trust may enforce against us,
but the breach of these obligations will not constitute an event of default
under the indenture. In cases where the obligations the trust is seeking to
enforce are based on a violation of the Higher Education Act, a finding by the
Department of Education that the Higher Education Act was violated may be
required prior to the trust being able to enforce the agreement.
Custodian of Promissory Notes
To assure uniform quality in servicing and to reduce administrative costs,
the servicer will act as custodian of the promissory notes, in physical or
electronic form, through its own facilities or through other sub-custodians,
representing the student loans and any other related documents. The depositor's
and the servicer's records will reflect the sale by SLC of the student loans to
the depositor and their subsequent sale by the depositor to the trust.
Additional Fundings
The related prospectus supplement will indicate whether a pre-funding
account will exist for a particular trust. The prospectus supplement will also
indicate:
o the amount in the pre-funding account on the closing date,
o the length of the funding period, and
o the uses to which the funds in the pre-funding account can be
applied and the conditions to the application of those funds.
If the pre-funding amount has not been fully applied to purchase
additional student loans by the end of the funding period, the securityholders
will receive any remaining amounts.
Amendments to Transfer and Servicing Agreements
The parties to the transfer and servicing agreements may amend them
without the consent of securityholders if, in the opinion of counsel
satisfactory to the indenture trustee and eligible lender trustee, the amendment
will not materially and adversely affect the interests of the noteholders or
certificateholders. The parties also may amend the transfer and servicing
agreements with the consent of a majority in interest of noteholders and
certificateholders. However, such an amendment may not (a) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, collections of
payments with respect to trust student loans or distributions that shall be
required to be made for the benefit of the noteholders or (b) reduce the
aforesaid percentage of the outstanding principal balance of
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the notes, the noteholders of which are required to consent to any such
amendment, without the consent of the holders of all the outstanding notes and
certificates.
SERVICING AND ADMINISTRATION
General
The following is a summary of the important terms of the servicing
agreements under which the servicer will service the trust student loans and the
administration agreement under which the administrator will undertake
administrative duties for a trust and its trust student loans. We have filed
forms of the servicing agreement and the administration agreement as exhibits to
the registration statement of which this prospectus is a part. This summary does
not cover every detail of these agreements and it is subject to all provisions
of the servicing agreements and the administration agreements.
Accounts
For each trust, the administrator will establish one or more collection
accounts into which all payments on the related trust student loans will be
deposited. The related prospectus supplement will describe any other accounts
established for a trust, including any pre-funding account and any reserve
account.
For any series of securities, the indenture administrator will invest
funds in the collection account, pre-funding account, reserve account and any
other accounts identified as accounts of the trust in eligible investments as
provided in the administration agreement and the indenture. The administrator
will instruct the indenture administrator concerning investment decisions.
In general, eligible investments will be those which would not result in
the downgrading or withdrawal of any rating of any of the securities. They will
mature on the dates specified in the related prospectus supplement. A portion of
these eligible investments may mature after the next distribution date if so
provided in the related prospectus supplement.
Each trust account will be either:
o a segregated account with an FDIC-insured depository institution
which has either (A) a long-term unsecured debt rating acceptable to
the applicable rating agencies or (B) a short-term unsecured debt
rating or certificate of deposit rating acceptable to the applicable
rating agencies; or
o a segregated trust account with the corporate trust department of a
depository institution having corporate trust powers, so long as any
of the securities of that depository institution have an investment
grade credit rating from each applicable rating agency.
Servicing Procedures
Under the servicing agreement, the servicer will agree to service all the
trust student loans. The servicer is required to perform all services and duties
customary to the servicing of student loans, including all collection practices.
It must use the same standard of care as it uses to service similar student
loans owned by SLC and its affiliates and in compliance with the Higher
Education Act, the guarantee agreements and all other applicable federal and
state laws.
The duties of the servicer include the following:
o collecting and depositing into the collection account all payments
on the trust student loans, including claiming and obtaining any
program payments;
o responding to inquiries from borrowers;
o attempting to collect delinquent payments; and
o sending out statements and payment coupons to borrowers.
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In addition, the servicer will keep ongoing records on the loans and its
collection activities, and it will furnish periodic statements to the indenture
trustee, the eligible lender trustee, the indenture administrator and the
securityholders, in accordance with the servicer's customary practices and as
specifically required in the servicing agreement.
Under the sub-servicing agreement, the sub-servicer will agree to perform
some or most all of the obligations of the servicer under the servicing
agreement.
Payments on Student Loans
The servicer will deposit all payments on trust student loans and proceeds
that it collects during each collection period specified in the related
prospectus supplement into the related collection account within two business
days of its receipt.
However, for so long as no administrator default has occurred and is
continuing, and any other condition to making deposits less frequently than
daily as described in the related prospectus supplement is satisfied, the
servicer will remit these amounts to the administrator within two business days
of receipt. The administrator will deposit these amounts in the collection
account by the business day preceding each monthly servicing payment date.
A business day for this purpose is any day other than a Saturday, a
Sunday, or a day on which banking institutions or trust companies in the City of
New York are authorized or obligated by law, regulation or executive order to
remain closed.
The administrator may invest collections, pending deposit into the
collection account, at its own risk and for its own benefit, and it will not
segregate these funds. The administrator may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related trust to secure timely remittances as specified in
the related prospectus supplement. The depositor and the servicer will pay the
aggregate purchase amount of student loans repurchased by us or purchased by the
servicer to the administrator, and the administrator will deposit these amounts
into the collection account on or before the business day preceding each
distribution date.
Servicer Covenants
For each trust, the servicer will agree that:
o it will satisfy all of its obligations relating to the trust student
loans, maintain in effect all qualifications required in order to
service the loans and comply in all material respects with all
requirements of law if a failure to comply would have a materially
adverse effect on the interest of the trust;
o it will not permit any rescission or cancellation of a trust student
loan except as ordered by a court or other government authority or
as consented to in writing by the eligible lender trustee and the
indenture trustee, except that it may write off any delinquent loan
if the remaining balance of the borrower's account is less than $50;
o it will do nothing to impair the rights of the certificateholders
and noteholders in the trust student loans; and
o it will not reschedule, revise, defer or otherwise compromise
payments due on any trust student loan except during any applicable
interest only, deferral or forbearance periods or otherwise in
accordance with all applicable standards and requirements for
servicing of the loans.
Upon the discovery of a breach of any covenant that has a materially
adverse effect on the interest of the related trust, the servicer will purchase
that trust student loan unless the breach is cured within the applicable cure
period specified on the related prospectus supplement. However, any breach that
relates to compliance with the requirements of the Higher Education Act or the
applicable guarantor but that does not affect that guarantor's obligation to
guarantee payment of a trust student loan will not be considered to have a
material adverse effect. In addition, a finding by the Department of Education
that the Higher Education Act was violated or that a loan is no longer insured
because of a violation of the Higher Education Act may be required prior to the
trust being able to enforce the agreement.
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The purchase price will equal the unpaid principal amount of that trust
student loan plus any accrued interest calculated using the applicable
percentage that would have been insured pursuant to Section 428(b)(1)(G) of the
Higher Education Act--currently either 98% or 100%--plus any interest subsidy
payments or special allowance payments not paid by, or required to be refunded
to, the Department of Education for that trust student loan as a result of a
breach of any covenant of the servicer. The related trust's interest in that
purchased trust student loan will be assigned to the servicer or its designee.
Alternatively, rather than purchase the trust student loan, the servicer may, in
its sole discretion, substitute qualified substitute student loans.
In addition, the servicer will be obligated to reimburse the related
trust:
o for the shortfall, if any, between
(1) the purchase amount of any qualified substitute student loans
and
(2) the purchase amount of the trust student loans being replaced;
and
o for any accrued interest amounts not guaranteed by or that are
required to be refunded to a guarantor and any interest subsidy
payments or special allowance payments lost as a result of a breach.
The purchase or substitution and reimbursement obligations of the servicer
will constitute the sole remedy available to the trust for any uncured breach.
The servicer's purchase or substitution and reimbursement obligations are
contractual obligations that the trust may enforce, but the breach of these
obligations will not constitute an event of default under the indenture.
Servicing Compensation
For each trust, the servicer will receive a servicing fee for each period
in an amount specified in the related prospectus supplement. The servicer will
also receive any other administrative fees, expenses and similar charges
specified in the related prospectus supplement. The servicing fee may consist
of:
o a specified annual percentage of the pool balance;
o a unit amount based on the number of accounts and other activity or
event related fees;
o any combination of these; or
o any other formulation described in the related prospectus
supplement.
The servicing fee may also include specified amounts payable to the
servicer for tasks it performs. The servicing fee may be subject to a maximum
monthly amount. If that is the case, the related prospectus supplement will
state the maximum together with any conditions to its application. The servicing
fee, including any unpaid amounts from prior distribution dates, will have a
payment priority over the securities, to the extent specified in the applicable
prospectus supplement.
The servicing fee compensates the servicer for performing the functions of
a third party servicer of student loans, including:
o collecting and posting all payments,
o responding to inquiries of borrowers on the trust student loans,
o investigating delinquencies,
o pursuing, filing and collecting any program payments,
o accounting for collections,
o furnishing monthly and annual statements to the trustees, and
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o paying taxes, accounting fees, outside auditor fees, data processing
costs and other costs incurred in administering the student loans.
Net Deposits
As an administrative convenience, unless the servicer must remit collections
daily to the collection account, the administrator will deposit collections for
any collection period net of servicing and administration fees for the same
period. The administrator may make a single, net transfer to the collection
account on the business day preceding each distribution date. The administrator,
however, will account to the indenture trustee, the indenture administrator, the
eligible lender trustee, the noteholders and the certificateholders as if all
deposits, distributions and transfers were made individually.
Evidence as to Compliance
The administration agreement will provide that a firm of independent
public accountants will furnish to the trust, the indenture trustee and the
indenture administrator an annual report attesting to the servicer's compliance
with the terms of that administration agreement, the servicing agreement,
including all statutory provisions incorporated into those agreements. The
accounting firm will base this report on its examination of various documents
and records and on accounting and auditing procedures considered appropriate
under the circumstances.
The administration agreement will require the servicer to deliver to the
trust, the indenture trustee and the indenture administrator, concurrently with
the compliance report, a certificate signed by an officer of the servicer
stating that, to his knowledge, the servicer has fulfilled its obligations under
that administration agreement and the servicing agreement. If there has been a
material default, the officer's certificate for that period will describe the
default. The servicer has agreed to give the indenture trustee and eligible
lender trustee notice of servicer defaults under the servicing agreement.
You may obtain copies of these reports and certificates by a request in
writing to the eligible lender trustee.
Certain Matters Regarding the Servicer
The servicing agreements will provide that the servicer is an independent
contractor and that, except for the services to be performed under the servicing
agreement, the servicer does not hold itself out as an agent of the trusts.
The servicing agreement will provide that the servicer may not resign from
its obligations and duties as servicer unless its performance of these duties is
no longer legally permissible. No resignation will become effective until the
indenture administrator or a successor servicer has assumed the servicer's
duties. The servicer, however, may resign as a result of any sale or transfer of
substantially all of its student loan servicing operations relating to the trust
student loans if:
o the successor to the servicer's operations assumes in writing all of
the obligations of the servicer,
o the sale or transfer and the assumption comply with the requirements
of the servicing agreement, and
o the rating agencies confirm that this will not result in a
downgrading or a withdrawal of the ratings then applicable to the
notes and certificates.
The servicing agreement will further provide that neither the servicer nor
any of its directors, officers, employees or agents will be under any liability
to the trust or to securityholders for taking or not taking any action under the
servicing agreement, or for errors in judgment. However, the servicer will not
be protected against:
o its obligation to purchase trust student loans from a trust as
required in the servicing agreement or to pay to the trust the
amount of any program payment which a guarantor or the Department of
Education refuses to pay, or requires the trust to refund, as a
result of the servicer's actions, or
o any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of the
servicer's duties or because of reckless disregard of its
obligations and duties.
In addition, the servicing agreement will provide that the servicer is
under no obligation to appear in, prosecute or defend any legal action where it
is not named as a party.
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Under the circumstances specified in the servicing agreement, any entity
into which the servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the servicer is a party, or any entity
succeeding to the business of the servicer must assume the obligations of the
servicer.
Servicer Default
A servicer default under the servicing agreement will consist of:
o any failure by the servicer to deposit in the trust accounts any
required payment that continues for five business days after the
servicer receives written notice from the indenture trustee or the
eligible lender trustee or five business days after discovery of
such failure by an officer of the servicer;
o any failure by the servicer to observe or perform in any material
respect any other covenant or agreement in the servicing agreement,
or any other agreement to which the servicer is a signatory, that
materially and adversely affects the rights of noteholders or
certificateholders and continues for 60 days after written notice of
the failure is given (1) to the servicer by the indenture trustee,
the eligible lender trustee or the administrator or (2) to the
servicer, the indenture trustee and the eligible lender trustee by
holders of 50% or more of the notes (or the senior notes, if
applicable) or certificates (or subordinate notes, if applicable);
o the occurrence of an insolvency event involving the servicer; and
o any failure by the servicer to comply with any requirements under
the Higher Education Act resulting in a loss of its eligibility as a
third-party servicer.
An insolvency event is an event of bankruptcy, insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings or other
actions by a person indicating its insolvency, reorganization under bankruptcy
proceedings or inability to pay its obligations.
A servicer default does not include any failure of the servicer to service
a student loan in accordance with the Higher Education Act so long as the
servicer is in compliance with its obligations under the servicing agreement to
purchase any adversely affected trust student loans and to pay to the applicable
trust the amount of any program payments lost as a result of the servicer's
actions.
Rights Upon Servicer Default
As long as a servicer default has not been remedied, the indenture trustee
or holders of not less than 50% of the outstanding notes (or senior notes, if
applicable) may terminate all the rights and obligations of the servicer, except
for the obligation to purchase a trust student loan as a result of a covenant
breach or to indemnify under certain circumstances. Only the indenture trustee
or the noteholders (or the senior noteholders, if applicable) and not the
eligible lender trustee or the certificateholders (or the subordinate
noteholders, if applicable) will have the ability to remove the servicer if a
default occurs while the notes (or senior notes, if applicable) are outstanding.
Following a termination, a successor servicer appointed by the indenture
administrator or the indenture administrator itself will succeed to all the
responsibilities, duties and liabilities of the servicer under the servicing
agreement and will be entitled to similar compensation arrangements. The
compensation may not be greater than the servicing compensation to the servicer
under that servicing agreement, unless the compensation arrangements will not
result in a downgrading or withdrawal of the then ratings of the notes and
certificates. If the indenture administrator is unwilling or legally unable to
act, it may appoint, or petition a court for the appointment of, a successor
whose regular business includes the servicing of student loans. If, however, a
bankruptcy trustee or similar official has been appointed for the servicer, and
no servicer default other than that appointment has occurred, the bankruptcy
trustee or similar official may have the power to prevent the indenture
administrator or the noteholders from effecting the transfer.
Waiver of Past Defaults
For each trust, the holders of a majority of the outstanding notes (or
senior notes, if applicable) or a majority of the outstanding certificates (or
subordinate notes, if applicable) in the case of any servicer default which does
not adversely affect the indenture trustee or the noteholders (or the senior
noteholders, if applicable) may, on behalf of all noteholders and
certificateholders, waive any default by the servicer, except a default in
making any required
34
deposits to or payments from any of the trust accounts (or giving instruction
regarding the same) in accordance with the servicing agreement. Therefore, the
noteholders (or the senior noteholders, if applicable) have the ability, except
as noted, to waive defaults by the servicer which could materially and adversely
affect the certificateholders (or the subordinate noteholders, if applicable).
No waiver will extend to any subsequent default or impair the noteholders' or
certificateholders' rights as to such subsequent defaults.
Administration Agreement
The Student Loan Corporation, as administrator, will enter into an
administration agreement with each trust, the depositor, the servicer, the
eligible lender trustee, the indenture trustee and the indenture administrator.
Under the administration agreement, the administrator will agree to provide
various notices and to perform other administrative obligations required by the
indenture, trust agreement and sale agreement. These services include:
o directing the indenture administrator to make the required
distributions from the trust accounts on each monthly servicing
payment date and each distribution date;
o preparing, based on periodic data received from the servicer, and
providing quarterly and annual distribution statements to the
eligible lender trustee, the indenture trustee and the indenture
administrator and any related federal income tax reporting
information; and
o providing the notices and performing other administrative
obligations required by the indenture, the trust agreement and the
sale agreement.
As compensation, the administrator will receive an administration fee
specified in the related prospectus supplement. Except as described in the next
paragraph, SLC may not resign as administrator unless its performance is no
longer legally permissible. No resignation will become effective until a
successor administrator has assumed SLC's duties under the administration
agreement.
Each administration agreement will provide that SLC may assign its
obligations and duties as administrator to an affiliate if the rating agencies
confirm that the assignment will not result in a downgrading or a withdrawal of
the ratings then applicable to the notes and the certificates.
Administrator Default
An administrator default under the administration agreement will consist
of:
o any failure by the administrator to deliver to the indenture
administrator for deposit any required payment by the business day
preceding any monthly servicing payment date or distribution date,
if the failure continues for five business days after notice or
discovery;
o any failure by the administrator to direct the indenture
administrator to make any required distributions from any of the
trust accounts on any monthly servicing payment date or any
distribution date, if the failure continues for five business days
after notice or discovery;
o any failure by the administrator to observe or perform in any
material respect any other term, covenant or agreement in an
administration agreement or a related agreement that materially and
adversely affects the rights of noteholders or certificateholders
and continues for 60 days after written notice of the failure,
requiring the failure to be remedied, is given:
(1) to the administrator by the indenture trustee, the indenture
administrator or the eligible lender trustee, or
(2) to the administrator, the indenture trustee, the indenture
administrator and the eligible lender trustee by holders of
50% or more of the notes (or senior notes, if applicable) or
certificates (or subordinate notes if applicable); and
o the occurrence of an insolvency event involving the administrator.
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Rights Upon Administrator Default
As long as any administrator default has not been remedied, the indenture
trustee or holders of not less than 50% of the outstanding notes (or senior
notes, if applicable), by written notice to the administrator, may terminate all
the rights and obligations of the administrator, except for certain
indemnification obligations of the administrator pursuant to the administration
agreement. Only the indenture trustee or the noteholders (or the senior
noteholders, if applicable) and not the eligible lender trustee or the
certificateholders (or the subordinate noteholders, if applicable) may remove
the administrator if an administrator default occurs while the notes, (or senior
notes, if applicable) are outstanding. Following the termination of the
administrator, a successor administrator appointed by the indenture
administrator or the indenture administrator itself will succeed to all the
responsibilities, duties and liabilities of the administrator under the
administration agreement and will be entitled to similar compensation
arrangements. The indenture administrator may make arrangements for compensation
to be paid, which compensation may not be greater than the compensation to the
administrator under the administration agreement unless the compensation
arrangements will not result in a downgrading or withdrawal of the ratings on
the notes and the certificates. If, however, a bankruptcy trustee or similar
official has been appointed for the administrator, and no other administrator
default other than that appointment has occurred, the bankruptcy trustee or
similar official may have the power to prevent the indenture administrator or
the noteholders from effecting the transfer. If the indenture administrator is
unwilling or unable to act, it may appoint, or petition a court for the
appointment of, a successor whose regular business includes the servicing or
administration of student loans.
Statements to Indenture Trustee, Indenture Administrator and Trust
Before each distribution date, the administrator will prepare and provide
a statement to the indenture trustee, the indenture administrator and the
eligible lender trustee as of the end of the preceding collection period. The
statement will include:
o the amount of principal distributions for each class;
o the amount of interest distributions for each class and the
applicable interest rates;
o the pool balance at the end of the preceding collection period;
o the outstanding principal amount and the note pool factor for each
class of the notes and the certificate balance and the certificate
pool factor for each class of the certificates for that distribution
date;
o the servicing and the administration fees for that collection
period;
o the interest rates, if available, for the next period for each
class;
o the amount of any aggregate realized losses for that collection
period;
o the amount of any note interest shortfall, note principal shortfall,
certificate return shortfall and certificate balance shortfall, if
applicable, for each class, and any changes in these amounts from
the preceding statement;
o the amount of any carryover servicing fee for that collection
period;
o the amount of any note interest carryover and certificate return
carryover, if applicable, for each class of securities, and any
changes in these amounts from the preceding statement;
o the aggregate purchase amounts for any trust student loans
repurchased by the depositor, the servicer or SLC from the trust in
that collection period;
o the balance of trust student loans that are delinquent in each
delinquency period as of the end of that collection period; and
o the balance of any reserve account, after giving effect to changes
in the balance on that distribution date.
36
Evidence as to Compliance
The administration agreement will provide that a firm of independent
public accountants will furnish to the trust, the indenture trustee and the
indenture administrator an annual report attesting to the administrator's
compliance with the terms of the administration agreement, including all
statutory provisions incorporated in the agreement. The accounting firm will
base this report on its examination of various documents and records and on
accounting and auditing procedures considered appropriate under the
circumstances.
The administration agreement will require the administrator to deliver to
the trust, the indenture trustee and the indenture administrator, concurrently
with each compliance report, a certificate signed by an officer of the
administrator stating that, to his knowledge, the administrator has fulfilled
its obligations under that administration agreement. If there has been a
material default, the officer's certificate will describe the default. The
administrator has agreed to give the indenture trustee, the indenture
administrator and the eligible lender trustee notice of administrator defaults
under the administration agreement.
You may obtain copies of these reports and certificates by a request in
writing to the eligible lender trustee.
TRADING INFORMATION
The weighted average lives of the notes and the certificates of any series
generally will depend on the rate at which the principal balances of the related
student loans are paid. Payments may be in the form of scheduled amortization or
prepayments. For this purpose, prepayments include borrower prepayments in full
or in part, including the discharge of student loans by consolidation loans, or
as a result of:
o default of the borrower;
o the death, bankruptcy or permanent, total disability of the
borrower;
o closing of the borrower's school prior to the end of the academic
period;
o false certification by the borrower's school of his eligibility for
the loan; and
o an unpaid school refund.
All of the student loans are prepayable at any time, in whole or in part,
without penalty.
A variety of economic, social and other factors, including the factors
described below, influence the rate at which student loans prepay. In general,
the rate of prepayments may tend to increase when cheaper alternative financing
becomes available. However, because many student loans bear interest at a rate
that is either actually or effectively floating, it is impossible to predict
whether changes in prevailing interest rates will correspond to changes in the
interest rates on student loans.
On the other hand, scheduled payments on the student loans, as well as
their maturities, may be extended due to applicable grace, deferral and
forbearance periods, or for other reasons. The rate of defaults resulting in
losses on student loans, as well as the severity and timing of those losses, may
affect the principal payments and yield on the securities. The rate of default
also may affect the ability of the guarantors to make guarantee payments.
The servicing agreements will provide that the servicer may offer, at the
request of SLC, incentive payment programs or repayment programs currently or in
the future made available by SLC. If these benefits are made available to
borrowers of trust student loans, the effect may be faster amortization of
principal of the affected trust student loans. See "The Student Loan Pools--The
Student Loan Corporation's Student Loan Business--Incentive Programs."
In light of the above considerations, we cannot guarantee that principal
payments will be made on the securities on any distribution date, since that
will depend, in part, on the amount of principal collected on the trust student
loans during the applicable period. As an investor, you will bear any
reinvestment risk resulting from a faster or slower rate of prepayment of the
loans.
37
Pool Factors
The pool factor for each class of securities will be a seven-digit decimal
computed by the administrator before each distribution date. Each pool factor
will indicate the remaining outstanding balance of the related class, after
giving effect to distributions to be made on that distribution date, as a
fraction of the initial outstanding balance of that class. Each pool factor will
initially be 1.0000000. Thereafter, it will decline to reflect reductions in the
outstanding balance of the applicable class. Your portion of the aggregate
outstanding balance of a class of securities will be the product of:
o the original denomination of your note or certificate; and
o the applicable pool factor.
Securityholders will receive reports on or about each distribution date
concerning various matters, including the payments the trust has received on the
related trust student loans, the pool balance, the applicable pool factor and
various other items of information. See "Certain Information Regarding the
Securities--Reports to Securityholders" in this prospectus.
DESCRIPTION OF THE NOTES
General
Each trust may issue one or more classes of notes under an indenture. We
have filed the form of the indenture as an exhibit to the registration statement
of which this prospectus is a part. The following summary describes the
important terms of the notes and the indenture. It does not cover every detail
of the notes or the indenture and is subject to all of the provisions of the
notes and the indenture.
Each class of notes will initially be represented by one or more notes,
registered in the name of the nominee of The Depository Trust Company. The notes
will be available for purchase in book-entry form only or as otherwise provided
in the related prospectus supplement. We have been informed by DTC that DTC's
nominee will be Cede & Co., unless another nominee is specified in the related
prospectus supplement. Accordingly, that nominee is expected to be the holder of
record of the notes of each class. Unless and until definitive notes are issued
under the limited circumstances described in this prospectus, an investor in
notes in book-entry form will not be entitled to receive a physical certificate
representing a note. All references in this prospectus and in the related
prospectus supplement to actions by holders of notes in book-entry form refer to
actions taken by DTC upon instructions from its participating organizations and
all references in this prospectus to distributions, notices, reports and
statements to holders of notes in book-entry form refer to distributions,
notices, reports and statements to DTC or its nominee, as the registered holder
of the notes.
Principal and Interest on the Notes
The prospectus supplement will describe the timing and priority of
payment, seniority, allocations of losses, note rate and amount of or method of
determining payments of principal and interest on each class of notes. The right
of holders of any class of notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any other class or
classes of notes of that series. Payments of interest on the notes will be made
prior to payments of principal. Each class of notes may have a different note
rate, which may be a fixed, variable, adjustable, reset, auction-determined rate
or any combination of these rates. The related prospectus supplement will
specify the rate for each class of notes or the method for determining the note
rate. See also "Certain Information Regarding the Securities--Fixed Rate
Securities" and "--Floating Rate Securities." One or more classes of notes of a
series may be redeemable under the circumstances specified in the related
prospectus supplement, including as a result of the depositor's exercising its
option to purchase the related trust student loans.
Under some circumstances, the amount available for these payments could be
less than the amount of interest payable on the notes on any distribution date,
in which case each class of noteholders will receive its pro rata share of the
aggregate amount available for interest on the notes. See "Certain Information
Regarding the Securities--Distributions" and "--Credit and Cash Flow or other
Enhancement or Derivative Arrangements."
38
In the case of a series which includes two or more classes of notes, the
prospectus supplement will describe the sequential order and priority of payment
of principal and interest of each class. Payments of principal and interest of
any class of notes will be on a pro rata basis among all the noteholders of that
class.
The Indenture
General. The notes will be issued under and secured by an indenture
entered into by the trust, the eligible lender trustee, the indenture trustee
and the indenture administrator.
Modification of Indenture. With the consent of the holders of a majority
of the outstanding notes of the related series, the indenture trustee and the
eligible lender trustee may execute a supplemental indenture to add, change or
eliminate any provisions of the indenture or to modify the rights of the
noteholders.
However, without the consent of the holder of each affected note, no
supplemental indenture will:
o change the due date of any installment of principal of or interest
on any note or reduce its principal amount, interest rate or
redemption price;
o change the provisions of the indenture relating to the application
of collections on, or the proceeds of the sale of, the trust student
loans to payment of principal or interest on the notes;
o change the place of payment or the payment currency for any note;
o impair the right to institute suit for the enforcement of provisions
of the indenture regarding payment;
o reduce the percentage of outstanding notes whose holders must
consent to any supplemental indenture, waiver of compliance with
certain provisions of the indenture or certain defaults under the
indenture;
o modify the provisions of the indenture regarding the voting of notes
held by the trust, the depositor or an affiliate;
o reduce the percentage of outstanding notes whose holders must
consent to a sale or liquidation of the trust student loans if the
proceeds of the sale would be insufficient to pay the principal
amount and accrued interest on the notes;
o modify the provisions of the indenture which specify the applicable
percentages of principal amount of notes necessary to take specified
actions except to increase these percentages or to specify
additional provisions;
o modify any of the provisions of the indenture to affect the
calculation of interest or principal due on any note on any
distribution date or to affect the rights of the noteholders to the
benefit of any provisions for the mandatory redemption of the notes;
or
o permit the creation of any lien ranking prior or equal to the lien
of the indenture on any of the collateral for that series or, except
as otherwise permitted or contemplated in that indenture, terminate
the lien of the indenture on any collateral or deprive the holder of
any note of the security afforded by that lien.
The trust, the indenture trustee and the indenture administrator may also
enter into supplemental indentures, without the consent of noteholders, for the
purpose of adding, changing or eliminating any provisions of the indenture or of
modifying the rights of noteholders, so long as such action will not, in the
opinion of counsel satisfactory to the indenture trustee, adversely affect in
any material respect the interest of any noteholder.
Events of Default; Rights Upon Event of Default. An "event of default"
under the indenture will consist of the following:
o a default in the due or punctual payment of interest on any note
when due;
o a default in the due or punctual payment of the principal of any
note at maturity;
39
o a default in the performance of any covenant or agreement of the
trust in the indenture, or a material breach of any representation
or warranty made by the trust in the related indenture or in any
certificate, if the default or breach has a material adverse effect
on the holders of the notes and is not cured within 30 days after
notice by the indenture trustee or by holders of at least 25% in
principal amount of the outstanding notes (or senior notes, if
applicable); or
o the occurrence of an insolvency event involving the trust.
The amount of principal required to be distributed to holders of the notes
on any distribution date will generally be limited to amounts available after
payment of interest and all other prior obligations of the trust. Therefore, the
failure to pay principal on a class of notes generally will not result in the
occurrence of any event of default until the final scheduled distribution date
for that class of notes.
If an event of default occurs and is continuing, the indenture trustee or
holders of a majority of the outstanding notes (or senior notes, if applicable)
may declare the principal of those notes to be immediately due and payable. This
declaration may, under certain circumstances, be rescinded by the holders of a
majority of the outstanding notes (or senior notes, if applicable). No such
rescission shall affect any subsequent default or impair any right of the
noteholders as a consequence of such default.
If the notes have been declared to be due and payable following an event
of default, the related indenture trustee may, in its discretion,
o exercise remedies as a secured party against the trust student loans
and other properties of the trust that are subject to the lien of
the indenture,
o sell those properties; or
o elect to have the eligible lender trustee maintain ownership of the
trust student loans and continue to apply collections on them as if
there had been no declaration of acceleration.
However, the indenture trustee may not sell the trust student loans and
other properties following an event of default, other than a default in the
payment of any principal at maturity or a default for five days or more in the
payment of any interest, unless:
o the holders of all the outstanding notes (or senior notes, if
applicable) consent to the sale,
o the proceeds of the sale are sufficient to pay in full the principal
and accrued interest on the outstanding notes (or senior notes, if
applicable) at the date of the sale, or
o the indenture trustee determines that the collections would not be
sufficient on an ongoing basis to make all payments on the notes as
the payments would have become due if the notes (or senior notes, if
applicable) had not been declared due and payable, and the indenture
trustee obtains the consent of the holders of 66?% of the
outstanding notes (or senior notes, if applicable).
Such a sale also requires the consent of the holders of a majority of the
outstanding certificates (or subordinate notes, if applicable) unless the
proceeds of a sale would be sufficient to discharge all unpaid amounts on the
certificates (or subordinate notes, if applicable).
Subject to the provisions of the applicable indenture relating to the
duties of the indenture trustee, if an event of default occurs and is
continuing, the indenture trustee will be under no obligation to exercise any of
its rights or powers at the request or direction of any of the holders of the
notes, if the indenture trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which it might incur in
complying with their request. Subject to the provisions for indemnification and
limitations contained in the related indenture, the holders of a majority of the
outstanding notes of a given series will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
indenture trustee and may, in certain cases, waive any default, except a default
in the payment of principal or interest or a default under a covenant or
provision of the applicable indenture that cannot be modified without the waiver
or consent of all the holders of outstanding notes.
No holder of notes of any series will have the right to institute any
proceeding with respect to the related indenture, unless:
40
o the holder previously has given to the indenture trustee written
notice of a continuing event of default,
o the holders of not less than 25% of the outstanding notes (or senior
notes, if applicable) have requested in writing that the indenture
trustee institute a proceeding in its own name as indenture trustee,
o the holder or holders have offered the indenture trustee reasonable
indemnity,
o the indenture trustee has for 60 days after receipt of notice,
request and offer of indemnity failed to institute the proceeding,
and
o no direction inconsistent with the written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority of the outstanding notes (or senior notes, if applicable).
In addition, the indenture trustee and the noteholders will covenant that
they will not at any time institute against the trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
The indenture trustee, SLC, the depositor, the administrator, the
servicer, the indenture administrator, the eligible lender trustee in its
individual capacity, the certificateholders and their owners, beneficiaries,
agents, officers, directors, employees, successors and assigns will not be
liable for the payment of the principal of or interest on the notes or for the
agreements of the trust contained in the indenture.
Certain Covenants. Each indenture will provide that the trust may not
consolidate with or merge into any other entity, unless:
o the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia,
o the surviving entity expressly assumes the trust's obligation to
make due and punctual payments on the notes and the performance or
observance of every agreement and covenant of the trust under the
indenture,
o no default will occur and be continuing immediately after the merger
or consolidation,
o the trust has been advised that the ratings of the notes and the
certificates would not be reduced or withdrawn as a result of the
merger or consolidation, and
o the trust has received opinions of federal and Delaware tax counsel
that the consolidation or merger would have no material adverse
federal or Delaware state tax consequences to the trust or to any
holder of the notes or certificates.
Each trust will not:
o except as expressly permitted by the indenture, the transfer and
servicing agreements or other related documents, sell, transfer,
exchange or otherwise dispose of any of the assets of that trust,
o claim any credit on or make any deduction from the principal and
interest payable on notes of the series, other than amounts withheld
under the Internal Revenue Code or applicable state law, or assert
any claim against any present or former holder of notes because of
the payment of taxes levied or assessed upon the trust,
o except as contemplated by the indenture and the related documents,
dissolve or liquidate in whole or in part,
o permit the validity or effectiveness of the indenture to be impaired
or permit any person to be released from any covenants or
obligations under the indenture, except as expressly permitted by
the indenture, or
o permit any lien, charge or other encumbrance to be created on the
assets of the trust, except as expressly permitted by the indenture
and the related documents.
41
No trust may engage in any activity other than as specified under the
section of the related prospectus supplement entitled "Formation of the
Trust--The Trust." In addition, no trust will incur, assume or guarantee any
indebtedness other than indebtedness evidenced by the notes of a related series
and the applicable indenture, except as permitted by the indenture and the
related documents.
Indenture Trustee's Annual Report. Each indenture trustee will be required
to mail all noteholders a brief annual report relating to, among other things,
any changes in its eligibility and qualification to continue as the indenture
trustee under the indenture, any amounts advanced by it under the indenture, the
amount, interest rate and maturity date of indebtedness owing by the trust to
the indenture trustee in its individual capacity, the property and funds
physically held by the indenture trustee as such and any action taken by it that
materially affects the notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An indenture will be satisfied
and discharged when the indenture trustee has received for cancellation all of
the notes or, with certain limitations, when the indenture trustee receives
funds sufficient for the payment in full of all of the notes.
The Indenture Trustee. The prospectus supplement will specify the
indenture trustee for each series. The indenture trustee may resign at any time,
in which event the eligible lender trustee must appoint a successor. Holders of
a majority of the outstanding notes may also remove the indenture trustee by
notifying the indenture trustee and appointing a successor. The trust shall
remove any indenture trustee that ceases to be eligible to continue as a trustee
under the indenture or if the indenture trustee becomes insolvent. In those
circumstances, the trust must appoint a successor trustee. Any resignation or
removal of the indenture trustee for any series will become effective only when
the successor has accepted its appointment.
The Indenture Administrator. The prospectus supplement will specify the
indenture administrator for each series. The indenture administrator will act
solely as agent for the indenture trustee, including, without limitation, as
paying agent for the notes.
DESCRIPTION OF THE CERTIFICATES
General
For each trust, one or more classes of certificates may be issued under
the terms of a trust agreement. We have filed the form of the trust agreement as
an exhibit to the registration statement of which this prospectus is a part. The
following summary describes the important terms of the certificates and the
trust agreement. It does not cover every term of the certificates or the trust
agreement and it is subject to all of the provisions of the certificates and the
trust agreement.
If issued, the certificates will be available for purchase in minimum
denominations of $100,000 and additional increments of $1,000. DTC's nominee,
Cede & Co., is expected to be the holder of record of the certificates that are
in book-entry form. Unless definitive certificates are issued under the limited
circumstances described in this prospectus or in the related prospectus
supplement, no investor will be entitled to receive a physical certificate. All
references in this prospectus and in the related prospectus supplement to
actions by holders of certificates in book-entry form refer to actions taken by
DTC upon instructions from the participants and all references in this
prospectus and in the related prospectus supplement to distributions, notices,
reports and statements to holders of certificates in book-entry form refer to
distributions, notices, reports and statements to DTC or its nominee.
Certificates of a given series owned by the depositor or its affiliates will be
entitled to equal and proportionate benefits under the applicable trust
agreement, except that their certificates will be deemed not to be outstanding
for the purpose of disapproving the termination of the related trust upon the
occurrence of an insolvency event involving us.
Distributions on the Certificate Balance
The prospectus supplement will describe the timing and priority of
distributions, seniority, allocations of losses, certificate rate and amount of
or method of determining distributions on the balance of the certificates.
Distributions of return on the certificates will be made on each distribution
date and will be made before distributions of the certificate balance. Each
class of certificates may have a different certificate rate, which may be fixed,
variable, adjustable, auction-determined, or any combination of the foregoing.
42
The related prospectus supplement will specify the certificate rate for
each class of certificates or the method for determining the certificate rate.
Distributions on the certificates of a given series may be subordinate to
payments on the notes of that series as more fully described in the related
prospectus supplement. Distributions in reduction of the certificate balance of
any class of certificates will be made on a pro rata basis among all the
certificateholders of that class.
The related prospectus supplement will specify the timing, sequential
order, priority of payment or amount of distributions on the certificate balance
for each class.
CERTAIN INFORMATION REGARDING THE SECURITIES
Each class of securities may be fixed rate securities that bear interest
at a fixed annual rate or floating rate securities that bear interest at a
variable or adjustable annual rate, as more fully described below and in the
applicable prospectus supplement.
Fixed Rate Securities
Each class of fixed rate securities will bear interest or return at the
annual rate specified in the applicable prospectus supplement. See "Description
of the Notes--Principal and Interest on the Notes" and "Description of the
Certificates" in this prospectus.
Floating Rate Securities
Each class of floating rate securities will bear interest at an annual
rate determined by reference to an interest rate index, plus or minus any
spread, and multiplied by any spread multiplier, specified in the related
prospectus supplement. The applicable prospectus supplement will designate the
interest rate index for a floating rate security. The index may be based on
LIBOR, a commercial paper rate, a federal funds rate, a U.S. Treasury securities
rate, a negotiable certificate of deposit rate or some other rate.
Floating rate securities also may have either or both of the following:
o a maximum limitation, or ceiling, on its interest rate, and
o a minimum limitation, or floor, on its interest rate.
In addition to any prescribed maximum interest rate, the interest rate
applicable to any class of floating rate securities will in no event be higher
than any maximum rate permitted by law.
Each trust that issues a class of floating rate securities will appoint,
and enter into agreements with, a calculation agent to calculate interest on
that class. The applicable prospectus supplement will identify the calculation
agent, which may be the administrator, the eligible lender trustee, the
indenture trustee or the indenture administrator for that series. In the absence
of manifest error, all determinations of interest by the calculation agent will
be conclusive for all purposes and binding on the holders of the floating rate
securities. All percentages resulting from any calculation of the rate of
interest on a floating rate security will be rounded, if necessary, to the
nearest 1/100,000 of 1%, or .0000001, with five one-millionths of a percentage
point being rounded upward.
Auction Rate Securities
Each class of auction rate securities will have a stated maturity set
forth in the applicable prospectus supplement and will bear interest at the rate
per annum specified in the prospectus supplement through the first auction date.
The interest period for auction rate securities will initially consist of the
number of days set forth in the applicable prospectus supplement. The interest
rate for the auction rate securities will be reset at the interest rate
determined pursuant to the auction procedures described in the applicable
prospectus supplement, but the rate will not exceed the maximum rate per annum
set forth in the applicable prospectus supplement. Interest on the auction rate
securities will accrue daily and will be computed for the actual number of days
elapsed on the basis of a year consisting of 360 days or 365 days as specified
in the prospectus supplement. Interest on the auction rate securities will be
payable on the first business day following the expiration of each interest
period for the notes.
Determination of Note Interest Rate. The procedures that will be used in
determining the interest rates on the auction rate securities are summarized in
the following paragraphs.
43
The interest rate on each class of auction rate securities will be
determined periodically by means of a "Dutch Auction." In this Dutch Auction,
investors and potential investors submit orders through an eligible
broker-dealer as to the principal amount of auction rate securities they wish to
buy, hold or sell at various interest rates. The broker-dealers submit their
clients' orders to the auction agent. The auction agent processes all orders
submitted by all eligible broker-dealers and determines the interest rate for
the upcoming interest period. The broker-dealers are notified by the auction
agent of the interest rate for the upcoming interest period and are provided
with settlement instructions relating to purchases and sales of auction rate
securities. Auction rate securities will be purchased and sold between investors
and potential investors at a price equal to their then-outstanding principal
balance plus any accrued interest. For each series of securities, the related
prospectus supplement will specify the auction agent and the broker-dealer(s),
unless otherwise specified in the related prospectus supplement.
In the auction, the following types of orders may be submitted:
o "bid/hold orders"--specify the minimum interest rate that a current
investor is willing to accept in order to continue to hold auction
rate securities for the upcoming interest period;
o "sell orders"--an order by a current investor to sell a specified
principal amount of auction rate securities, regardless of the
upcoming interest rate; and
o "potential bid orders"--specify the minimum interest rate that a
potential investor, or a current investor wishing to purchase
additional auction rate securities, is willing to accept in order to
buy a specified principal amount of auction rate securities.
If an existing investor does not submit orders with respect to all its
auction rate securities, the investor will be deemed to have submitted a hold
order at the new interest rate for that portion of the auction rate securities
for which no order was received.
The following example helps illustrate how the auction procedures are used
in determining the interest rate on the auction rate securities.
(a) Assumptions:
1. Denominations (Units) = $50,000
2. Interest period = 28 days
3. Principal amount outstanding = $50 Million (1000 Units)
(b) Summary of all orders received for the auction:
Bid/Hold Orders Sell Orders Potential Bid Orders
-------------------- ---------------- ------------------------
20 Units at 2.90% 100 Units Sell 40 Units at 2.95%
60 Units at 3.02% 100 Units Sell 60 Units at 3.00%
120 Units at 3.05% 200 Units Sell 100 Units at 3.05%
200 Units at 3.10% ---------------- 100 Units at 3.10%
200 Units at 3.12% 400 Units 100 Units at 3.11%
-------------------- 100 Units at 3.14%
600 Units 200 Units at 3.15%
------------------------
700 Units
The total units under bid/hold orders and sell orders always equal the issue
size (in this case 1000 units), less any units held by investors not submitting
a bid (in this case 0 units).
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(c) Auction agent organizes orders in ascending order:
Cumulative Cumulative
Order Number of Total Order Number of Total
Number Units (Units) Percent Number Units (Units) Percent
- ------------ ----------- ------------ --------- ---------- ----------- ---------- ---------
1. 20 (W) 20 2.90% 7. 200(W) 600 3.10%
2. 40 (W) 60 2.95% 8. 100(W) 700 3.10%
3. 60 (W) 120 3.00% 9. 100(W) 800 3.11%
4. 60 (W) 180 3.02% 10. 200(W) 1000 3.12%
5. 100 (W) 280 3.05% 11. 100(L) 3.14%
6. 120 (W) 400 3.05% 12. 200(L) 3.15%
- ------------
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units. All
winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next interest period, at the end of which another auction
will be held. Multiple orders at the winning rate are allocated units on a pro
rata basis. Regardless of the results of the auction, the interest rate will not
exceed the maximum rate specified in the applicable prospectus supplement.
The example assumes that a successful auction has occurred, that is, that
all sell orders and all bid/hold orders below the new interest rate were
fulfilled. However, there may be insufficient potential bid orders to purchase
all the auction rate securities offered for sale. In these circumstances, the
interest rate for the upcoming interest period will equal the maximum rate.
Also, if all the auction rate securities are subject to hold orders (i.e., each
holder of auction rate securities wishes to continue holding its auction rate
securities, regardless of the interest rate), the interest rate for the upcoming
interest period will equal the all hold rate, which is the LIBOR rate for a
period comparable to the auction period less 0.20%, or as otherwise specified in
the related prospectus supplement.
If a payment default has occurred, the rate will be the non-payment rate,
which will be specified in the related prospectus supplement.
Maximum Rate and Interest Carryovers. If the auction rate for a series of
auction rate securities is greater than the maximum rate described in the
related prospectus supplement or the net loan rate, then the interest rate
applicable to those auction rate securities will be the lesser of the maximum
rate or the net loan rate.
In such event, if the interest rate for a series of auction rate
securities is set at the net loan rate, the excess of the lower of the auction
rate and the maximum rate over the net loan rate will be carried over for that
series of auction rate securities. If there are insufficient bid orders to
purchase all the auction rate securities of a series offered for sale in an
auction and the interest rate for that series is set at the net loan rate, the
excess of the maximum rate over the net loan rate will be carried over for that
series of auction rate securities. The carryover amount will bear interest
calculated at the One-Month LIBOR rate, or as otherwise specified in the related
prospectus supplement. The rating of the notes does not address the payment of
carryover amounts or interest on carryover amounts.
The carryover amount, and interest accrued thereon, for a class of auction
rate securities will be paid on an interest payment date if there are sufficient
moneys in the Revenue Fund to pay all interest due on the notes on that interest
payment date, and in the case of subordinate notes, payment of the interest
carryover on more senior notes. Any carryover amount, and any interest accrued
on the carryover amount, due on any auction rate note which is to be redeemed
will be paid to the registered owner on the redemption date to the extent that
moneys are available. The prospectus supplement for a series of notes will
specify whether or not the carryover amount will be included in the redemption
price if an auction rate security is redeemed.
Changes in the Auction Period. We may, from time to time, change the
length of the auction period for a class of auction rate securities in order to
conform with then current market practice with respect to similar securities or
to accommodate economic and financial factors that may affect or be relevant to
the length of the auction period and the interest rate borne by the auction rate
securities. We will initiate the auction period adjustment by giving written
notice to the indenture administrator, the auction agent, the applicable
broker-dealer, each rating agency and the registered owners of the notes at
least 10 days prior to auction date for the notes. Any adjusted auction period
will be at least 7 days but not more than 366 days. The auction period
adjustment will take effect only if approved by the market agent and if the
auction agent receives orders sufficient to complete the auction for the new
auction period at a rate of interest below the maximum rate.
45
Changes in the Auction Date. The applicable broker-dealer, with the
written consent of the administrator on behalf of the trust, may specify a
different auction date for a class of auction rate securities in order to
conform with then current market practice with respect to similar securities or
to accommodate economic and financial factors that may affect or be relevant to
the day of the week constituting an auction date for the auction rate
securities. If the administrator consents to the change, the broker-dealer agent
will provide notice of its determination to specify an earlier auction date in
writing at least 10 days prior to the proposed changed auction date to the
indenture administrator, the auction agent, the trust, each rating agency and
the registered owner.
Distributions
Beginning on the distribution date specified in the related prospectus
supplement, the applicable trustee will make distributions of principal and
interest on each class of securities.
Credit and Cash Flow or other Enhancement or Derivative Arrangements
General. The related prospectus supplement will describe the amounts and
types of credit or cash flow enhancement arrangements for each series. If
provided in the related prospectus supplement, credit or cash flow enhancement
may take the form of:
o subordination of one or more classes of securities,
o reserve accounts,
o capitalized interest accounts,
o overcollateralization,
o letters of credit, credit or liquidity facilities,
o cash collateral accounts,
o financial insurance,
o commitment agreements,
o surety bonds,
o guaranteed investment contracts,
o swaps, including interest rate and currency swaps and cap
agreements,
o exchange agreements,
o interest rate protection agreements,
o repurchase obligations,
o put or call options,
o yield protection agreements,
o other agreements providing for third party payments,
o any combination of the foregoing, or
o other support, cash deposit, derivative or other arrangements
described in the related prospectus supplement.
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The presence of a reserve account and other forms of credit or liquidity
enhancement is intended to enhance the likelihood of receipt by the
securityholders of the full amount of distributions when due and to decrease the
likelihood that the securityholders will experience losses.
Credit enhancement will not provide protection against all risks of loss
and will not guarantee repayment of all distributions. If losses occur which
exceed the amount covered by any credit enhancement or which are not covered by
any credit enhancement, securityholders will bear their allocable share of
deficiencies, as described in the related prospectus supplement. In addition, if
a form of credit enhancement covers more than one series of securities,
securityholders of any of those series will be subject to the risk that the
credit enhancement will be exhausted by the claims of securityholders of other
series.
Reserve Account. If so provided in the related prospectus supplement, the
administrator will establish a reserve account for each series of securities.
The indenture administrator will maintain the reserve account. It will be funded
by an initial deposit by the trust. As further described in the related
prospectus supplement, the amount on deposit in the reserve account may be
increased after the closing date. The increase will be funded by deposits into
the reserve account of the amount of any collections on the related trust
student loans remaining on each distribution date after the payment of all other
required payments. The related prospectus supplement will describe the
circumstances and manner in which distributions may be made out of the reserve
account.
Book-Entry Registration
Investors in securities in book-entry form may, directly or indirectly,
hold their securities through DTC in the United States or, if so provided in the
related prospectus supplement, through Clearstream Banking, societe anonyme
(known as Clearstream, Luxembourg), formerly known as Cedelbank, societe
anonyme, or the Euroclear System in Europe.
Cede & Co., as nominee for DTC, will hold one or more global notes and
certificates. Unless the related prospectus supplement provides otherwise,
Clearstream and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Clearstream's and
Euroclear's names on the books of their respective depositories, which in turn
will hold these positions in the depositories' names on the books of DTC.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream participants and Euroclear participants will occur
in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
participants or Euroclear participants, on the other, will be effected at DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depository; however, cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Clearstream participants and
Euroclear participants may not deliver instructions directly to the
depositaries.
Because of time-zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with DTC participants will
be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Credits for any transactions in
the securities settled during this processing will be reported to the relevant
Euroclear or Clearstream participant on that business day. Cash received in
Clearstream or Euroclear as a result of sales of securities by or through a
Clearstream participant or a Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC. For additional information regarding clearance and
settlement procedures for the securities, and for information on tax
documentation procedures relating to the securities, see Appendix B in this
prospectus.
DTC has advised us that it is a limited purpose trust company organized
under the laws of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "clearing
agency" registered under Section 17A of the Securities Exchange Act. DTC was
created to hold securities for its participating organizations and to facilitate
the clearance and settlement of securities transactions between those
participants through electronic book-entries, thereby eliminating the need for
physical movement of
47
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations, including Euroclear and Clearstream.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Securityholders that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, securities held through DTC may do so only through participants and indirect
participants. Securityholders will receive all distributions of principal and
interest from the indenture trustee, the indenture administrator or the eligible
lender trustee, through participants and indirect participants. Under a
book-entry format, securityholders may experience some delay in their receipt of
payments, since payments will be forwarded by the trustee to DTC's nominee. DTC
will forward those payments to its participants, which will forward them to
indirect participants or securityholders. Securityholders will not be recognized
by the applicable trustee as noteholders or certificateholders under the
indenture or trust agreement, as applicable, and securityholders will be
permitted to exercise the rights of securityholders only indirectly through DTC
and its participants.
Under the rules, regulations and procedures creating DTC and affecting its
operations, DTC is required to make book-entry transfers of securities among
participants on whose behalf it acts with respect to the securities and to
receive and transmit principal and interest payments on the securities.
Participants and indirect participants with which securityholders have accounts
with respect to the securities are likewise required to make book-entry
transfers and receive and transmit payments of principal and interest on the
securities on behalf of their customers. Accordingly, although securityholders
will not possess securities, the DTC rules provide a mechanism by which
participants will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of participants, which in turn act on
behalf of indirect participants, the ability of a securityholder to pledge
securities to persons or entities that do not participate in the DTC system, or
to otherwise act with respect to the securities, may be limited since
securityholders will not possess physical certificates for their securities.
DTC has advised us that it will take any action that a securityholder is
permitted to take under the indenture or trust agreement, only at the direction
of one or more Participants to whose DTC accounts the securities are credited.
DTC may take conflicting actions on undivided interests to the extent that those
actions are taken on behalf of participants whose holdings include undivided
interests.
Except as required by law, neither the administrator nor the applicable
trustee for any trust will have any liability for the records relating to
payments or the payments themselves, made on account of beneficial ownership
interests of the securities held by DTC's nominee, or for maintaining,
supervising or reviewing any records relating to those beneficial ownership
interests.
Clearstream has advised us that it is organized under the laws of
Luxembourg as a professional depositary. Clearstream holds securities for its
participants and facilitates the clearance and settlement of securities
transactions between Clearstream participants through electronic book-entry
changes in accounts of Clearstream participants. Thus, the need for physical
movement of certificates is eliminated. Transactions may be settled in
Clearstream in numerous currencies, including United States dollars. Clearstream
provides to its participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depositary, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Indirect access to Clearstream is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Clearstream
participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in numerous currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Euroclear Bank
S.A./N.V.
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Euroclear Bank S.A./NV has advised us that it is licensed by the Belgian
Banking and Finance Commission to carry out banking activities on a global
basis. As a Belgian bank, it is regulated and examined by the Belgian Banking
Commission.
All operations are conducted by the Euroclear operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear operator. Euroclear participants include banks, central banks,
securities brokers and dealers and other professional financial intermediaries.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System, and applicable Belgian
law. These govern transfers of securities and cash within the Euroclear System,
withdrawals of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
operator acts only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
Distributions with respect to securities held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream participants or
Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by its depositary. These distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "U.S. Federal Income Tax Consequences" in this prospectus.
Clearstream or the Euroclear operator, as the case may be, will take any other
action permitted to be taken by a securityholder under the agreement on behalf
of a Clearstream participant or Euroclear participant only in accordance with
its relevant rules and procedures and subject to its depositary's ability to
effect these actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to these procedures to
facilitate transfers of securities among participants of DTC, Clearstream and
Euroclear, they are under no obligation to perform or continue to perform these
procedures. The procedures may therefore be discontinued at any time.
Definitive Securities
The notes and the certificates of a given series will be issued in fully
registered, certificated form to noteholders or certificateholders or their
nominees, rather than to DTC or its nominee, only if:
o the administrator advises the applicable trustee in writing that DTC
is not willing or able to discharge its responsibilities as
depository for the securities and the administrator is unable to
locate a successor;
o the administrator, at its option, elects to terminate the book-entry
system through DTC; or
o after the occurrence of an event of default, a servicer default or
an administrator default, investors holding a majority of the
outstanding principal amount of the notes or the certificates,
advise the trustee through DTC in writing that the continuation of a
book-entry system through DTC or a successor is no longer in the
best interest of the holders of these securities.
Upon the occurrence of any event described in the bullets above, the
applicable trustee will be required to notify all applicable securityholders,
through DTC participants, of the availability of definitive securities. When DTC
surrenders the definitive securities, the applicable trustee will reissue to the
securityholders the corresponding securities as definitive securities upon
receipt of instructions for re-registration. From then on, payments of principal
and interest on the definitive securities will be made by the applicable
trustee, in accordance with the procedures set forth in the related indenture or
trust agreement, directly to the holders of definitive securities in whose names
the definitive securities were registered at the close of business on the
applicable record date specified in the related prospectus supplement. Payments
will be made by check mailed to the address of each holder as it appears on the
register maintained by the applicable trustee.
However, the final payment on any definitive security will be made only
upon presentation and surrender of that definitive security at the office or
agency specified in the notice of final distribution.
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Definitive securities will be transferable and exchangeable at the offices
of the applicable trustee or of a registrar named in a notice delivered to
holders of definitive securities. No service charge will be imposed for any
registration of transfer or exchange, but the trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed.
List of Securityholders
Holders of the notes of a series evidencing at least 25% of the
outstanding notes may, by written request to the indenture trustee, obtain a
list of all noteholders for communicating with other noteholders regarding their
rights under the indenture or under the notes. The indenture trustee may elect
not to give the noteholders access to the list if it agrees to mail the desired
communication or proxy, for and at the expense of the requesting noteholders, to
all noteholders of that series.
Three or more certificateholders of any series or one or more holders of
certificates of that series evidencing at least 25% of the certificate balance
of those certificates may, by written request to the owner trustee, obtain
access to the list of all certificateholders for the purpose of communicating
with other certificateholders regarding their rights under the trust agreement
or under the certificates.
Reports to Securityholders
On each distribution date, the administrator will provide to
securityholders of record as of the record date a statement containing
substantially the same information as is required to be provided on the periodic
report to the indenture trustee and the trust described under "Servicing and
Administration--Statements to the Indenture Trustee and the Trust" in this
prospectus. Those statements will be filed with the SEC during the period
required by Rule 15d-1 under the Securities Exchange Act. The statements
provided to securityholders will not constitute financial statements prepared in
accordance with generally accepted accounting principles and will not be
audited.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the trustee will mail to each person, who at any time
during that calendar year was a securityholder and who received a payment from
that trust, a statement containing certain information to enable it to prepare
its federal income tax return. See "U.S. Federal Income Tax Consequences" in
this prospectus.
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
Transfer of Student Loans
SLC intends that the transfer of the student loans by it to the depositor
will constitute a valid sale and assignment of those loans. We intend that the
transfer of the student loans by us to the eligible lender trustee on behalf of
each trust will also constitute a valid sale and assignment of those loans.
Nevertheless, if the transfer of the student loans by SLC to the depositor, or
the transfer of those loans by us to the eligible lender trustee, is deemed to
be an assignment of collateral as security, then a security interest in the
student loans may be perfected under the provisions of the Higher Education Act
by filing of notice of the security interest in the manner provided by the
applicable Uniform Commercial Code, or the UCC as it is commonly known, for
perfection of security interests in accounts. Accordingly,
o A financing statement or statements covering the student loans
naming The Student Loan Corporation, as debtor, will be filed under
the UCC to protect the interest of the depositor in the event that
the transfer by SLC is deemed to be an assignment of collateral as
security; and
o A financing statement or statements covering the trust student loans
naming the depositor, as debtor, will also be filed under the UCC to
protect the interest of the eligible lender trustee in the event
that the transfer by the depositor is deemed to be an assignment of
collateral as security.
If the transfer of the student loans is deemed to be an assignment as
security for the benefit of the depositor or a trust, there are limited
circumstances under the UCC in which prior or subsequent transferees of student
loans could have an interest in the student loans with priority over the related
eligible lender trustee's interest. A tax or other government lien on property
of SLC or the depositor arising before the time a student loan comes into
existence may also have priority over the interest of the depositor or the
eligible lender trustee in the student loan. Under the
50
purchase agreement and sale agreement, however, SLC or the depositor, as
applicable, will warrant that it has transferred the student loans to the
depositor or the eligible lender trustee free and clear of the lien of any third
party. In addition, SLC and the depositor each will covenant that it will not
sell, pledge, assign, transfer or grant any lien on any student loan held by a
trust or any interest in that loan other than to the depositor or the eligible
lender trustee.
Under the servicing agreement, the servicer as custodian will have custody
of the promissory notes evidencing the student loans. Although the records of
SLC, the depositor and the servicer will be marked to indicate the sale and
although SLC and the depositor will cause UCC financing statements to be filed
with the appropriate authorities, the student loans will not be physically
segregated, stamped or otherwise marked to indicate that the student loans have
been sold to the depositor and to the eligible lender trustee. If, through
inadvertence or otherwise, any of the student loans were sold to another party
that:
o purchased the student loans in the ordinary course of its business,
o took possession of the student loans, and
o acquired the student loans for new value and without actual
knowledge of the related eligible lender trustee's interest,
then that purchaser might acquire an interest in the student loans superior to
the interest of the depositor and the eligible lender trustee.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. Also, some state laws impose finance charge ceilings and
other restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose specific
statutory liabilities upon lenders who fail to comply with their provisions. The
requirements generally do not apply to federally sponsored student loans. The
depositor or a trust, however, may be liable for violations of consumer
protection laws that apply to the student loans, either as assignee from SLC or
the depositor or as the party directly responsible for obligations arising after
the transfer. For a discussion of a trust's rights if the student loans were not
originated or serviced in compliance in all material respects with applicable
laws, see "Transfer and Servicing Agreements--Sale of Student Loans to the
Trust; Representations and Warranties of the Depositor" and "Servicing and
Administration--Servicer Covenants" in this prospectus.
Loan Origination and Servicing Procedures Applicable to Student Loans
The Higher Education Act, including the implementing regulations, imposes
specific requirements, guidelines and procedures for originating and servicing
federally sponsored student loans. Generally, those procedures require that (1)
completed loan applications be processed, (2) a determination of whether an
applicant is an eligible borrower under applicable standards be made, including
a review of a financial need analysis, (3) the borrower's responsibilities under
the loan be explained to him or her, (4) the promissory note evidencing the loan
be executed by the borrower and (5) the loan proceeds be disbursed in a
specified manner by the lender. After the loan is made, the lender must
establish repayment terms with the borrower, properly administer deferrals and
forbearances and credit the borrower for payments made on the loan. If a
borrower becomes delinquent in repaying a loan, a lender or its servicing agent
must perform collection procedures, primarily telephone calls and demand
letters, which vary depending upon the length of time a loan is delinquent.
The servicer will perform collection and servicing procedures on behalf of
the trusts. Failure of the servicer to follow these procedures or failure of the
originator of the loan to follow procedures relating to the origination of the
student loans could result in adverse consequences. Any failure could result in
the Department of Education's refusal to make reinsurance payments to the
guarantors or to make interest subsidy payments or special allowance payments to
the eligible lender trustee.
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Student Loans Generally Not Subject to Discharge in Bankruptcy
Student loans are generally not dischargeable by a borrower in bankruptcy
under the U.S. Bankruptcy Code, unless excepting this debt from discharge will
impose an undue hardship on the debtor and the debtor's dependents.
U.S. FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion, which is based on the advice of Cadwalader,
Wickersham & Taft LLP, federal tax counsel, summarizes certain of the U.S.
federal income tax consequences of the purchase, ownership and disposition of
notes. Except as provided below under "U.S. Federal Income Tax Treatment of
Non-U.S. Holders of Notes," this summary deals only with a beneficial owner of
notes that is (i) a citizen or resident of the United States, (ii) a corporation
(or other entity that is treated as a corporation for U.S. federal tax purposes)
that is created or organized in or under the laws of the United States or any
State thereof (including the District of Columbia), (iii) an estate the income
of which is subject to U.S. federal income taxation regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all of its substantial decisions (each, a "U.S.
Holder"). If a partnership (including any entity that is treated as a
partnership for U.S. federal tax purposes) is a beneficial owner of notes, the
treatment of a partner in the partnership will generally depend upon the status
of the partner and upon the activities of the partnership. A beneficial owner of
notes that is a partnership, and partners in such a partnership, should consult
their tax advisors about the U.S. federal income tax consequences of holding and
disposing of the notes. A "Non-U.S. Holder" is a beneficial owner of a note that
is not a U.S. Holder.
This discussion does not address the U.S. federal income tax consequences
of the purchase, ownership and disposition of certificates, which will be
discussed in the applicable prospectus supplement.
This discussion is based on interpretations of the Internal Revenue Code
of 1986, as amended (the "Code"), regulations issued thereunder, and rulings and
decisions currently in effect (or in some cases proposed), all of which are
subject to change. Any such change may be applied retroactively and may
adversely affect the federal income tax consequences described herein. This
summary addresses only U.S. Holders that purchase notes at initial issuance and
beneficially own such notes as capital assets and not as part of a "straddle,"
"hedge," "synthetic security" or a "conversion transaction" for federal income
tax purposes, or as part of some other integrated investment. This summary does
not discuss all of the tax consequences that may be relevant to particular
investors or to investors subject to special treatment under the federal income
tax laws (such as banks, thrifts, insurance companies, retirement plans, real
estate investment trusts, regulated investment companies, securities dealers,
investors whose functional currency is not the U.S. dollar, or tax-exempt
investors that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, qualified group legal services plans,
or parent title-holding corporations). Accordingly, prospective investors are
urged to consult their tax advisors with respect to the federal, state and local
tax consequences of investing in the notes, as well as any consequences arising
under the laws of any other taxing jurisdiction to which they may be subject.
Tax Characterization of the Trust
In the opinion of federal tax counsel, the trust, which issues one or more
classes of securities to investors and all of the equity interests of which are
retained by a single beneficial owner, will not be treated as an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes, assuming that the terms of the trust agreement and related documents
will be complied with.
However, if one or more classes of notes are treated as equity rather than
indebtedness for federal income tax purposes the trust could be treated as a
partnership or publicly traded partnership taxable as a corporation, as
described below.
Tax Consequences to U.S. Holders
Treatment of the Notes as Indebtedness. There are no regulations,
published rulings or judicial decisions involving the characterization for
federal income tax purposes of notes with terms substantially the same as the
terms of the notes. The Indenture requires the trust and all noteholders to
treat the notes as indebtedness for U.S. federal, state and local income and
franchise tax purposes. Based on a number of factors including certain
52
representations of the trust, certain information provided by the underwriters
regarding the student loans to be acquired by the trust, and the assumption that
the noteholders will in fact treat the notes as indebtedness for U.S. federal,
state and local income and franchise tax purposes, in the opinion of federal tax
counsel, the notes will be treated as indebtedness for U.S. federal income tax
purposes. However, because no specific authority exists with respect to the
characterization for U.S. federal income tax purposes of notes having terms
substantially similar to the notes, the Internal Revenue Service (the "IRS")
could assert, and a court could ultimately hold, that the notes constitute
equity in the trust for U.S. federal income tax purposes. If the notes are
treated as equity in, rather than debt of, the trust for U.S. federal tax
purposes, the trust could be treated as a publicly traded partnership that would
be taxable as a corporation. In this case, the trust would be subject to U.S.
federal income taxes at corporate tax rates on its taxable income generated by
student loans. An entity-level tax could result in reduced distributions to
noteholders.
Furthermore, even if the trust is not taxable as a corporation, the
treatment of notes as equity interests in a partnership could have adverse tax
consequences to noteholders. For example, income from classes of notes to
tax-exempt entities (including pension funds) might be "unrelated business
taxable income," individual U.S. Holders might be subject to limitations on
their ability to deduct their share of trust expenses, and U.S. Holders would be
required to report income from the trust for each of their own taxable years in
which the taxable year of the trust ends. In addition, a U.S. Holder that is a
cash basis taxpayer would be required to report income with respect to the trust
when it accrues, rather than under the cash method of accounting.
The trust's characterization of the notes as indebtedness for U.S. federal
income tax purposes will be binding on U.S. Holders. Except as otherwise
indicated, the balance of this summary assumes that the notes are treated as
indebtedness for U.S. federal, state and local income and franchise tax
purposes.
Stated Interest. Except as otherwise provided in a related prospectus
supplement, stated interest on the notes will be taxable to a U.S. Holder as
ordinary interest income as the interest accrues or is paid (in accordance with
the U.S. Holder's method of tax accounting).
Original Issue Discount. If so provided in a related prospectus
supplement, a note may be issued with original issue discount. A debt instrument
has original issue discount to the extent its "stated redemption price at
maturity" exceeds its "issue price" (each as defined below) by more than a de
minimis amount (generally 0.25% of the note's stated redemption price at
maturity multiplied by the number of years to its maturity, based on the
anticipated weighted average life of the notes and weighing each payment by
reference to the number of full years elapsed from the closing date to the
anticipated date of such payment). A note's "stated redemption price at
maturity" includes all payments thereon other than payments of "qualified stated
interest," and its "remaining stated redemption price at maturity" at any time
is the sum of all future payments to be made thereon other than payments of
"qualified stated interest." Except as otherwise provided in a related
prospectus supplement, all stated interest on the notes will be treated as
qualified stated interest. The term "issue price" generally means the first
price (excluding any pre-issuance accrued interest) at which a substantial
portion of such debt instruments is sold to investors other than placement
agents, underwriters, brokers, or wholesalers.
U.S. Holders generally will be required to include non-de minimis original
issue discount on the notes in income as it accrues, without regard to the
timing of receipt of the cash attributable to such income or to the U.S.
Holder's method of accounting. Such discount would accrue under a constant yield
method based on the original yield to maturity of the instrument calculated by
reference to its issue price. The amount of original issue discount generally
includible in income is the sum of the daily portions of original issue discount
with respect to a note for each day during the taxable year or portion thereof
in which the U.S. Holder holds the note. Special provisions apply to notes on
which payments may be accelerated due to prepayments of other obligations
securing those notes. Under these provisions, the computation of original issue
discount on the notes is determined by taking into account both the prepayment
assumption, if any, used in pricing the notes and the actual prepayment
experience. As a result of these special provisions, the amount of original
issue discount on the notes that will accrue in any given accrual period may
either increase or decrease depending upon the actual prepayment rate.
If a U.S. Holder is considered to purchase a note issued with original
issue discount at a price that exceeds its "adjusted issue price" (as defined
below), the U.S. Holder is treated as acquiring the note with "acquisition
premium" and may reduce its original issue discount income by the proportion of
the aggregate amount of original issue discount remaining to be accrued as of
the time of the purchase that is represented by such excess. No amount of
original issue discount need be included in income if the purchase price equals
or exceeds the remaining stated redemption price at maturity. The "adjusted
issue price" of notes at any time is the sum of their issue price and the
53
amount of previously accrued original issue discount, reduced by the sum of all
prior payments of amounts other than qualified stated interest.
Premium and Market Discount. In the event that a note is treated as
purchased by a U.S. Holder at a price greater than its remaining stated
redemption price at maturity, the note will be considered to have been purchased
with amortizable bond premium. The U.S. Holder may elect to amortize such
premium (as an offset to interest income), using a constant yield method, over
the remaining term of the note. Special rules apply to determine the amount of
premium on a "variable rate debt instrument" and certain other debt instruments.
Prospective U.S. Holders should consult their tax advisors regarding the
amortization of bond premium.
In the event that a note is treated as purchased by a U.S. Holder at a
price that is lower than its stated redemption price at maturity, or in the case
of notes issued with original issue discount, their adjusted issue price, by
more than a de minimis amount (generally 0.25% of their stated redemption price
at maturity multiplied by the number of remaining complete years to maturity (or
weighted average maturity in the case of notes paying any amounts other than
qualified stated interest prior to maturity), the notes will be considered to
have "market discount" in the hands of such U.S. Holder. In that event, unless
the U.S. Holder elects to include such market discount in income as it accrues,
gain realized by the U.S. Holder on the sale or retirement of the notes will be
treated as ordinary income to the extent of the market discount that accrued
thereon while it was considered to be held by such U.S. Holder. In addition, the
U.S. Holder could be required to defer the deduction of all or a portion of the
interest paid on any indebtedness incurred or continued to purchase or carry the
note unless the U.S. Holder has made an election to include market discount in
income currently. Such an election applies to all debt instruments held by a
taxpayer and may not be revoked without the consent of the IRS. In general
terms, market discount on notes will accrue ratably over the term of such notes
or, at the election of the U.S. Holder, under a constant yield method.
Election to Treat All Interest as Original Issue Discount. A U.S. Holder
may elect to include in income all interest and discount (including de minimis
OID and de minimis market discount), as adjusted by any acquisition premium with
respect to the note, as original issue discount on a constant yield method, as
described above under "--Original Issue Discount." The election is made for the
taxable year in which the U.S. Holder acquired the note, and it may not be
revoked without the consent of the IRS. If the election is made with respect to
a note having market discount, the U.S. Holder will be deemed to have elected
currently to include market discount on a constant yield basis with respect to
all debt instruments having market discount acquired during the year of election
or thereafter. If the election made with respect to a note having amortizable
bond premium, the U.S. Holder will be deemed to have made an election to
amortize premium generally with respect to all debt instruments having
amortizable bond premium held by the U.S. Holder during the year of election or
thereafter.
Tax Basis. A U.S. Holder's initial tax basis in the notes will equal the
purchase price, and generally will be increased by any amounts of original issue
discount or market discount includible in income with respect thereto, and
reduced by any payments other than qualified stated interest and any amortized
premium with respect thereto.
Sale, Exchange and Retirement of Notes. Upon the sale, exchange or
retirement of notes, a U.S. Holder generally will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange or
retirement of the notes and the U.S. Holder's tax basis in the notes.
Except as discussed above with respect to market discount, gain or loss
recognized by a U.S. Holder in respect of the sale, exchange, redemption or
other disposition of notes generally will be capital gain or loss, and will be
long-term capital gain or loss if the U.S. Holder is treated as having held the
notes for more than one year at the time of such disposition. The ability to use
capital losses to offset ordinary income in determining taxable income generally
is limited.
Tax-Exempt Organizations
Except as otherwise provided in a related prospectus supplement, income or
gain from the notes held by a tax-exempt organization will not be subject to the
tax on unrelated business taxable income if the notes are not "debt financed"
property.
Foreign Investors
Treatment of Interest. Non-U.S. Holders will not be subject to U.S.
federal income or withholding tax in respect of interest income or gain on the
notes if (1) the Non-U.S. Holder provides an appropriate statement, signed under
54
penalties of perjury, identifying the Non-U.S. Holder and stating, among other
things, that the Non-U.S. Holder is not a U.S. person, and (2) the Non-U.S.
Holder is not a "10-percent shareholder" or "related controlled foreign
corporation" with respect to the Issuer, unless certain exceptions apply. To the
extent these conditions are not met, a 30% withholding tax will apply to
interest income on the notes, unless an income tax treaty reduces or eliminates
such tax or the interest is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder. In the latter case,
such Non-U.S. Holder will be subject to U.S. federal income tax with respect to
all income from the notes at regular rates applicable to U.S. taxpayers.
Treatment of Disposition of Notes. Generally, a Non-U.S. Holder will not
be subject to federal income tax on any amount which constitutes capital gain
upon the sale, exchange, retirement or other disposition of a debt instrument
unless such Non-U.S. Holder is an individual present in the United States for
183 days or more in the taxable year of the sale, exchange, retirement or other
disposition and certain other conditions are met, or unless the gain is
effectively connected with the conduct of a trade or business in the United
States by such Non-U.S. Holder. If the gain is effectively connected with the
conduct of a trade or business in the United States by such Non-U.S. Holder,
such Non-U.S. Holder will generally be subject to U.S. federal income tax with
respect to such gain in the same manner as U.S. Holders, as described above, and
a Non-U.S. Holder that is a corporation could be subject to a branch profits tax
on such income as well.
Backup Withholding and Information Reporting
Backup withholding tax and certain information reporting requirements may
apply to payments of principal, premium and interest (including any original
issue discount) made to, and the proceeds of disposition of a note by, a
noteholder. Backup withholding will apply only if (i) the noteholder fails to
furnish its Taxpayer Identification Number to the payor in the manner required,
(ii) the IRS notifies the payor that the noteholder has furnished an incorrect
Taxpayer Identification Number, (iii) the IRS notifies the payor that the
noteholder has failed to report properly payments of interest and dividends, or
(iv) under certain circumstances, the noteholder fails to certify, under penalty
of perjury, that it has both furnished a correct Taxpayer Identification Number
and not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments. Backup withholding will not
apply with respect to payments made to certain exempt recipients, such as
corporations and financial institutions. Noteholders should consult their tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption.
Backup withholding tax is not an additional tax. The amount of any backup
withholding from a payment to a noteholder will be allowed as a credit against
the noteholder's federal income tax liability and may entitle the noteholder to
a refund, provided that the required information is furnished to the IRS.
Disclosure Requirements for U.S. Holders Recognizing Significant Losses or
Experiencing Significant Book-Tax Differences
A U.S. Holder that claims significant losses in respect of a note
(generally (i) $10 million or more in a taxable year or $20 million or more in
any combination of taxable years for corporations or partnerships all of whose
partners are corporations or (ii) $2 million or more in a taxable year or $4
million or more in any combination of taxable years for all other taxpayers) or
reports any item or items of income, gain, expense, or loss in respect of a note
for tax purposes in an amount that differs from the amount reported for book
purposes by more than $10 million on a gross basis in any taxable year may be
subject to certain disclosure requirements for "reportable transactions."
Prospective investors should consult their tax advisors concerning any possible
disclosure obligation with respect to the notes.
State, Local And Foreign Taxes
Noteholders may be subject to state, local or foreign taxes with respect
to an investment in the notes. Prospective investors are urged to consult their
tax advisors with respect to the state, local and foreign tax consequences of an
investment in the notes.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
55
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
56
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975
of the Code imposes essentially the same prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code
("Qualified Retirement Plans") and on Individual Retirement Accounts ("IRAs")
described in Section 408(b) of the Code (collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) of ERISA), are not
subject to Title I of ERISA. However, such plans may be subject to the
provisions of applicable federal, state or local law ("Similar Law") materially
similar to the foregoing provisions of ERISA or the Code. Moreover, any such
governmental plan or church plan which is qualified under Section 401(a) and
exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
In addition to the imposition of general fiduciary requirements including
those of investment prudence and diversification and the requirement that an
ERISA Plan's investment be made in accordance with the documents governing the
ERISA Plan, Section 406 of ERISA and Section 4975 of the Code prohibit a broad
range of transactions involving assets of ERISA Plans and Tax-Favored Plans and
entities whose underlying assets include plan assets by reason of ERISA Plans or
Tax-Favored Plans investing in such entities (collectively hereafter "Plan" or
"Plans") and persons ("Parties in Interest" or "Disqualified Persons") who have
certain specified relationships to the Plans, unless a statutory or
administrative exemption is available. Certain Parties in Interest (or
Disqualified Persons) that participate in a prohibited transaction may be
subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA or Section 4975 of the Code unless a statutory or administrative exemption
is available. Section 502(l) of ERISA requires the Secretary of the U.S.
Department of Labor (the "DOL") to assess a civil penalty against a fiduciary
who breaks any fiduciary responsibility under or commits any other violation of
part 4 of Title I of ERISA or any other person who knowingly participates in
such breach or violation.
The investment in a security by a Plan may, in certain circumstances, be
deemed to include an investment in the assets of the trust formed for that
series of security. The DOL has promulgated regulations set forth at 29 CFR ss.
2510.3-101 (the "Regulations") concerning whether or not an ERISA Plan's assets
would be deemed to include an interest in the underlying assets of an entity
(such as a Trust Fund) for purposes of the general fiduciary responsibility
provisions of ERISA and for the prohibited transaction provisions of ERISA and
the Code, when a Plan acquires an "equity interest" in such entity.
Under such Regulations the assets of an ERISA Plan will not include an
interest in the assets of an entity, the equity interests of which are acquired
by the ERISA Plan, if at no time do Plans in the aggregate own 25% or more of
the value of any class of equity interests in such entity. Because the
availability of this exemption depends upon the identity of the registered
owners at any time, there can be no assurance that the notes will qualify for
this exemption.
The Regulations also provide an exemption from "plan asset" treatment for
securities issued by an entity if such securities are debt securities under
applicable state law with no "substantial equity features." Except as otherwise
specified with respect to a series in the related prospectus supplement, the
notes are intended to represent debt of each relevant trust for state law and
federal income tax purposes; however, there can be no assurance that the DOL
will not challenge such position. Assuming that a class of notes will be
considered debt with no substantial equity features for purposes of the
Regulations, the assets of each trust that issues notes will not be
characterized as "plan assets" under the Regulations. The related prospectus
supplement will set forth whether any class of notes may be purchased by Plans
or governmental or church plans subject to Similar Law.
Unless described differently in the related prospectus supplement, no
certificates of any series may be purchased by a Plan or by any entity whose
underlying assets include Plan assets by reason of a Plan's investment in that
entity. The purchase of a certificate could result in the assets of that trust
that issues certificates being deemed "plan assets" for purposes of ERISA and
the Code, and certain transactions involving that trust may then be deemed to
constitute prohibited transactions under Section 406 of ERISA and Section 4975
of the Code. By its acceptance of a certificate, each certificateholder will be
deemed to have represented and warranted that it is not a Plan, is not
purchasing the certificates on behalf of a Plan and is not using the assets of a
Plan to purchase certificates. If a given series of certificates may be acquired
by a Plan because of the application of an exception contained in a regulation
57
or administrative exemption issued by the DOL, the exception will be discussed
in the related prospectus supplement.
Without regard to whether the notes are treated as an "equity interest"
for such purposes, the acquisition or holding of notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if a trust or any
owner of an equity interest therein is or becomes a Party in Interest or
Disqualified Person with respect to such Plan, or in the event that a note is
purchased in the secondary market by a Plan from a Party in Interest or
Disqualified Person with respect to such Plan. There can be no assurance that a
trust or any owner of an equity interest therein will not be or become a party
in interest or a disqualified person with respect to a Plan that acquires notes.
However, one or more of the following prohibited transaction class exemptions
may apply to the acquisition, holding and transfer of the notes: Prohibited
Transaction Class Exemption ("PTCE") 84-14 (regarding investments by qualified
professional asset managers), PTCE 90-1 (relating to investments by insurance
company pooled separate accounts), PTCE 91-38 (regarding investments by bank
collective investment funds), PTCE 95-60 (regarding investments by insurance
company general accounts) and PTCE 96-23 (regarding investments by in-house
asset managers). By its purchase of notes, the purchaser of notes will be deemed
to have represented and warranted that either: (A) the purchaser is not
acquiring the notes directly or indirectly for, or on behalf of, a Plan or any
entity whose underlying assets are deemed to be plan assets of such Plan, or (B)
the acquisition and holding of the notes by the purchaser qualifies for
prohibited transaction exemptive relief under PTCE 95-60, PTCE 96-23, PTCE
91-38, PTCE 90-1, PTCE 84-14 or another applicable exemption.
Any ERISA Plan fiduciary considering whether to purchase notes of any
Series on behalf of an ERISA Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment and the availability of any
of the exemptions referred to above. Persons responsible for investing the
assets of Tax-Favored Plans that are not ERISA Plans should seek similar counsel
with respect to the prohibited transaction provisions of the Code. Fiduciaries
of plans subject to Similar Law should make a similar determination.
AVAILABLE INFORMATION
SLC Student Loan Receivables I, Inc., as the originator of each trust and
the depositor, has filed with the SEC a registration statement for the
securities under the Securities Act of 1933. This prospectus and the
accompanying prospectus supplement, both of which form part of the registration
statement, do not contain all the information contained in the registration
statement. You may inspect and copy the registration statement at the public
reference facilities maintained by the SEC at
o 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the SEC's regional offices at
o 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604.
o 233 Broadway, New York, New York 10279.
In addition, you may obtain copies of the registration statement from the
Public Reference Branch of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of certain prescribed fees. You may obtain information on the
operation of the SEC's public reference facilities by calling the SEC at
1-800-732-0330.
The registration statement may also be accessed electronically through the
SEC's Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system at the
SEC's website located at http://www.sec.gov.
REPORTS TO SECURITYHOLDERS
The administrator will prepare periodic unaudited reports as described in
the prospectus supplement for each series. These periodic unaudited reports will
contain information concerning the trust student loans in the related trust.
They will be sent only to Cede & Co., as nominee of DTC. The administrator will
not send reports directly to the beneficial holders of the securities. The
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles.
58
The trust will file with the SEC all periodic reports required under the
Securities Exchange Act of 1934. The reports concerning the trust are required
to be delivered to the holders of the securities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by or for a trust under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and before the termination of the offering of the securities will be deemed to
be incorporated by reference into this prospectus. Any statement contained in
this prospectus or in a document incorporated or deemed to be incorporated by
reference may be modified or superseded by a subsequently filed document.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, on the written or oral request of that person, a copy
of any or all of the documents incorporated in this prospectus or in any related
prospectus supplement by reference, except the exhibits to those documents,
unless the exhibits are specifically incorporated by reference.
Written requests for copies should be directed to SLC Student Loan
Receivables I, Inc., 750 Washington Boulevard, 9th Floor, Stamford, Connecticut
06901. Telephone requests for copies should be directed to (203) 975-6923.
THE PLAN OF DISTRIBUTION
The depositor and the underwriters named in each prospectus supplement
will enter into an underwriting agreement for the notes of the related series
and a separate underwriting agreement for the certificates of that series. Under
the underwriting agreements, we will agree to cause the related trust to sell to
the underwriters, and each of the underwriters will severally agree to purchase,
the amount of each class of securities listed in the prospectus supplement.
The underwriters will agree, subject to the terms and conditions of their
underwriting agreements, to purchase all the notes and certificates described in
the underwriting agreements and offered by this prospectus and the related
prospectus supplement. In some series, the depositor or an affiliate may offer
some or all of the securities for sale directly.
The underwriters or other offerors may offer the securities to potential
investors in person, by telephone, over the Internet or by other means.
Each prospectus supplement will either:
o show the price at which each class of notes and certificates is
being offered to the public and any concessions that may be offered
to dealers participating in the offering; or
o specify that the notes and certificates will be sold by the
depositor or an affiliate or will be sold or resold by the
underwriters in negotiated transactions at varying prices to be
determined at the time of such sale.
After the initial public offering of any notes and certificates, the
offering prices and concessions may be changed.
Until the distribution of the securities is completed, SEC rules may limit
the ability of the underwriters and selling group members to bid for and
purchase the securities. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of the
securities. These consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the securities.
If an underwriter creates a short position in the securities in connection
with the offering--that is, if it sells more securities than are shown on the
cover page of the related prospectus supplement--the underwriter may reduce that
short position by purchasing securities in the open market.
An underwriter may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriter purchases securities
in the open market to reduce the underwriters' short position or to stabilize
the price of the securities, it may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those securities as
part of the offering.
59
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of those purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it
discourages resales of the security.
Neither the depositor nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the securities. In addition, neither we
nor the underwriters make any representation that the underwriters will engage
in those transactions or that those transactions, once commenced, will not be
discontinued without notice.
The underwriters may assist in resales of the securities but are not
required to do so. The related prospectus supplement will indicate whether any
of the underwriters intends to make a secondary market in the securities offered
by that prospectus supplement. No underwriter will be obligated to make a
secondary market.
Each underwriting agreement will provide that the depositor and SLC will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the underwriters
may be required to make on those civil liabilities.
Each trust may, from time to time, invest the funds in its trust accounts
in eligible investments acquired from the underwriters.
Under each of the underwriting agreements for a given series of
securities, the closing of the sale of any class of securities will be
conditioned on the closing of the sale of all other classes.
The place and time of delivery for the securities will appear in the
related prospectus supplement.
LEGAL MATTERS
The validity of the notes will be passed upon by Cadwalader, Wickersham &
Taft LLP as counsel to the trust, the depositor, the seller and servicer and the
administrator.
Each prospectus supplement will identify the other law firms who will give
opinions on additional legal matters for the underwriters and specific U.S.
federal and Delaware state income tax matters.
60
APPENDIX A
FEDERAL FAMILY EDUCATION LOAN PROGRAM
General
The Federal Family Education Loan Program, known as FFELP, under Title IV
of the Higher Education Act, provides for loans to students who are enrolled in
eligible institutions, or to parents of dependent students, to finance their
educational costs. Payment of principal and interest on the student loans is
guaranteed by a state or not-for-profit guarantee agency against:
o default of the borrower;
o the death, bankruptcy or permanent, total disability of the
borrower;
o closing of the borrower's school prior to the end of the academic
period;
o false certification by the borrower's school of his eligibility for
the loan; and
o an unpaid school refund.
In addition to the guarantee payments, the holder of student loans is
entitled to receive interest subsidy payments and special allowance payments
from the U.S. Department of Education on eligible student loans.
Special allowance payments raise the interest rate of return to student
loan lenders when the statutory borrower interest rate is below an indexed
market value. Subject to certain conditions, a program of federal reinsurance
under the Higher Education Act entitles guarantee agencies to reimbursement from
the Department of Education for between 75% and 100% of the amount of each
guarantee payment.
Four types of student loans are currently authorized under the Higher
Education Act:
o Subsidized Stafford Loans to students who demonstrate requisite
financial need;
o Unsubsidized Stafford Loans to students who either do not
demonstrate financial need or require additional loans to supplement
their Subsidized Stafford Loans;
o Parent Loans for Undergraduate Students, known as "PLUS Loans," to
parents of dependent students whose estimated costs of attending
school exceed other available financial aid; and
o Consolidation Loans, which consolidate into a single loan a
borrower's obligations under various federally authorized student
loan programs.
Before July 1, 1994, the Higher Education Act also authorized loans called
"Supplemental Loans to Students" or "SLS Loans" to independent students and,
under some circumstances, dependent undergraduate students, to supplement their
Subsidized Stafford Loans. The Unsubsidized Stafford Loan program replaced the
SLS program.
This appendix and the prospectus describe or summarize the material
provisions of the Higher Education Act, FFELP and related statutes and
regulations. They, however, are not complete and are qualified in their entirety
by reference to each actual statute and regulation. Both the Higher Education
Act and the related regulations have been the subject of extensive amendments.
Accordingly, we cannot predict whether future amendments or modifications might
materially change any of the programs described in this appendix or the statutes
and regulations that implement them.
Legislative Matters
FFELP is subject to comprehensive reauthorization every 6 years and to
frequent statutory and regulatory changes. The most recent reauthorization was
the Higher Education Amendments of 1998. Since the 1998 reauthorization, the
Higher Education Act was amended by the Ticket to Work and Work Incentives
Improvement Act of 1999, the Consolidated Appropriations Act of 2001 and Public
Law 107-139 in 2002.
A-1
In 1993 Congress created the William D. Ford Federal Direct Loan Program
("FDLP") pursuant to which Stafford, PLUS and Consolidation Loans may be funded
directly by the U.S. Department of Treasury as well as by private lenders under
FFELP.
The 1998 reauthorization extended the principal provisions of FFELP and
the FDLP to October 1, 2004. This legislation, as modified by the 1999 act,
lowered both the borrower interest rate on Stafford Loans to a formula based on
the 91-day Treasury bill rate plus 2.3 percent (1.7 percent during in-school and
grace periods) and the lender's rate after special allowance payments to the
91-day Treasury bill rate plus 2.8 percent (2.2 percent during in-school and
grace periods) for loans originated on or after October 1, 1998 and before July
1, 2003. The borrower interest rate on PLUS loans originated during this period
is equal to the 91-day Treasury bill rate plus 3.1 percent.
The 1999 act changed the financial index on which special allowance
payments are computed on new loans from the 91-day Treasury bill rate to the
three-month commercial paper rate (financial) for FFELP loans disbursed on or
after January 1, 2000 and before July 1, 2003. For these FFELP loans, the
special allowance payments to lenders are based upon the three-month commercial
paper (financial) rate plus 2.34 percent (1.74 percent during in-school and
grace periods). The 1999 act did not change the rate that the borrower pays on
FFELP loans.
The 2001 act changed the financial index on which the interest rate for
some borrowers of SLS and PLUS loans are computed. The index was changed from
the 1-year Treasury bill rate to the weekly average one-year constant maturity
Treasury yield. This change was effective beginning in July 2001.
Public Law 107-139 amended the Higher Education Act to (i) extend current
borrower interest rates for student or parent loans with a first disbursement
before July 1, 2006 and for consolidation loans with an application received by
the lender before July 1, 2006, (ii) establish fixed borrower interest rates on
student loans made on or after July 1, 2006 and (iii) extend the computation of
special allowance payments based on the three-month commercial paper (financial)
index.
Eligible Lenders, Students and Educational Institutions
Lenders eligible to make loans under FFELP generally include banks,
savings and loan associations, credit unions, pension funds and, under some
conditions, schools and guarantors. A student loan may be made to, or on behalf
of, a "qualified student." A "qualified student" is an individual who
o is a United States citizen, national or permanent resident;
o has been accepted for enrollment or is enrolled and is maintaining
satisfactory academic progress at a participating educational
institution;
o is carrying at least one-half of the normal full-time academic
workload for the course of study the student is pursuing; and
o meets the financial need requirements for the particular loan
program.
Eligible schools include institutions of higher education, including
proprietary institutions, meeting the standards provided in the Higher Education
Act. For a school to participate in the program, the Department of Education
must approve its eligibility under standards established by regulation.
Financial Need Analysis
Subject to program limits and conditions, student loans generally are made
in amounts sufficient to cover the student's estimated costs of attending
school, including tuition and fees, books, supplies, room and board,
transportation and miscellaneous personal expenses as determined by the
institution. Each Stafford Loan applicant (and parents in the case of a
dependent child) must undergo a financial need analysis. This requires the
applicant (and parents in the case of a dependent child) to submit financial
data to a federal processor. The federal processor evaluates the parents' and
student's financial condition under federal guidelines and calculates the amount
that the student and the family are expected to contribute towards the student's
cost of education. After receiving information on the family contribution, the
institution then subtracts the family contribution from the student's costs to
attend the institution to determine the student's need for financial aid. Some
of this need is met by grants,
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scholarships, institutional loans and work assistance. A student's "unmet need"
is further reduced by the amount of Stafford Loans for which the borrower is
eligible.
Special Allowance Payments
The Higher Education Act provides for quarterly special allowance payments
to be made by the Department of Education to holders of student loans to the
extent necessary to ensure that they receive at least specified market interest
rates of return. The rates for special allowance payments depend on formulas
that vary according to the type of loan, the date the loan was made and the type
of funds, tax-exempt or taxable, used to finance the loan. The Department makes
a special allowance payment for each calendar quarter, generally within 45 to 60
days after the receipt of a bill from the lender.
The special allowance payment equals the average unpaid principal balance,
including interest which has been capitalized, of all eligible loans held by a
holder during the quarterly period multiplied by the special allowance
percentage.
For student loans disbursed before January 1, 2000, the special allowance
percentage is computed by:
(1) determining the average of the bond equivalent rates of 91-day
Treasury bills auctioned for that quarter;
(2) subtracting the applicable borrower interest rate;
(3) adding the applicable special allowance margin described in the
table below; and
(4) dividing the resultant percentage by 4.
If the result is negative, the special allowance payment is zero.
Date of First Disbursement Special Allowance Margin
- -------------------------------- -------------------------------------------
Before 10/17/86.................. 3.50%
From 10/17/86 through 09/30/92... 3.25%
From 10/01/92 through 06/30/95... 3.10%
From 07/01/95 through 06/30/98... 2.50% for Stafford Loans that are in
In-School, Grace or Deferment
3.10% for Stafford Loans that are in
Repayment and all other loans
From 07/01/98 through 12/31/99... 2.20% for Stafford Loans that are in
In-School, Grace or Deferment
2.80% for Stafford Loans that are in
Repayment
3.10% for PLUS, SLS and Consolidation Loans
For student loans disbursed after January 1, 2000, the special allowance
percentage is computed by:
(1) determining the average of the bond equivalent rates of 3-month
commercial paper (financial) rates quoted for that quarter;
(2) subtracting the applicable borrower interest rate;
(3) adding the applicable special allowance margin described in the
table below; and
(4) dividing the resultant percentage by 4.
If the result is negative, the special allowance payment is zero.
Date of First Disbursement Special Allowance Margin
- ----------------------------- ------------------------------------------------
From 01/01/00............... 1.74% for Stafford Loans that are in In-School,
Grace or Deferment
2.34% for Stafford Loans that are in Repayment
2.64% for PLUS and Consolidation Loans
Special allowance payments are available on variable rate PLUS Loans and
SLS Loans made on or after July 1, 1987 and before July 1, 1994 and on any PLUS
Loans made on or after July 1, 1998, only if the variable rate, which is reset
annually, based on the weekly average one-year constant maturity Treasury yield
for loans made before July 1, 1998 and based on the 91-day or 52-week Treasury
bill, as applicable, for loans made on or after July 1, 1998, exceeds the
applicable maximum borrower rate. The maximum borrower rate is between 9 percent
and 12 percent.
A-3
Stafford Loan Program
For Stafford Loans, the Higher Education Act provides for:
o federal insurance or reinsurance of Stafford Loans made by eligible
lenders to qualified students;
o federal interest subsidy payments on Subsidized Stafford Loans paid
by the Department of Education to holders of the loans in lieu of
the borrowers' making interest payments; and
o special allowance payments representing an additional subsidy paid
by the Department to the holders of eligible Stafford Loans.
We refer to all three types of assistance as "federal assistance".
Interest. The borrower's interest rate on a Stafford Loan can be fixed or
variable. Stafford Loan interest rates are presented below.
Trigger Date Borrower Rate Maximum Borrower Rate Interest Rate Margin
- ---------------------------------------- ------------------------------- --------------------- -----------------------------
Before 10/01/81......................... 7% N/A N/A
From 01/01/81 through 09/12/83.......... 9% N/A N/A
From 09/13/83 through 06/30/88.......... 8% N/A N/A
From 07/01/88 through 09/30/92.......... 8% for 48 months; thereafter, 8% for 48 months, 3.25% for loans made before
91-day Treasury + Interest Rate then 10% 7/23/92 and for loans made on
Margin or before 10/1/92 to new
student borrowers;
3.10% for loans made after
7/23/92 and before 7/1/94 to
borrowers with outstanding
FFELP loans
From 10/01/92 through 06/30/94.......... 91-day Treasury + Interest 9% 3.10%
Rate Margin
From 07/01/94 through 06/30/95.......... 91-day Treasury + Interest 8.25% 3.10%
Rate Margin
From 07/01/95 through 06/30/98.......... 91-day Treasury + Interest 8.25% 2.50% (In-School, Grace or
Margin Rate Deferment); 3.10% (Repayment)
From 07/01/98 through 06/30/06.......... 91-day Treasury + Interest 8.25% 1.70% (In-School, Grace or
Rate Margin Deferment); 2.30% (Repayment)
From 07/01/06........................... 6.8% N/A N/A
The rate for variable rate Stafford Loans applicable for any 12-month
period beginning on July 1 and ending on June 30 is determined on the preceding
June 1 and is equal to the lesser of:
o the applicable maximum borrower rate
and
o the sum of
o the bond equivalent rate of 91-day Treasury bills auctioned at the
final auction held before that June 1,
and
o the applicable interest rate margin.
Under current law, Stafford Loans will revert to a fixed annual interest
rate of 7.9% on July 1, 2006.
A-4
Interest Subsidy Payments. The Department of Education is responsible for
paying interest on Subsidized Stafford Loans:
o while the borrower is a qualified student,
o during the grace period, and
o during prescribed deferral periods.
The Department of Education makes quarterly interest subsidy payments to
the owner of a Subsidized Stafford Loan in an amount equal to the interest that
accrues on the unpaid balance of that loan before repayment begins or during any
deferral periods. The Higher Education Act provides that the owner of an
eligible Subsidized Stafford Loan has a contractual right against the United
States to receive interest subsidy and special allowance payments. However,
receipt of interest subsidy and special allowance payments is conditioned on
compliance with the requirements of the Higher Education Act, including the
following:
o satisfaction of need criteria, and
o continued eligibility of the loan for federal insurance or
reinsurance.
If the loan is not held by an eligible lender in accordance with the
requirements of the Higher Education Act and the applicable guarantee agreement,
the loan may lose its eligibility for federal assistance.
Lenders generally receive interest subsidy payments within 45 days to 60
days after the submission of the applicable data for any given calendar quarter
to the Department of Education. However, there can be no assurance that payments
will, in fact, be received from the Department within that period.
Loan Limits. The Higher Education Act generally requires that lenders
disburse student loans in at least two equal disbursements. The Act limits the
amount a student can borrow in any academic year. The following chart shows
current and historic loan limits.
Dependent Students Independent Students
------------------- --------------------------------
Subsidized and Additional Maximum
Unsubsidized on or Unsubsidized only Annual Total
Borrower's Academic Level after 10/1/93 on or after 7/1/94 Amount
- ----------------------------------------------------------- ------------------- ------------------ ------------
Undergraduate (per year):
1st year ............................................... $ 2,625 $ 4,000 $ 6,625
2nd year ............................................... $ 3,500 $ 4,000 $ 7,500
3rd year and above ..................................... $ 5,500 $ 5,000 $ 10,500
Graduate (per year) ....................................... $ 8,500 $ 10,000 $ 18,500
Aggregate Limit:
Undergraduate .......................................... $ 23,000 $ 23,000 $ 46,000
Graduate (including undergraduate) ..................... $ 65,500 $ 73,000 $ 138,500
For the purposes of the table above:
o The loan limits include both FFELP and FDLP loans.
o The amounts in the final column represent the combined maximum loan
amount per year for Subsidized and Unsubsidized Stafford Loans.
Accordingly, the maximum amount that a student may borrow under an
Unsubsidized Stafford Loan is the difference between the combined
maximum loan amount and the amount the student received in the form
of a Subsidized Stafford Loan.
o Independent undergraduate students, graduate students and
professional students may borrow the additional amounts shown in the
middle column. Dependent undergraduate students may also receive
these additional loan amounts if their parents are unable to provide
the family contribution amount and they cannot qualify for a PLUS
Loan.
o Students attending certain medical schools are eligible for $38,500
annually and $189,000 in the aggregate.
A-5
o The annual loan limits are sometimes reduced when the student is
enrolled in a program of less than one academic year or has less
than a full academic year remaining in his program.
Repayment. Repayment of principal on a Stafford Loan does not begin while
the borrower remains a qualified student, but only after a 6-month grace period.
In general, each loan must be scheduled for repayment over a period of not more
than 10 years after repayment begins. New borrowers on or after October 7, 1998
who accumulate outstanding loans under FFELP totaling more than $30,000 are
entitled to extend repayment for up to 25 years, subject to minimum repayment
amounts, and Consolidation Loan borrowers may be scheduled for repayment up to
30 years depending on the borrower's indebtedness. The Higher Education Act
currently requires minimum annual payments of $600, unless the borrower and the
lender agree to lower payments, except that negative amortization is not
allowed. The Act and related regulations require lenders to offer a choice among
standard, graduated, income-sensitive and extended repayment schedules, if
applicable, to all borrowers entering repayment.
Grace Periods, Deferral Periods and Forbearance Periods. After the
borrower stops pursuing at least a half-time course of study, he generally must
begin to repay principal of a Stafford Loan following the grace period. However,
no principal repayments need be made, subject to some conditions, during
deferment and forbearance periods.
For borrowers whose first loans are disbursed on or after July 1, 1993,
repayment of principal may be deferred:
o while the borrower returns to school at least half-time or is
enrolled in an approved graduate fellowship program or
rehabilitation program;
o when the borrower is seeking, but unable to find, full-time
employment, subject to a maximum deferment of 3 years; or
o when the lender determines that repayment will cause the borrower
"economic hardship", as defined in the Act, subject to a maximum
deferment of 3 years.
Interest that accrues during a deferment is paid by the Department of
Education for Subsidized Stafford Loans or deferred and capitalized for
Unsubsidized Stafford Loans.
The Higher Education Act also permits, and in some cases requires,
"forbearance" periods from loan collection in some circumstances. Interest that
accrues during a forbearance period is never subsidized.
PLUS and SLS Loan Programs
The Higher Education Act authorizes PLUS Loans to be made to parents of
eligible dependent students and previously authorized SLS Loans to be made to
the categories of students now served by the Unsubsidized Stafford Loan program.
Only parents who have no adverse credit history or who are able to secure an
endorser without an adverse credit history are eligible for PLUS Loans. The
basic provisions applicable to PLUS and SLS Loans are similar to those of
Stafford Loans for federal insurance and reinsurance. However, interest subsidy
payments are not available under the PLUS and SLS programs and, in some
instances, special allowance payments are more restricted.
Loan Limits. PLUS and SLS Loans disbursed before July 1, 1993 were limited
to $4,000 per academic year with a maximum aggregate amount of $20,000. The
annual loan limits for SLS Loans disbursed on or after July 1, 1993 range from
$4,000 for first and second year undergraduate borrowers to $10,000 for graduate
borrowers, with a maximum aggregate amount of $23,000 for undergraduate
borrowers and $73,000 for graduate and professional borrowers.
The annual and aggregate amounts of PLUS Loans first disbursed on or after
July 1, 1993 are limited only to the difference between the cost of the
student's education and other financial aid received, including scholarship,
grants and other student loans.
Interest. The interest rates for PLUS Loans and SLS Loans are presented in
the chart below.
A-6
For PLUS or SLS Loans that bear interest based on a variable rate, the
rate is set annually for 12-month periods, from July 1 through June 30, on the
preceding June 1 and is equal to the lesser of:
o the applicable maximum borrower rate
and
o the sum of:
(1) the 1-year index or the bond equivalent rate of 91-day or
52-week Treasury bills, as applicable,
and
(2) the applicable interest rate margin.
Under current law, PLUS Loans will return to a fixed annual interest rate
of 7.9% on July 1, 2006.
Until July 1, 2001, the 1-year index was the bond equivalent rate of
52-week Treasury bills auctioned at the final auction held prior to each June 1.
Beginning July 1, 2001, the 1-year index is the weekly average 1-year constant
maturity Treasury, as published by the Board of Governors of the Federal Reserve
System, for the last calendar week ending on or before the June 26 immediately
preceding the July 1 reset date.
Maximum Borrower Interest Rate
Trigger Date Borrower Rate Rate Margin
- ---------------------------------------- -------------------------------------- ---------------- -------------
Before 10/01/81......................... 9% N/A N/A
From 10/01/81 through 10/30/82.......... 14% N/A N/A
From 11/01/82 through 06/30/87.......... 12% N/A N/A
From 07/01/87 through 09/30/92.......... 1-year Index + Interest Rate Margin 12% 3.25%
From 10/01/92 through 06/30/94.......... 1-year Index + Interest Rate Margin PLUS 10%, SLS 11% 3.10%
From 07/01/94 through 06/30/98.......... 1-year Index + Interest Rate Margin 9% 3.10%
From 07/01/98........................... 91-day Treasury + Interest Rate Margin 9% 3.10%
A holder of a PLUS or SLS Loan is eligible to receive special allowance
payments during any quarter if:
o the borrower rate is set at the maximum borrower rate and
o the sum of the average of the bond equivalent rates of 91-day or
52-week Treasury bills auctioned during that quarter and the
applicable interest rate margin exceeds the maximum borrower rate.
Repayment; Deferments. Borrowers begin to repay principal on their PLUS
and SLS Loans no later than 60 days after the final disbursement, subject to
deferment and forbearance provisions. Borrowers may defer and capitalize
repayment of interest during periods of educational enrollment, unemployment and
economic hardship, as defined in the Act. Maximum loan repayment periods and
minimum payment amounts for PLUS and SLS Loans are the same as those for
Stafford Loans.
Consolidation Loan Program
The Higher Education Act also authorizes a program under which borrowers
may consolidate one or more of their student loans into a single Consolidation
Loan that is insured and reinsured on a basis similar to Stafford, PLUS and SLS
Loans. Consolidation Loans are made in an amount sufficient to pay outstanding
principal, unpaid interest, late charges and collection costs on all federally
insured and reinsured student loans incurred under FFELP or FDLP that the
borrower selects for consolidation, as well as loans made under various other
federal student loan programs and loans made by different lenders. Under this
program, a lender may make a Consolidation Loan to an eligible borrower who
requests it so long as the lender holds all of the outstanding FFELP loans of
the borrower, the borrower has multiple holders of his outstanding student
loans, or his holder does not make Consolidation Loans. Under certain
circumstances, a FFELP borrower may obtain a Consolidation Loan under the FDLP
Consolidation Loans made on or after July 1, 1994 have no minimum loan
amount. Consolidation Loans for which an application was received on or after
January 1, 1993 but before July 1, 1994 were available only to borrowers who had
aggregate outstanding student loan balances of at least $7,500. For applications
received before January 1, 1993, Consolidation Loans were available only to
borrowers who had aggregate outstanding student loan balances of at least
$5,000.
A-7
To obtain a FFELP Consolidation Loan, the borrower must be either in
repayment status or in a grace period before repayment begins. For applications
received on or after January 1, 1993, delinquent or defaulted borrowers are
eligible to obtain Consolidation Loans if they re-enter repayment through loan
consolidation. Since January 1, 1993, married couples who agree to be jointly
and severally liable may apply for one Consolidation Loan.
Consolidation Loans bear interest at a fixed rate equal to the greater of
the weighted average of the interest rates on the unpaid principal balances of
the consolidated loans and 9 percent for loans originated before July 1, 1994.
For Consolidation Loans made on or after July 1, 1994 and for which applications
were received before November 13, 1997, the weighted average interest rate is
rounded up to the nearest whole percent. Consolidation Loans made on or after
July 1, 1994 for which applications were received on or after November 13, 1997
through September 30, 1998 bear interest at the annual variable rate applicable
to Stafford Loans subject to a cap of 8.25 percent. Consolidation Loans for
which the application is received on or after October 1, 1998 bear interest at a
fixed rate equal to the lesser of (i) the weighted average interest rate of the
loans being consolidated rounded up to the nearest one-eighth of one percent or
(ii) 8.25 percent.
The 1998 reauthorization maintained interest rates for borrowers of
Federal Direct Consolidation Loans whose applications were received prior to
February 1, 1999 at 7.46 percent, which rates are adjusted annually based on a
formula equal to the 91-day Treasury bill rate plus 2.3 percent. The borrower
interest rates on Federal Direct Consolidation Loans for borrowers whose
applications were received on or after February 1, 1999 and before July 1, 2006
is a fixed rate equal to the lesser of the weighted average of the interest
rates of the loans consolidated, adjusted up to the nearest one-eighth of one
percent, and 8.25 percent. This is the same rate that the 1998 legislation set
on FFELP Consolidation Loans for borrowers whose applications are received on or
after October 1, 1998 and before July 1, 2006. The 1998 legislation, as modified
by the 1999 act and in 2002, set the special allowance payment rate for FFELP
Consolidation Loans at the three-month commercial paper rate plus 2.64 percent
for loans disbursed on or after January 1, 2000 and before July 1, 2006. Lenders
of FFELP Consolidation Loans pay a reinsurance fee to the Department of
Education. All other guarantee fees may be passed on to the borrower.
Interest on Consolidation Loans accrues and, for applications received
before January 1,1993, is paid without interest subsidy by the Department. For
Consolidation Loans for which applications were received between January 1, 1993
and August 10, 1993, all interest of the borrower is paid during all deferral
periods. Consolidation Loans for which applications were received on or after
August 10, 1993 are subsidized only if all of the underlying loans being
consolidated were Subsidized Stafford Loans. In the case of Consolidation Loans
made on or after November 13, 1997, the portion of a Consolidation Loan that is
comprised of Subsidized Stafford Loans retains subsidy benefits during deferral
periods.
No insurance premium or origination fee is charged to a borrower or a
lender in connection with a Consolidation Loan. However, FFELP lenders must pay
a monthly rebate fee to the Department at an annualized rate of 1.05 percent on
principal of and interest on Consolidation Loans disbursed on or after October
1, 1993, or at an annualized rate of 0.62 percent for Consolidation Loan
applications received between October 1, 1998 and January 31, 1999. The rate for
special allowance payments for Consolidation Loans is determined in the same
manner as for other FFELP loans.
A borrower must begin to repay his Consolidation Loan within 60 days after
his consolidated loans have been discharged. For applications received on or
after January 1, 1993, repayment schedule options include graduated or
income-sensitive repayment plans. Loans are repaid over periods determined by
the sum of the Consolidation Loan and the amount of the borrower's other
eligible student loans outstanding. The lender may, at its option, include
graduated and income-sensitive repayment plans in connection with student loans
for which the applications were received before that date. The maximum maturity
schedule is 30 years for indebtedness of $60,000 or more.
Guarantee Agencies under FFELP
Under FFELP, guarantee agencies guarantee loans made by eligible lending
institutions. Student loans are guaranteed as to 100% of principal and accrued
interest against death or discharge. The guarantor also pays 100% of the unpaid
principal and accrued interest on PLUS Loans, where the student on whose behalf
the loan was borrowed dies. Guarantee agencies also guarantee lenders against
default. For loans that were made before October 1, 1993, lenders are insured
for 100% of the principal and unpaid accrued interest. Since October 1, 1993,
lenders are insured for at least 98% of principal and accrued interest. All
eligible FFELP default claims filed for reimbursement on loans serviced by SLC
after December 31, 2003 receive 100% reimbursement as a result of SLC's
designation as an Exceptional Performer by the Department of Education in
recognition of its exceptional
A-8
level of performance in servicing FFELP loans. However, this 100% reimbursement
rate could be reduced as a result of a variety of factors, including changes in
FFELP or in SLC's servicing performance.
The Secretary of Education reinsures guarantors for amounts paid to
lenders on loans that are discharged or defaulted. The reimbursement rate on
discharged loans is for 100% of the amount paid to the holder. The reimbursement
rate for defaulted loans decreases as a guarantor's default rate increases. The
first trigger for a lower reinsurance rate is when the amount of defaulted loan
reimbursements exceeds 5% of the amount of all loans guaranteed by the agency in
repayment status at the beginning of the federal fiscal year. The second trigger
is when the amount of defaults exceeds 9% of the loans in repayment. Guarantee
agency reinsurance rates are presented in the table below.
Claims Paid Date Maximum 5% Trigger 9% Trigger
- --------------------------------------------- --------- ------------ ------------
Before October 1, 1993....................... 100% 90% 80%
October 1, 1993 - September 30, 1998......... 98% 88% 78%
On or after October 1, 1998.................. 95% 85% 75%
After the Secretary reimburses a guarantor for a default claim, the
guarantor attempts to seek repayment of the loan from the borrower. However, the
Secretary requires that the defaulted guaranteed loans be assigned to the
Department of Education when the guarantor is not successful. A guarantor also
refers defaulted guaranteed loans to the Secretary to "offset" any federal
income tax refunds or other federal reimbursement that may be due the borrowers.
Some states have similar offset programs.
To be eligible for federal reinsurance, guaranteed loans must be made by
an eligible lender and meet the requirements of the Higher Education Act and the
regulations issued thereunder. Generally, these regulations require that lenders
determine whether the applicant is an eligible borrower attending an eligible
institution, explain to borrowers their responsibilities under the loan, ensure
that the promissory notes evidencing the loan are executed by the borrower, and
disburse the loan proceeds as required. After the loan is made, the lender must
establish repayment terms with the borrower, properly administer deferrals and
forbearances and credit the borrower for payments made. If a borrower becomes
delinquent in repaying a loan, a lender must perform collection procedures that
vary depending upon the length of time a loan is delinquent. The collection
procedures consist of telephone calls, demand letters, skiptracing procedures
and requesting assistance from the guarantor.
A lender may submit a default claim to the guarantor after the related
student loan has been delinquent for at least 270 days. The guarantor must
review and pay the claim within 90 days after the lender filed it. The guarantor
will pay the lender interest accrued on the loan for up to 450 days after
delinquency. The guarantor must file a reimbursement claim with the Secretary
within 45 days after the guarantor paid the lender for the default claim.
Student Loan Discharges
FFELP Loans are not generally dischargeable in bankruptcy. Under the
United States Bankruptcy Code, before a student loan may be discharged, the
borrower must demonstrate that repaying it would cause the borrower or his
family undue hardship. When a FFELP borrower files for bankruptcy, collection of
the loan is suspended during the time of the proceeding. If the borrower files
under the "wage earner" provisions of the Bankruptcy Code or files a petition
for discharge on the grounds of undue hardship, the lender transfers the loan to
the guarantee agency which then participates in the bankruptcy proceeding.
When the proceeding is complete, unless there was a finding of undue
hardship, the loan is transferred back to the lender and collection resumes.
Student loans are discharged if the borrower becomes totally and
permanently disabled. A physician must certify eligibility for discharge. This
discharge is conditional for the first three years; if a borrower recovers
sufficiently during that period to earn a reasonable income, the borrower must
resume repayment.
If a school closes while a student is enrolled, or within 90 days after
the student withdrew, loans made for that enrollment period are discharged. If a
school falsely certifies that a borrower is eligible for the loan, the loan may
be discharged. Moreover, if a school fails to make a refund to which a student
is entitled, the loan is discharged to the extent of the unpaid refund.
A-9
Rehabilitation of Defaulted Loans
The Secretary of Education is authorized to enter into agreements with the
guarantor under which the guarantor may sell defaulted loans that are eligible
for rehabilitation to an eligible lender. For a loan to be eligible for
rehabilitation, the guarantor must have received reasonable and affordable
payments for 12 months, and then the borrower may request that the loan be sold.
Because monthly payments are usually greater after rehabilitation, not all
borrowers opt for rehabilitation. Upon rehabilitation, a loan is eligible for
all the benefits under the Higher Education Act for which it would have been
eligible had no default occurred and the negative credit record is expunged. No
student loan may be rehabilitated more than once.
Guarantor Funding
In addition to providing the primary guarantee on FFELP loans, guarantee
agencies are charged, under the Higher Education Act, with responsibility for
maintaining records on all loans on which they have issued a guarantee ("account
maintenance"), assisting lenders to prevent default by delinquent borrowers
("default aversion"), post-default loan administration and collections and
program awareness and oversight. These activities are funded by revenues from
the following statutorily prescribed sources plus earnings on investments.
Source Basis
- --------------------------------------- ---------------------------------------
Insurance Premium...................... Up to 1% of the principal amount
guaranteed, withheld from the proceeds
of each loan disbursement
Loan Processing and Origination Fee.... 0.40% of the principal amount
guaranteed, paid by the Department of
Education
Account Maintenance Fee................ 0.10% of the original principal amount
of loans outstanding, paid by the
Department of Education
Default Aversion Fee................... 1% of the outstanding amount of loans
that were reported delinquent but did
not default within 300 days thereafter,
paid by transfers out of the Student
Loan Reserve Fund
Collection Retention Fee............... 23% of the amount collected on loans
on which reinsurance has been paid
(18.5% of the amount collected for a
defaulted loan that is purchased by a
lender for rehabilitation or
consolidation), withheld from gross
receipts
The Act requires guarantee agencies to establish two funds: a Student Loan
Reserve Fund and an Agency Operating Fund. The Student Loan Reserve Fund
contains the reinsurance payments received from the Department, Insurance
Premiums and the Collection Retention Fee. The fund is federal property and its
assets may be used only to pay insurance claims and to pay Default Aversion
Fees. The Agency Operating Fund is the guarantor's property and is not subject
to strict limitations on its use.
Department of Education Oversight
The Secretary of Education has oversight powers over guarantors. If the
Department of Education determines that a guarantor is unable to meet its
insurance obligations, the holders of loans guaranteed by that guarantor may
submit claims directly to the Department. The Department is required to pay the
full guarantee payments due in accordance with guarantee claim processing
standards no more stringent than those applied by the terminated guarantor.
However, the Department's obligation to pay guarantee claims directly in this
fashion is contingent upon its making the determination referred to above.
A-10
APPENDIX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in some limited circumstances, the securities offered under the
related prospectus supplement will be available only in book-entry form as
"Global Securities". Investors in the Global Securities may hold them through
DTC or, if applicable, Clearstream or Euroclear. The Global Securities are
tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades (other than with respect to
a reset date as described under "Certain Information Regarding the Notes--Book
Entry Registration" in this prospectus) will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Clear-stream and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice.
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
participants holding Securities will be effected on a delivery-against-payment
basis through the depositaries of Clearstream and Euroclear and as participants
in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that the holders meet specific requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
Initial Settlement
All U.S. Dollar denominated Global Securities will be held in book-entry
form by DTC in the name of Cede & Co., as nominee of DTC. Investors' interests
in the U.S. Dollar denominated Global Securities will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Clearstream and Euroclear will hold positions
in the U.S. Dollar denominated Global Securities on behalf of their participants
through their respective depositaries, which in turn will hold positions in
accounts as participants of DTC.
All non-U.S. Dollar denominated Global Securities will be held in
book-entry form by Deutsche Bank AG London as common depositary for Clearstream
and Euroclear in the name of a nominee selected by the common depository for
Clearstream and Euroclear. Investors' interests in the non-U.S. Dollar
denominated Global Securities will be represented through financial institutions
acting on their behalf as direct and indirect participants in Clearstream or
Euroclear. As a result, DTC will hold positions in the non-U.S. Dollar
denominated Global Securities on behalf of its participants through its
depositaries, which in turn will hold positions in accounts as participants of
Clearstream or Euroclear.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchase determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and the
depositor's accounts are located to ensure that settlement can be made on the
desired value date.
B-1
Trading on a Reset Date. Secondary market trading on a reset date will be
settled as described under "Certain Information Regarding the Notes--Book Entry
Registration" in this prospectus.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt issues in same-day funds.
Trading between Clearstream and/or Euroclear participants. Secondary
market trading between Clearstream participants and/or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a Clearstream participant or a Euroclear participant, the
purchaser will send instructions to Clearstream or Euroclear through a
participant at least one business day before settlement. Clearstream or
Euroclear will instruct the applicable depositary to receive the Global
Securities against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by the respective depositary to the
DTC participant's account against delivery of the Global Securities.
Securities. After settlement has been completed, the Global Securities
will be credited to the applicable clearing system and by the clearing system,
in accordance with its usual procedures, to the Clearstream participant's or
Euroclear participant's account. The Global Securities credit will appear the
next day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date, which would
be the preceding day when settlement occurred in New York. If settlement is not
completed on the intended value date so that the trade fails, the Clearstream or
Euroclear cash debit will be valued instead as of the actual settlement date.
Clearstream participants and Euroclear participants will need to make
available to the clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Clearstream or Euroclear. Under this
approach, they may take on credit exposure to Clearstream or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, participants can elect not to preposition funds and allow that
credit line to be drawn upon to finance settlement. Under this procedure,
Clearstream participants or Euroclear participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Global Securities were credited to their accounts. However, interest on
the Global Securities would accrue from the value date. Therefore, in many cases
the investment income on the Global Securities earned during that one-day period
may substantially reduce or offset the amount of the overdraft charges, although
this result will depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities to
the applicable depositary for the benefit of Clearstream participants or
Euroclear participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC participant a cross-market transaction
will settle no differently than a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream and Euroclear participants may
employ their customary procedures for transactions in which Global Securities
are to be transferred by the respective clearing system, through the respective
depositary, to a DTC participant. The depositor will send instructions to
Clearstream or Euroclear through a participant at least one business day before
settlement. In this case, Clearstream or Euroclear will instruct the applicable
depositary to deliver the securities to the DTC participant's account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Clearstream participant or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream or Euroclear participant's account would be back-valued to the value
date, which would be the preceding day, when settlement occurred in New York.
Should the Clearstream or Euroclear participant have a line of credit with its
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date so that the trade fails, receipt of the cash proceeds in the
Clearstream or Euroclear participant's account would instead be valued as of the
actual settlement date.
B-2
Finally, day traders that use Clearstream or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Clearstream participants
or Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
o borrowing through Clearstream or Euroclear for one day until the
purchase side of the day trade is reflected in their Clearstream or
Euroclear accounts, in accordance with the clearing system's
customary procedures;
o borrowing the Global Securities in the U.S. from a DTC participant
no later than one day before settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream or
Euroclear account in order to settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is
at least one day before the value date for the sale to the
Clearstream participant or Euroclear participant.
B-3
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Securities may be subject to U.S. withholding tax
(currently at 30%) or U.S. backup withholding tax (currently at 28%), as
appropriate, on payments of interest, including original issue discount, on
registered debt issued by U.S. persons, unless:
o each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or
business in the chain of intermediaries between the beneficial owner
and the U.S. entity required to withhold tax complies with
applicable certification requirements, and
o that holder takes one of the following steps to obtain an exemption
or reduced tax rate:
1. Exemption for non-U.S. person--Form W-8BEN. Non-U.S. persons that are
beneficial owners can obtain a complete exemption from the withholding tax by
filing a signed Form W-8BEN (Certificate of Foreign Status of Beneficial Owner
for United States Tax Withholding).
If the information shown on Form W-8BEN changes, a new Form W-8BEN must be
filed within 30 days of the change.
2. Exemption for non-U.S. persons with effectively connected income--Form
W-8ECI. A non-U.S. person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Certificate of Foreign Person's Claim for
Exemption From Withholding on Income Effectively Connected With the Conduct of a
Trade or Business in the United States).
3. or reduced rate for non-U.S. persons resident in treaty countries--Form
W-8BEN. Non-U.S. persons that are beneficial owners residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate, depending on the treaty terms, by filing Form W-8BEN.
4. Exemption for U.S. persons--Form W-9. U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global Securityholder or
his agent files by submitting the appropriate form to the person through which
he holds. This is the clearing agency, in the case of persons holding directly
on the books of the clearing agency. Form W-8BEN and Form W-8ECI are generally
effective from the date the form is signed to the last day of the third
succeeding calendar year.
For these purposes, a U.S. person is:
o a citizen or individual resident of the United States,
o a corporation or partnership (including an entity treated as such)
organized in or under the laws of the United States or any state
thereof or the District of Columbia,
o an estate the income of which is includible in gross income for U.S.
federal income tax purposes, regardless of its source, or
o a trust whose administration is subject to the primary supervision
of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions
of the trust.
To the extent provided in Treasury regulations, however, some trusts in
existence on August 20, 1996, and treated as U.S. persons before that date, that
elect to continue to be treated as U.S. persons, will be U.S. persons and not
foreign persons.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
B-4
[outside back cover page]
$_______________
SLC Student Loan Trust 200_-_
Issuer
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Seller, Servicer and Administrator
Student Loan Asset-Backed Notes
---------------------------------------------
P R O S P E C T U S S U P P L E M E N T
---------------------------------------------
[UNDERWRITER]
_______,200_
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering notes in any state where the offer is not permitted.
We represent the accuracy of the information in this prospectus supplement
and prospectus only as of the dates of their respective covers.
Until _________ __, 200_, all dealers that effect transactions in the
notes, whether or not participating in this offering, may be required to deliver
a prospectus supplement and prospectus. This is in addition to the dealers'
obligation to deliver a prospectus supplement and prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
[end of outside back cover page]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant,
other than the underwriting discounts and commissions, in connection with the
issuance and distribution of the notes offered hereunder.*
SEC registration fee.................... $______
Accounting fees and expenses............ ______
Legal fees and expenses................. ______
Printing costs.......................... ______
Trustee's fees.......................... ______
Rating Agency fees...................... ______
Miscellaneous........................... ______
Total............................ $______
- ------------
* Estimates based on the offering of a single series of securities offered
in the aggregate principal amount of $______.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of the depositor's charter provides for the indemnification of
directors or officers, in accordance with the by-laws, to the fullest extent
permitted by the General Corporation Law of the State of Delaware. Article X of
the by-laws of the depositor provides that the depositor shall indemnify and
hold harmless, to the fullest extent permitted by law, any person made or
threatened to be made a party to any legal action by reason of the fact that
such person is or was a director, officer, employee or other corporate agent of
the depositor or any subsidiary or constituent corporation or served any other
enterprise at the request of the depositor against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action. The General Corporation Law of the State of
Delaware provides for the indemnification of directors and officers under
certain conditions.
ITEM 16. EXHIBITS.
The following is a complete list of exhibits filed as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601 of Regulation S-K.
Exhibit
No. Description
3.1 --Articles of Incorporation of SLC Student Loan Receivables I, Inc.
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-3 filed by the registrant on December 26, 2001)
3.2 --By-Laws of SLC Student Loan Receivables I, Inc. (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form S-3
filed by the registrant on December 26, 2001)
4.1 --Form of Indenture
4.2 --Form of Short-Form Trust Agreement
4.3 --Form of Amended and Restated Trust Agreement
4.4 --Form of Eligible Lender Trust Agreement (Depositor)
4.5 --Form of Eligible Lender Trust Agreement (Issuer)
5.1 --Opinion of Cadwalader, Wickersham & Taft LLP with respect to legality
8.1 --Opinion of Cadwalader, Wickersham & Taft LLP with respect to tax
matters
23.1 --Consent of Cadwalader, Wickersham & Taft LLP (included as part of
Exhibit 5.1)
23.2 --Consent of Cadwalader, Wickersham & Taft LLP (included as part of
Exhibit 8.1)
25.1 --Statement of Eligibility of Wachovia Bank, National Association, as
Trustee on Form T-1
99.1 --Form of Master Terms Purchase Agreement
II-1
99.2 --Form of Master Terms Sale Agreement
99.3 --Form of Servicing Agreement
99.4 --Form of Sub-Servicing Agreement
99.5 --Form of Administration Agreement
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions in Item 15, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act or
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(l) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering hereof.
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), in accordance with the rules and regulations
prescribed by the Commission under Section 305 (b)(2) of the Trust Indenture
Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, reasonably believes that the
security rating requirement contained in Transaction Requirement B.5. of Form
S-3 will be met by the time of the sale of the securities registered hereunder
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on August 10, 2004.
SLC STUDENT LOAN RECEIVABLES I, INC.,
as Registrant
By: /s/ Michael J. Reardon
--------------------------------------
Michael J. Reardon
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael J. Reardon Chief Executive Officer August 10, 2004
- -------------------------------- and Director
Name: Michael J. Reardon (Principal Executive Officer)
/s/ Daniel McHugh Chief Financial Officer August 10, 2004
- -------------------------------- and Director
Name: Daniel McHugh (Principal Financial and
Accounting Officer)
/s/ Catherine A. Birch Director August 10, 2004
- --------------------------------
Name: Catherine A. Birch
EXHIBIT INDEX
Exhibit
No. Description
3.1 --Articles of Incorporation of SLC Student Loan Receivables I, Inc.
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-3 filed by the registrant on December 26, 2001)
3.2 --By-Laws of SLC Student Loan Receivables I, Inc. (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form S-3
filed by the registrant on December 26, 2001)
4.1 --Form of Indenture
4.2 --Form of Short-Form Trust Agreement
4.3 --Form of Amended and Restated Trust Agreement
4.4 --Form of Eligible Lender Trust Agreement (Depositor)
4.5 --Form of Eligible Lender Trust Agreement (Issuer)
5.1 --Opinion of Cadwalader, Wickersham & Taft LLP with respect to legality
8.1 --Opinion of Cadwalader, Wickersham & Taft LLP with respect to tax
matters
23.1 --Consent of Cadwalader, Wickersham & Taft LLP (included as part of
Exhibit 5.1)
23.2 --Consent of Cadwalader, Wickersham & Taft LLP (included as part of
Exhibit 8.1)
25.1 --Statement of Eligibility of Wachovia Bank, National Association, as
Trustee on Form T-1
99.1 --Form of Master Terms Purchase Agreement
99.2 --Form of Master Terms Sale Agreement
99.3 --Form of Servicing Agreement
99.4 --Form of Sub-Servicing Agreement
99.5 --Form of Administration Agreement