As filed with the Securities and Exchange Commission on August 25, 2005
Registration No. 333-127510
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
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)
-----------
COPIES TO:
Malcolm P. Wattman, Esq. Richard L. Fried, Esq.
Cadwalader, Wickersham & Taft LLP Stroock & Stroock & Lavan LLP
1 World Financial Center 180 Maiden Lane
New York, New York 10281 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. [ ]
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.
I-2
Prospectus Supplement to Prospectus dated ______________, 20__
$______________
SLC Student Loan Trust ____-__
Issuer
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Seller, Servicer and Administrator
Student Loan Asset-Backed Notes
On or about ________, 20__, the trust will issue the following classes of notes:
Original
Principal Price to Underwriting Proceeds to
Class Amount Interest Rate Maturity Public Discount the Depositor
- --------------- ------------ -------------------------- ----------------- --------- ------------ -------------
A-1 Notes $___________ [3-month LIBOR plus ____%] ___________, 20__ 100% ____% _____%
A-2 Notes $___________ [3-month LIBOR plus ____%] ___________, 20__ 100% ____% _____%
A-3 Notes $___________ [3-month LIBOR plus ____%] ___________, 20__ 100% ____% _____%
A-4 Notes $___________ [3-month LIBOR plus ____%] ___________, 20__ 100% ____% _____%
A-5 Notes $___________ [3-month LIBOR plus ____%] ___________, 20__ 100% ____% _____%
B Notes $___________ [3-month LIBOR plus ____%] ___________, 20__ 100% ____% _____%
The trust will make payments quarterly, beginning ________, 20__, 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 earlier of (i) the distribution date in ________, 20__ or (ii) the first
date on which no class A notes are outstanding. 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, and if a class B interest subordination
condition is in effect, to principal, 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. [Application will be made to the Irish Stock Exchange for
the class A notes to be admitted to the Daily Official List. There can be no
assurance that such a listing will be obtained.]
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-18 of this
supplement and on page 14 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]
________, 20__
TABLE OF CONTENTS
SUMMARY OF TERMS...........................................................S-4
Issuer..................................................................S-4
The Notes...............................................................S-4
Dates...................................................................S-4
Information About the Notes.............................................S-4
Indenture Trustee.......................................................S-6
Eligible Lender Trustee.................................................S-6
Indenture Administrator and Paying Agent................................S-6
Administrator and Sub-Administrator.....................................S-6
Servicer and Sub-Servicer...............................................S-7
Owner Trustee...........................................................S-7
[Irish Listing Agent and Paying Agent...................................S-7
Information About the Trust.............................................S-7
Administration of the Trust.............................................S-11
Termination of the Trust................................................S-14
[Interest Rate Cap......................................................S-15
U.S. Federal Income Tax Considerations..................................S-15
Certain ERISA Considerations............................................S-15
Ratings of the Notes....................................................S-15
[Listing Information....................................................S-16
Risk Factors............................................................S-16
CUSIP Numbers...........................................................S-16
European Common Codes...................................................S-16
International Securities Identification Numbers (ISIN)..................S-16
RISK FACTORS...............................................................S-18
DEFINED TERMS..............................................................S-20
FORMATION OF THE TRUST.....................................................S-20
The Trust...............................................................S-20
Eligible Lender Trustee.................................................S-21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................S-21
Sources of Capital and Liquidity........................................S-21
Results of Operations...................................................S-21
USE OF PROCEEDS............................................................S-21
THE TRUST STUDENT LOAN POOL................................................S-21
Insurance of Student Loans; Guarantors of Student Loans.................S-29
Cure Period for Trust Student Loans.....................................S-32
Consolidation of Federal Benefit Billings and Receipts and Guarantor
Claims with Other Trusts..............................................S-32
DESCRIPTION OF THE NOTES...................................................S-33
General.................................................................S-33
The Notes...............................................................S-33
Determination of LIBOR..................................................S-35
Notice of Interest Rates................................................S-36
Accounts................................................................S-36
Servicing Compensation..................................................S-36
Distributions...........................................................S-36
Voting Rights and Remedies..............................................S-37
Credit Enhancement......................................................S-38
[Interest Rate Cap......................................................S-39
U.S. FEDERAL INCOME TAX CONSEQUENCES.......................................S-41
[EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME................S-41
CERTAIN ERISA CONSIDERATIONS...............................................S-41
REPORTS TO SECURITYHOLDERS.................................................S-42
UNDERWRITING...............................................................S-42
[LISTING AND GENERAL INFORMATION...........................................S-44
RATINGS OF THE NOTES.......................................................S-45
LEGAL MATTERS..............................................................S-45
GLOSSARY FOR PROSPECTUS SUPPLEMENT.........................................S-46
S-2
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 page S-2 of this prospectus
supplement and on pages 3 and 4 of the prospectus 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.
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.]
----------------------
[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.]
[IRISH STOCK EXCHANGE INFORMATION
In connection with the proposed listing of the class A notes on the Daily
Official List of the Irish Stock Exchange, this prospectus supplement and the
accompanying prospectus will be filed with the Registrar of Companies in Ireland
pursuant to Regulation 13 of the European Community (Stock Exchange)
Regulations, 1984 of Ireland.
In addition, in connection with the proposed listing of the class A notes
on the Daily Official List of the Irish Stock Exchange, the depositor accepts
responsibility for the information contained in this prospectus supplement and
the accompanying prospectus. To the best of the knowledge and belief of the
depositor the information contained in this prospectus supplement and the
accompanying prospectus is in accordance with the facts and does not omit
anything likely to affect the import of such information.
Reference in this prospectus supplement and the accompanying prospectus to
any website addresses set forth in this prospectus supplement and the
accompanying prospectus will not be deemed to constitute a part of this
prospectus supplement and the accompanying prospectus filed with the Irish Stock
Exchange in connection with the listing of the class A notes.]
S-3
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 _____-___.
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 anticipated to be ________, 20__.
The information about the trust student loans in this prospectus
supplement is calculated and presented as of ________, 20__. 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 ______ 20__.
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.
S-4
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 ________, 20__, 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 three-month LIBOR plus 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.
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__;
S-5
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 a third-party financial advisor, on behalf of 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, and if a class B interest
subordination condition is in effect, to the payment of principal, 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 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
________, 20__.
_______________ will act as indenture trustee.
Eligible Lender Trustee
______________ will be the eligible lender trustee under the eligible
lender trust agreements. It will hold legal title to the assets of the trust.
Indenture Administrator and Paying Agent
______________ will be the indenture administrator and the paying agent
for the notes.
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 and has
transferred or subcontracted many of its obligations to CitiMortgage, Inc. See
"Servicing and Administration--Administration Agreement" in the prospectus.
S-6
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
________, 20__, Citibank USA, National Association and its affiliates had
approximately _____ employees located at the Sioux Falls facility. More than ___
employees located at the Sioux Falls facility or other facilities service
student loans on behalf of SLC. As of ________, 20__, Citibank USA, National
Association serviced approximately $_________ in student loans.
Citibank USA, National Association is an indirect wholly-owned subsidiary
of Citigroup. Another affiliate of Citigroup, Citibank, N.A., 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.
[Irish Listing Agent and Paying Agent
_________ will act as the Irish listing agent and _________ will act as
the paying agent in Ireland for the class A notes. The depositor will at all
times maintain an Irish paying agent with a specific office in _________. The
Irish paying agent will make no representations as to the validity or
sufficiency of the class A notes, the trust student loans, this prospectus
supplement, the accompanying prospectus or other related documents.]
Information About the Trust
Formation of the Trust
The trust is a Delaware statutory trust created under a trust agreement
dated as of ________, 20__.
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 trust is not required
by Delaware state law and does not intend to publish any financial statements.
The indenture requires the trust to deliver to the indenture trustee and each
rating agency, within 90 days after the end of each fiscal year of the trust
(commencing with the fiscal year ending ________, 20__), a certificate of the
administrator on behalf of the trust stating that (i) a review of the activities
of the trust during that year and of performance under the indenture has been
made under the administrator's supervision, and (ii) to the best of the
administrator's knowledge, based on that review, the trust has complied with all
conditions and covenants under the indenture throughout that year, or, if there
has been a default in the compliance of any condition or covenant, specifying
each default known to the administrator and the nature and status of that
default.
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
S-7
from SLC and will sell them to the trust. __________________, as eligible lender
trustee, will hold legal title to the student loans for the depositor pursuant
to an eligible lender trust agreement.
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 [its rights under the interest rate cap described under "--Interest
Rate Cap" in this prospectus supplement]; and
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.
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
stated 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 indenture 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 indenture administrator will deposit
collections on the trust student loans, interest subsidy payments
and special allowance payments, and amounts received from SLC in
respect of borrower benefits, into the collection account, as
described in this prospectus supplement and the prospectus.
o Reserve Account. The indenture 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 $_________.
S-8
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.
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 ________, 20__.
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 class A
noteholders' interest distribution amount and, as long as a class B interest
subordination condition is not in effect, 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 indenture 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 _________ 20__ 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, if there is no class
B interest subordination condition, 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 _________
20__ 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 _________ 20__ distribution date.
Because it will not be replenished, in certain circumstances the
S-9
capitalized interest account could be depleted. This depletion could result in
shortfalls in interest distributions to noteholders.
S-10
Capitalization of the Trust
As of the closing date, the capitalization of the trust after giving
effect to the issuance of the notes before deducting expenses of the offering
will be as follows:
Class Capitalization
A-1 Notes $_________
A-2 Notes $_________
A-3 Notes $_________
A-4 Notes $_________
A-5 Notes $_________
B Notes $_________
Total $_________
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, next to pay or reimburse the eligible lender trustee for all amounts due
to it under the eligible lender trust agreements for the related distribution
date (these amounts payable to the indenture administrator, the indenture
trustee, the owner trustee and the eligible lender trustee not to exceed
$_________ per annum in the aggregate), and then generally as shown in the chart
below.
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--------------------------------
COLLECTION ACCOUNT
--------------------------------
|
|
\/
--------------------------------
SERVICER
1st (Primary Servicing Fee and
Administration Fee)
--------------------------------
|
|
\/
--------------------------------
CLASS A NOTEHOLDERS
2nd (Class A Noteholders'
Interest Distribution Amount)
--------------------------------
|
|
\/
--------------------------------
3rd CLASS B NOTEHOLDERS
(if the Class B Interest Subordination (Class B Noteholders'
Condition is not in effect) Interest Distribution Amount)
|
|
\/
4th --------------------------------
(first to class A- 1 until paid in full, then to class A-2 until paid in CLASS A NOTEHOLDERS
full, then to class A-3 until paid in full, then to class A- 4 until paid (Class A Noteholders'
in full, and then to class A-5 until paid in full) Principal Distribution Amount)
--------------------------------
|
|
\/
--------------------------------
5th CLASS B NOTEHOLDERS
(if the Class B Interest Subordination Condition is in effect) (Class B Noteholders'
Interest Distribution Amount)
--------------------------------
|
|
6th \/
((i) on or after the Stepdown Date and (ii) provided that (x) if a --------------------------------
Trigger Event has occurred and is continuing and (y) any class A CLASS B NOTEHOLDERS
notes are outstanding, then the remaining Available Funds will be (Class B Noteholders'
distributed sequentially to the class A-1, class A-2, class A- 3, Principal Distribution Amount)
class A-4 and class A-5 noteholders, in that order, until each --------------------------------
such class is paid in full) |
|
\/
--------------------------------
RESERVE ACCOUNT
(Amount, if any, necessary to
7th reinstate the Reserve Account
balance to the Specified Reserve
Account Balance)
--------------------------------
|
|
\/
--------------------------------
SERVICER
8th (Carryover Servicing Fee, if any)
--------------------------------
|
|
\/
--------------------------------
INDENTURE ADMINISTRATOR
9th INDENTURE TRUSTEE
(pro rata, for all amounts due to them and not OWNER TRUSTEE
previously paid for the related distribution date) ELIGIBLE LENDER TRUSTEE
--------------------------------
|
|
\/
--------------------------------
HOLDER OF TRUST
10th CERTIFICATE
(any remaining amounts)
--------------------------------
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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.
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 on the trust student loans, and the
servicer will 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
currently receives 100% reimbursement on all eligible FFELP default claims filed
for reimbursement 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. 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. See "Risk Factors--Changes in Law May Affect Student Loans and May
Adversely Affect Your Notes" in this prospectus supplement.
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 ___% 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 servicer will pay the administrator an
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 solely responsible for the payment
of fees due to the sub-administrator.
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
______ 20__. 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;
S-13
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.
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.
Auction of Trust Assets
If the servicer does not purchase or arrange for the purchase of all
remaining trust student loans on the first distribution date after the date on
which the pool balance is 10% or less of the initial pool balance, the indenture
administrator will engage a third-party financial advisor, which may be an
affiliate of SLC and which may include an underwriter of the securities or the
administrator, to try to auction any trust student loans remaining in the trust.
Only third parties unrelated to SLC may make bids to purchase these trust
student loans on the trust auction date. The trust auction date will be the ____
business day 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 financial advisor, on behalf of the indenture administrator,
accepts a bid to purchase the trust student loans.
If at least two bids are received, the financial advisor, on behalf of 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 financial advisor, on behalf of the indenture
administrator, will accept the highest of the remaining bids if it equals or
exceeds the minimum purchase amount described under "Optional Purchase" above.
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 financial
advisor will not complete the sale. The indenture administrator and the
financial advisor will be entitled to the reimbursement of all of their and
their respective agents' fees, expenses and costs whether or not such auction
sale is consummated.
S-14
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 as described above, the financial advisor, on
behalf of the indenture administrator, will continue to solicit and re-solicit
bids for sale of the trust student loans upon the same terms described above,
including the servicer's waiver of its option to purchase the remaining trust
student loans, until the financial advisor has received at least one bid that
equals or exceeds the minimum purchase amount described under "Optional
Purchase" above.
The financial advisor 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 under "Description of the
Notes--Credit Enhancement--Reserve Account".
[Interest Rate Cap
On the closing date, the trust will purchase an interest rate cap from
________________, [which may be an affiliate of SLC,] 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
Cadwalader, Wickersham & Taft LLP will deliver an opinion that, for
federal income tax purposes, the class A notes will be and, although not free
from doubt, the class B notes will be treated as indebtedness, as described
under "U.S. Federal Income Tax Consequences" in the prospectus.
Certain 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 "Certain 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 the purchase and
holding of the notes by the plan.
See "Certain ERISA Considerations" in this prospectus supplement and the
prospectus for additional information concerning the application of ERISA.
Ratings of the Notes
The notes are required to be rated as follows:
Rating Agency
Class (Moody's / S&P / Fitch)
A-1 Notes ____/____/____
S-15
Rating Agency
Class (Moody's / S&P / Fitch)
A-2 Notes ____/____/____
A-3 Notes ____/____/____
A-4 Notes ____/____/____
A-5 Notes ____/____/____
B Notes ____/____/____
See "Ratings of the Notes" in this prospectus supplement.
[Listing Information
Application will be made to the Irish Stock Exchange for the class A notes
to be admitted to the Daily Official List. There can be no assurance that such a
listing will be obtained. You may consult with the Irish listing agent to
determine their status.
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: ____________
o Class B 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: ____________
S-16
o Class B notes: ____________
S-17
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 14 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, 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.
Because the Initial Principal Balance of the Notes Exceeds the Trust
Assets, You May Be Adversely Affected by a High Rate of Prepayments
The expected pool balance as of the closing date plus the sum of accrued
interest, the capitalized interest account balance and the specified reserve
account balance 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
S-18
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, currently receives 100% reimbursement, instead of the standard rate
of 98%, on all eligible FFELP default claims filed for reimbursement 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 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 currently 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 Adversely Affect Your
Notes
The Higher Education Act or other relevant federal or state laws, rules
and regulations may be amended or modified in the future in a manner that could
adversely affect the federal student loan programs as well as the student loans
made under these programs and the financial condition of the guarantors.
The provisions of the Higher Education Act expire if they are not
periodically reauthorized by Congress. On October 9, 2004, Congress passed the
Higher Education Extension Act of 2004, which extended the current provisions of
the Higher Education Act through September 30, 2005. Prior to the Higher
Education Extension Act's enactment in 2004, a number of proposals had been
introduced in Congress to make various changes to the Higher Education Act in
the future, including changing loan limits, changing interest rate provisions,
decreasing origination and loan fees and permitting borrowers under most
consolidation loans to refinance their student loans at lower interest rates. In
the past, when the Higher Education Act has been subject to reauthorization,
amendments to its provisions have been common.
Amendments or modifications to the Higher Education Act or other laws that
affect student loans could result in adjustments from time to time to the level
of guarantee payments. Future changes could affect the ability of the sellers of
the trust student loans, the depositor or the servicer to satisfy their
obligations to purchase or substitute student loans. Future changes could also
have a material adverse effect on the revenues received by the guarantors that
are available to pay claims on defaulted student loans in a timely manner. Any
legislation that permits borrowers to refinance existing consolidation loans at
lower interest rates 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. You will bear any reinvestment risk associated. We cannot
predict whether any changes will be adopted when the Higher Education Act
becomes subject to reauthorization or at any other time or, if adopted, what
impact those changes would have on the trust or the securities that it issues.
S-19
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.
FORMATION OF THE TRUST
The Trust
The SLC Student Loan Trust _____-___ 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 trust to
make the initial deposits into the [collection account,] capitalized interest
account and the reserve account, [to make the upfront payment on the interest
rate cap,] and to purchase 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 interest rate cap;] and
o its rights under the guarantee agreements with guarantors.
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 owner trustee.
S-20
Eligible Lender Trustee
____________ is the eligible lender trustee for the trust under the trust
agreement. ____________ is a ____________ whose corporate trust offices are
located in ____________. 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 _________ 20__ 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,] reserve
account and the capitalized interest account, [to make the upfront payment on
the interest rate cap,] and to purchase the trust student loans from the
depositor on the closing date under the sale agreement. 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.
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 ________, 20__, which is
the statistical cutoff date.
S-21
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
financial 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.
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 Stated 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
S-22
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.
[Any special allowance payments on the trust student loans are based on
the three-month financial commercial paper rate.] For this purpose, the
three-month financial 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.]
S-23
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY ANNUAL BORROWER STATED INTEREST RATES AS OF THE STATISTICAL CUTOFF DATE
Percent by
Aggregate Outstanding
Outstanding Principal
Stated Interest Rates Number of Loans Principal Balance Balance
- -------------------------------------------------------------- ------------------- ----------------- --------------
Less than ____%............................................... ________ $ ________ ______%
____% to ____%................................................ ________ ________ ______%
____% to ____%................................................ ________ ________ ______%
____% to ____%................................................ ________ ________ ______%
____% to ____%................................................ ________ ________ ______%
____% to ____%................................................ ________ ________ ______%
Greater than or equal to ____%................................ _______%
------------------- ----------------- --------------
Total..................................................... $ 100.00%
=================== ================= ==============
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY OUTSTANDING PRINCIPAL BALANCE PER BORROWER
AS OF THE STATISTICAL CUTOFF DATE
Percent by
Aggregate Outstanding
Range of Outstanding Number of Outstanding Principal
Principal Balance Borrowers Principal Balance Balance
- --------------------------------------------------------------- ------------------- ----------------- --------------
Less than $500.00.............................................. $ %
$500.00 - $999.99.............................................. %
$1,000.00 - $1,999.99.......................................... %
$2,000.00 - $2,999.99.......................................... %
$3,000.00 - $3,999.99.......................................... %
$4,000.00 - $5,999.99.......................................... %
$6,000.00 - $7,999.99.......................................... %
$8,000.00 - $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 - $49,999.99........................................ %
$50,000.00 - $59,999.99........................................ %
$60,000.00 - $69,999.99........................................ %
$70,000.00 - $79,999.99........................................ %
$80,000.00 - $89,999.99........................................ %
$90,000.00 - $99,999.99........................................ %
$100,000.00 - $109,999.99...................................... %
$110,000.00 - $119,999.99...................................... %
$120,000.00 - $129,999.99...................................... %
$130,000.00 - $139,999.99...................................... %
$140,000.00 - $149,999.99...................................... %
$150,000.00 and greater........................................ %
------------------- ----------------- ---------------
Total..................................................... $ 100.00%
=================== ================= ===============
S-24
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY AS OF THE STATISTICAL CUTOFF DATE
Percent by
Aggregate Outstanding
Number of Months Remaining Outstanding Principal
to Scheduled Maturity Number of Loans Principal Balance Balance
- --------------------------------------------------------------- ------------------- ----------------- ---------------
0 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 220.................................................... %
221 to 260.................................................... %
261 to 300.................................................... %
301 to 330.................................................... %
331 to 360.................................................... %
---------------- ----------------- ---------------
Total.................................................... $ 100.00%
================ ================= ===============
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.
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY CURRENT BORROWER PAYMENT STATUS AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent by
Outstanding Outstanding
Current Borrower Payment Status Number of Loans Principal Balance Principal Balance
- --------------------------------------------------------------- ----------------- ----------------- -----------------
Deferral......................................................... $ %
Forbearance...................................................... %
Repayment........................................................
First year in repayment...................................... %
Second year in repayment..................................... %
Third year in repayment...................................... %
More than 3 years in repayment............................... %
----------------- ----------------- -----------------
Total...................................................... $ 100.00%
================= ================= =================
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 number of
months from the disbursement date to the statistical cutoff date.
S-25
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(1)
- --------------------------------------------------------- ------------------- --------------------- -------------------
Deferral................................................
Forbearance.............................................
Repayment...............................................
- -------------
(1) Scheduled months shown in the table were determined without giving effect
to any current deferral or forbearance periods or deferral or forbearance
periods that may be granted in the future.
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-26
GEOGRAPHIC DISTRIBUTION OF THE
TRUST STUDENT LOANS AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent by
Outstanding Outstanding
Geographic Distribution Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------------ ------------------- -------------------- -------------------
Alabama.......................................................... $ %
Alaska........................................................... %
Arizona.......................................................... %
Arkansas......................................................... %
California....................................................... %
Colorado......................................................... %
Connecticut...................................................... %
Delaware......................................................... %
District of Columbia............................................. %
Florida.......................................................... %
Georgia.......................................................... %
Guam............................................................. %
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..................................................... %
Ohio............................................................. %
Oklahoma......................................................... %
Oregon........................................................... %
Pennsylvania..................................................... %
Puerto Rico...................................................... %
Rhode Island..................................................... %
South Carolina................................................... %
South Dakota..................................................... %
Tennessee........................................................ %
Texas............................................................ %
Utah............................................................. %
Vermont.......................................................... %
Virgin Islands................................................... %
Virginia......................................................... %
Washington....................................................... %
West Virginia.................................................... %
Wisconsin........................................................ %
Wyoming.......................................................... %
Other............................................................ %
------------------- -------------------- -------------------
Total..................................................... $ 100.00%
=================== ==================== ===================
S-27
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 pay a specified number of consecutive installments on
time, starting with their first installment. This benefit is lost if a borrower
is delinquent with respect to any subsequent installment. If any such incentive
programs not required by the Higher Education Act are in effect for the trust
student loans on any distribution date on or after the ________ 20__
distribution date when the outstanding principal balance of the notes exceeds
the Adjusted Pool Balance, the seller either will contribute funds to the
collection account in an amount equal to the interest that otherwise would have
been paid on such trust student loans in the absence of the borrower incentive
programs or terminate the borrower incentive programs.
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 [30] 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 by
Outstanding Outstanding
Loan Type Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------------ ------------------- ------------------- -------------------
Subsidized [(Consolidated)]....................................... $ %
Unsubsidized [(Consolidated)]..................................... %
------------------- ------------------- -------------------
Total......................................................... $ 100.00%
=================== =================== ====================
S-28
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY REPAYMENT TERMS AS OF THE STATISTICAL CUTOFF DATE
Aggregate Percent by
Outstanding Outstanding
Loan Repayment Terms Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------------ ------------------- ------------------- -------------------
Level Payment[(1)]................................................ $ %
Other Repayment Options(2)........................................ %
------------------- ------------------- -------------------
Total......................................................... $ 100.00%
=================== =================== ====================
- -------------
(1) [Also includes in-school and in-grace loans.]
(2) Includes, among others, graduated repayment, income-sensitive and
interest-only period loans.
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
Percent by
Aggregate Outstanding Outstanding
Disbursement Date Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------------ ------------------- --------------------- -------------------
Pre-October 1, 1993............................................... $ %
October 1, 1993 and thereafter.................................... %
------------------- ------------------- -------------------
Total......................................................... $ 100.00%
=================== =================== ====================
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, currently receives 100% reimbursement,
instead of the standard rate of 98%, on all eligible FFELP default claims filed
for reimbursement on loans that SLC services.] See "Risk Factors--You May Incur
Losses or Delays in Payments on Your Notes if Borrowers Default on the Student
Loans" in this prospectus supplement and "Appendix A--Federal Family Education
Loan Program--Guarantee Agencies under the FFELP" in the prospectus.
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY NUMBER OF DAYS OF DELINQUENCY AS OF THE STATISTICAL
CUTOFF DATE
Percent by
Aggregate Outstanding Outstanding
Days Delinquent Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------------ ------------------- --------------------- -------------------
0-30.............................................................. $ %
31-60............................................................. %
61-90............................................................. %
91-120............................................................ %
121-150........................................................... %
151-180........................................................... %
181-209........................................................... %
------------------- ------------------- -------------------
Total......................................................... $ 100.00%
=================== =================== ====================
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
S-29
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 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 by
Outstanding Outstanding
Guarantee Agency Number of Loans Principal Balance Principal Balance
- ------------------------------------------------------------------ ------------------- --------------------- -------------------
$ %
%
%
%
%
%
%
%
%
%
%
%
------------------- --------------------- -------------------
Total........................................................... $ 100.00%
=================== ===================== ===================
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 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 in each of the
five federal fiscal years shown:
S-30
Loans Guaranteed
--------------------------------------------------------------------------------------------------
Federal Fiscal Year
--------------------------------------------------------------------------------------------------
Name of Guarantee
Agency 2000 2001 2002 2003 2004
- ---------------------- ------------ ------------- ------------- ------------ --------------
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:
Reserve Ratio as of Close of
Federal Fiscal Year
---------------------------------------------------------------------
Guarantors 2000 2001 2002 2003 2004
- -------------------------------------------------------- ----------- ------------ ------------ ----------- -----------
% % % % %
% % % % %
% % % % %
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 2000 2001 2002 2003 2004
- -------------------------------------------------------- ----------- ------------ ------------ ----------- -----------
% % % % %
% % % % %
% % % % %
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 2000 2001 2002 2003 2004
- -------------------------------------------------------- ----------- ------------ ------------ ----------- -----------
% % % % %
% % % % %
% % % % %
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:
S-31
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 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
S-32
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 issuance of the notes was authorized by a resolution
of the Board of Directors of the Depositor. The following summary describes some
terms of the notes, [the interest rate cap,] the indenture and the trust
agreement. 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 interest rate cap,] the indenture and the
trust agreement.
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 three-month LIBOR, except for the first accrual period, plus
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:
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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.
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.
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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, and if a Class B Interest Subordination Condition is in
effect, to the payment of principal, 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.
Notwithstanding the foregoing, if
(1) on any distribution date following distributions under clauses (a)
through (j) 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 as of
the last day of the related collection period plus
o any accrued but unpaid interest on the trust student loans as of the
last day of the related collection period plus
o the balance of the capitalized interest account on the distribution
date following those distributions made with respect to clauses (b)
and (c) (or clause (b) if a Class B Interest Subordination Condition
is in effect) 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 (j)
"--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, as such rate appears on Telerate Page 3750,
Bloomberg Page BBAM, or another page of these or any other financial reporting
service in general use in the financial services industry, as of 11:00 a.m.
London time, on the related LIBOR Determination Date. If no rate is so reported
on the related LIBOR Determination Date, 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 "Reference Banks" means four major banks in the London interbank
market selected by the administrator.
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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.
Accounts
The indenture 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 indenture 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 will be limited to the
investments set forth in the definition of "Eligible Investments" in the
indenture. 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 (g) under "--Distributions--Distributions from the
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 and the administrator.
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 third 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. [All payments received
by the trust from the cap counterparty in respect of the interest rate cap will
be deposited into the collection account within two business days of receipt.]
S-36
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 to pay or reimburse the owner trustee
for all amounts due to it under the trust agreement for the related distribution
date, next to pay or reimburse the eligible lender trustee for all amounts due
to it under the eligible lender trust agreements for the related distribution
date (these amounts payable to the indenture administrator, the indenture
trustee, the owner trustee and the eligible lender trustee not to exceed $_____
per annum in the aggregate) 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 _______ 20__ distribution date with respect to clauses (b)
and (c) below (or clause (b) below if a Class B Interest Subordination Condition
is in effect) 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 class A noteholders, the Class A Noteholders' Interest
Distribution Amount, pro rata, based on the amounts payable as Class A
Noteholders' Interest Distribution Amount;
(c) if the Class B Interest Subordination Condition is not in
effect, to the class B noteholders, the Class B Noteholders' Interest
Distribution Amount;
(d) 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;
(e) if the Class B Interest Subordination Condition is in effect, to
the class B noteholders, the Class B Noteholders' Interest Distribution
Amount;
(f) on or after the Stepdown Date, to the class B noteholders until
paid in full, the Class B Noteholders' Principal Distribution Amount;
provided that (x) if a Trigger Event has occurred and is continuing and
(y) any class A notes are outstanding, then the remaining Available Funds
will be distributed 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;
(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;
(i) to the indenture administrator, the indenture trustee, the owner
trustee, the eligible lender trustee, the Irish paying agent and the Irish
Stock Exchange in respect of its fees, pro rata, for all amounts due to
each and not previously paid for the related distribution date; and
(j) to the holder of the trust certificate (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 holder of the trust certificate.
Voting Rights and Remedies
Noteholders will have the voting rights and remedies described in the
prospectus. See "Transfer and Servicing Agreements--Amendments to Transfer and
Servicing Agreements", "Servicing and Administration--Servicer Default",
"Servicing and Administration--Rights Upon Servicer Default", "Servicing and
Administration--Waiver of Past Defaults", "Servicing and
Administration--Administrator Default", "Servicing and Administration--Rights
S-37
Upon Administrator Default", "Description of the Notes--The
Indenture--Modification of Indenture", "Description of the Notes--The
Indenture--Events of Default; Rights Upon Event of Default" and "Certain
Information Regarding the Securities--Definitive Securities" 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 the 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 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 (c) (or,
if a Class B Interest Subordination Condition is in effect, clauses (a) and (b)
from the capitalized interest account and clauses (a), (b) and (e) from
Available Funds) under "--Distributions--Distributions from the 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 (d) and (f) and, in the case of the final
distribution upon termination of the trust, clause (h) under
"--Distributions--Distributions from the Collection Account" above. These funds
will be paid from the reserve account to the persons and in the order of
priority specified above for distributions out of the collection account.
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 ________ 20__ distribution
date, the amount of Available Funds is insufficient to pay or allocate any of
the items specified in clauses (b) and (c) (or clause (b) if a Class B Interest
Subordination Condition is in effect) 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
________ 20__ distribution date will be transferred to the collection account
and included in Available Funds on that distribution date.
S-38
The capitalized interest account is intended to enhance the likelihood of
timely distributions of interest to the noteholders through the ________ 20__
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, and if a Class B Interest Subordination Condition is in
effect, to the payment of principal, 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.
[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.
S-39
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
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;
o (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
o (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]]
S-40
U.S. FEDERAL INCOME TAX CONSEQUENCES
Cadwalader, Wickersham & Taft LLP will deliver an opinion that, for
federal income tax purposes, the class A notes will be and, although not free
from doubt, the class B notes will be treated as indebtedness, as described
under "U.S. Federal Income Tax Consequences" in the prospectus.
[EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME
On June 3, 2003, the European Council of Economics and Finance Ministers
(ECOFIN) agreed on proposals under which Member States will be required to
provide to the tax authorities of another Member State details of payments of
interest (or similar income) paid by a person within its jurisdiction to an
individual resident in that other Member State, except that, for a transitional
period, Belgium, Luxembourg and Austria will instead be required to operate a
withholding system in relation to such payments (the ending of such transitional
period being dependent upon the conclusion of certain other agreements relating
to information exchange with certain other countries). The proposals are
expected to take effect from July 1, 2005.
The Directive has been enacted into Irish legislation. Since January 1,
2004, where any person in the course of a business or profession carried on in
Ireland makes an interest payment to, or secures an interest payment for the
immediate benefit of, the beneficial owner of that interest, where that
beneficial owner is an individual, that person must, in accordance with the
methods prescribed in the legislation, establish the identity and residence of
that beneficial owner. Where such a person makes such a payment to a "residual
entity" then that interest payment is a "deemed interest payment" of the
"residual entity" for the purpose of this legislation. A "residual entity", in
relation to "deemed interest payments", must, in accordance with the methods
prescribed in the legislation, establish the identity and residence of the
beneficial owners of the interest payments received that are comprised in the
"deemed interest payments".
"Residual entity" means a person or undertaking established in Ireland or
in another Member State or in an "associated territory" to which an interest
payment is made for the benefit of a beneficial owner that is an individual,
unless that person or undertaking is within the charge to corporation tax or a
tax corresponding to corporation tax, or it has, in the prescribed format for
the purposes of this legislation, elected to be treated in the same manner as an
undertaking for collective investment in transferable securities within the
meaning of the UCITS Directive 85/611/EEC, or it is such an entity or it is an
equivalent entity established in an "associated territory", or it is a legal
person (not being an individual) other than certain Finish or Swedish legal
persons that are excluded from the exemption from this definition in the
European Union Directive on the Taxation of Savings Income.
Procedures relating to the reporting of details of payments of interest
(or similar income) made by any person in the course of a business or profession
carried on in Ireland, to beneficial owners that are individuals or to residual
entities resident in another Member State or an "associated territory" and
procedures relating to the reporting of details of deemed interest payments made
by residual entities where the beneficial owner is an individual resident in
another Member State or an "associated territory", will apply from a date not
earlier than July 1, 2005 to be specified by the Minister for Finance of
Ireland. For the purposes of these paragraphs "associated territory" means
Andorra, Aruba, Netherlands Antilles, Jersey, Gibraltar, Guernsey, Isle of Man,
Anguilla, British Virgin Islands, Cayman Islands, Montserrat, Leichtenstein,
Monaco, San Marino, the Swiss Confederation, and Turks and Caicos Islands.]
Prospective investors in the notes should consult their professional
advisers on the tax implications of the purchase, holding, redemption or sale of
the notes and the receipt of interest thereon under the laws of their country of
residence, citizenship or domicile.
CERTAIN 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
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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 or the seller 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 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;
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.
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. Fiduciaries of such
plans should consider applicable Similar Law when investing in the notes. Each
fiduciary of such a plan will be deemed to represent that the plan's acquisition
and holding of the notes will not result in a non-exempt violation of applicable
Similar Law.
REPORTS TO SECURITYHOLDERS
Quarterly and annual reports concerning the trust will be delivered to
noteholders. The first such quarterly distribution report is expected to be
available on or about ________, 20__. 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 ________, 20__, against
payment in immediately available funds.
Subject to the terms and conditions in the underwriting agreement dated
________, 20__, 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:
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Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
Underwriter Notes Notes Notes Notes Notes Class B 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% % % % %
Per Class A-2 Note.......... 100% % % % %
Per Class A-3 Note.......... 100% % % % %
Per Class A-4 Note.......... 100% % % % %
Per Class A-5 Note.......... 100% % % % %
Per Class B Note............ 100% % % % %
Total.................. $ $ $
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 depositor 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.
[The underwriter is an affiliate of SLC.] 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.
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:
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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 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 AND GENERAL INFORMATION
Application will be made to the Irish Stock Exchange for the class A notes
to be admitted to the Daily Official List. There can be no assurances that such
listing will be granted. In connection with the listing of the class A notes on
the Irish Stock Exchange, this prospectus supplement and the accompanying
prospectus will be filed with the Registrar of Companies of Ireland pursuant to
Regulation 13 of the European Communities (Stock Exchange) Regulations, 1984 of
Ireland.
For so long as the class A notes are listed on the Irish Stock Exchange
from the date of this prospectus supplement, all of the material contracts
referred to herein and in the accompanying prospectus, including the indenture,
the sale agreement, the purchase agreement, the servicing agreement and the
administration agreement will be made available for inspection at the registered
offices of the Irish paying agent in Dublin, Ireland and at the registered
office of the depositor, where copies thereof may be obtained upon request.
The notes, the indenture, [the interest rate cap,] the sale agreement, the
purchase agreement, the servicing agreement and the administration agreement 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.]
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 governmental, 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
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
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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 ________, 20__, 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:
Rating Agency
Class (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-45
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, (i) if the Pool
Balance as of the last day of the related collection period is greater than 40%
of the initial Pool Balance, the sum of that Pool Balance, the Capitalized
Interest Account Balance and the Specified Reserve Account Balance for that
distribution date, or (ii) if the Pool Balance as of the last day of the related
collection period is less than or equal to 40% of the initial Pool Balance, the
sum of that Pool Balance and the Capitalized Interest Account Balance.
"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 amounts received by the trust from SLC in respect of borrower
benefits;
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o on the ________ 20__ distribution date, all funds then on deposit in
the capitalized interest account that are transferred into the
collection account on that distribution date; [and]
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 (c) (or, if a Class B
Interest Subordination Condition is in effect, clauses (a) and (b) from the
capitalized interest account and clauses (a), (b) and (e) from the reserve
account) under "Description of the Notes--Distributions--Distributions from the
Collection Account", 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 Account Balance" means, for any distribution date
through and including the ________ 20__ 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 (b) and (c) (or clause
(b) if a Class B Interest Subordination Condition is in effect)
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 (b) 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
o the Class A Note Interest Shortfall for that distribution date.
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"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. 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 Interest Subordination Condition" means, 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 as of the last day of the related
collection period, and amounts then on deposit in the reserve account in excess
of the Specified Reserve Account Balance as of such distribution date, would be
less than the outstanding principal balance of the class A notes.
"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" means, with respect to any distribution date:
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-48
"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 student loans as of the close of business on that date, including accrued
interest that is expected to be capitalized.
"Principal Distribution Amount" means, (i) as to the initial distribution
date, the amount by which the aggregate outstanding principal balance of the
notes exceeds the Adjusted Pool Balance as of the end of the initial collection
period, and (ii) as to each subsequent distribution date, [the sum of (1)] the
amount by which the Adjusted Pool Balance for the preceding distribution date
exceeds the Adjusted Pool Balance for that distribution date [and (2) any
amounts received under the interest rate cap for that distribution date].
"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 ________
20__ and (ii) the first date on which no class A notes remain outstanding.
"Trigger Event" means, on any distribution date (i) while any of the class
A notes are outstanding, that the outstanding principal balance of the notes,
after giving effect to distributions to be made on that distribution date,
exceeds the Pool Balance plus the reserve account balance as of the end of the
related collection period or (ii) if there has not been an optional purchase or
sale of the trust student loans through an auction after the Pool Balance falls
below 10% of the initial Pool Balance.
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PRINCIPAL OFFICES
DEPOSITOR
SLC Student Loan Receivables I, Inc.
750 Washington Boulevard, 9th Floor
Stamford, Connecticut 06901
ADMINISTRATOR AND SERVICER
The Student Loan Corporation
750 Washington Boulevard, 9th Floor
Stamford, Connecticut 06901
SLC STUDENT LOAN TRUST _____ ___
_______________________________, ____________________________, _____________________________________,
as Eligible Lender Trustee as Indenture Trustee as Indenture Administrator
[Address] [Address] [Address]
[IRISH PAYING AGENT]
____________________________
[Address]
[IRISH LISTING AGENT]
____________________________
[Address]
LEGAL ADVISORS TO THE DEPOSITOR, THE TRUST,
THE ADMINISTRATOR AND THE SERVICER
Cadwalader, Wickersham & Taft LLP
One World Financial Center
New York, New York 10281
Richards, Layton & Finger, P.A.
920 King Street
Wilmington, Delaware 19801
LEGAL ADVISORS TO UNDERWRITERS
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
UNDERWRITERS
____________________________.
[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.
, 2005
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...........................................................5
Principal Parties.........................................................5
The Notes.................................................................6
The Certificates..........................................................7
Assets of the Trust.......................................................8
Collection Account........................................................8
Pre-Funding Account.......................................................8
Reserve Account...........................................................9
Credit and Cash Flow or other Enhancement or Derivative Arrangements......9
Purchase Agreements......................................................10
Sale Agreements..........................................................10
Servicing Agreements.....................................................10
Servicing Fee............................................................10
Administration Agreement.................................................10
Administration Fee.......................................................11
Representations and Warranties of the Depositor..........................11
Representations and Warranties of The Student Loan Corporation
under the Purchase Agreements.........................................12
Covenants of the Servicer................................................12
U.S. Federal Income Tax Considerations...................................13
Certain ERISA Considerations.............................................13
Ratings..................................................................13
RISK FACTORS................................................................14
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS...........................20
FORMATION OF THE TRUSTS.....................................................21
The Trusts...............................................................21
Eligible Lender Trustee..................................................21
USE OF PROCEEDS.............................................................22
THE STUDENT LOAN CORPORATION, THE DEPOSITOR AND THE SERVICER AND THE
SUB-SERVICER.............................................................22
The Seller, Servicer and Administrator...................................22
The Depositor............................................................22
The Sub-Servicer.........................................................23
The Sub-Administrator....................................................23
THE STUDENT LOAN POOLS......................................................23
The Student Loan Corporation's Student Loan Business.....................24
Delinquencies, Defaults, Claims and Net Losses...........................25
Payment of Notes.........................................................26
Termination..............................................................26
TRANSFER AND SERVICING AGREEMENTS...........................................26
General..................................................................26
Purchase of Student Loans by the Depositor; Representations and
Warranties of The Student Loan Corporation............................26
Sale of Student Loans to the Trust; Representations and Warranties
of the Depositor......................................................27
Custodian of Promissory Notes............................................27
Additional Fundings......................................................27
Amendments to Transfer and Servicing Agreements..........................28
SERVICING AND ADMINISTRATION................................................28
General..................................................................28
Accounts.................................................................28
Servicing Procedures.....................................................28
Payments on Student Loans................................................29
3
Servicer Covenants.......................................................29
Servicing Compensation...................................................30
Net Deposits.............................................................31
Evidence as to Compliance................................................31
Certain Matters Regarding the Servicer...................................31
Servicer Default.........................................................32
Rights Upon Servicer Default.............................................32
Waiver of Past Defaults..................................................33
Administration Agreement.................................................33
Administrator Default....................................................33
Rights Upon Administrator Default........................................34
Statements to Indenture Trustee, Indenture Administrator and Trust.......34
Evidence as to Compliance................................................35
TRADING INFORMATION.........................................................35
Pool Factors.............................................................36
DESCRIPTION OF THE NOTES....................................................36
General..................................................................36
Principal and Interest on the Notes......................................36
The Indenture............................................................37
DESCRIPTION OF THE CERTIFICATES.............................................40
General..................................................................40
Distributions on the Certificate Balance.................................40
CERTAIN INFORMATION REGARDING THE SECURITIES................................41
Fixed Rate Securities....................................................41
Floating Rate Securities.................................................41
Auction Rate Securities..................................................41
Distributions............................................................44
Credit and Cash Flow or other Enhancement or Derivative Arrangements.....45
Book-Entry Registration..................................................45
Definitive Securities....................................................48
List of Securityholders..................................................48
Reports to Securityholders...............................................48
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS..................................49
Transfer of Student Loans................................................49
Consumer Protection Laws.................................................49
Loan Origination and Servicing Procedures Applicable to Student Loans....50
Student Loans Generally Not Subject to Discharge in Bankruptcy...........50
U.S. FEDERAL INCOME TAX CONSEQUENCES........................................50
General..................................................................50
Tax Characterization of the Trust........................................51
Tax Consequences to U.S. Holders.........................................51
Tax-Exempt Organizations.................................................53
Foreign Investors........................................................53
Backup Withholding and Information Reporting.............................54
Disclosure Requirements for U.S. Holders Recognizing Significant
Losses or Experiencing Significant Book-Tax Differences...............54
State, Local And Foreign Taxes...........................................54
CERTAIN ERISA CONSIDERATIONS................................................55
AVAILABLE INFORMATION.......................................................56
REPORTS TO SECURITYHOLDERS..................................................56
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................57
THE PLAN OF DISTRIBUTION....................................................57
LEGAL MATTERS...............................................................58
APPENDIX A Federal Family Education Loan Program..........................A-1
APPENDIX B Global Clearance, Settlement and Tax Documentation Procedures..B-1
4
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."
5
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.
6
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.
7
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
8
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; or
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.
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.
9
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
10
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 percentage
premium paid by the depositor for the loans
being replaced), and
11
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."
12
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.
Certain 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
"Certain 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.
13
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.
14
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.
15
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. Further, as long as a senior class of notes is outstanding, the failure
to pay interest or principal on any classes of notes subordinate to such senior
class will not constitute an event of default. 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. 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
16
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.
17
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,
18
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.
19
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.
20
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
o refraining from holding itself out as having agreed to pay, or being
liable for, the debts of The Student Loan Corporation.
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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-service 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.
o Each loan satisfies any other criteria described in the related
prospectus supplement.
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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.
If the outstanding pool balance is 10% or less than the initial pool balance
or otherwise on a date described in the related prospectus supplement, the
servicer or another entity specified in the related prospectus supplement may,
at its option, purchase, or arrange for the purchase of, or the indenture
trustee may auction for sale, all remaining trust student loans. Either of the
exercise of the purchase option or the auction will result in the early
termination of the securities issued by that trust. The related prospectus
supplement will describe the procedures relating to the purchase option and the
auction.
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,
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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 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.
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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 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 as set forth in the
indenture or (B) a short-term unsecured debt rating or certificate of
deposit rating as set forth in the indenture; 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.
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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.
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.
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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.
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,
30
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
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:
31
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.
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 certificates;
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 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 and not the
eligible lender trustee or the certificateholders will have the ability to
remove the servicer if a default occurs while the notes 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.
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Waiver of Past Defaults
For each trust, the holders of a majority of the outstanding notes or a
majority of the outstanding certificates in the case of any servicer default
which does not adversely affect the indenture trustee or the noteholders may, on
behalf of all noteholders and certificateholders, waive any default by the
servicer, except a default in making any required 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 have the
ability, except as noted, to waive defaults by the servicer which could
materially and adversely affect the certificateholders. 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 certificates; and
o the occurrence of an insolvency event involving the administrator.
33
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, 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 and not the eligible lender trustee or the
certificateholders may remove the administrator if an administrator default
occurs while the notes, 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.
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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.
35
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."
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.
36
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 for five days or more in the due or punctual payment of
interest on any note when due, provided that, so long as any senior
class of notes is outstanding, the failure to pay interest on any notes
subordinate to such senior class of notes will not constitute an event
of default;
o a default in the due or punctual payment of the principal of any note at
maturity;
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
o the occurrence of an insolvency event involving the trust.
37
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 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. 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 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 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 had not been declared due
and payable, and the indenture trustee obtains the consent of the
holders of 66 2/3% of the outstanding notes.
Such a sale also requires the consent of the holders of a majority of the
outstanding certificates unless the proceeds of a sale would be sufficient to
discharge all unpaid amounts on the certificates.
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:
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 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.
38
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.
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.
39
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.
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.
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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.
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
41
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.
42
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).
(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.
43
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.
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.
44
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, or
o any combination of the foregoing.
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
45
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 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.
46
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.
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
47
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.
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
48
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 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
49
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.
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
50
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 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
51
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 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.
52
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.
Waivers and Amendments. An indenture for a series may permit securityholders
to waive an event of default or rescind an acceleration of the securities in
some circumstances upon a vote of the requisite percentage of the holders. Any
such waiver or rescission, or any amendment of the terms of the securities,
could be treated for federal income tax purposes as a constructive exchange by a
holder of the securities for new securities, upon which gain or loss might be
recognized.
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
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 each trust, 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.
53
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, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
54
CERTAIN 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 both (a) Plans and (b) employee benefit
plans and plans not subject to Title I of ERISA or Section 4975 of the Code, 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
55
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 100 F Street, N.E., 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, 100 F Street, N.E., 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.
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.
56
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.
At such time as may be required under relevant SEC rules and regulations,
the depositor may provide static pool information, in response to Item 1105 of
Regulation AB, through an Internet web site, and if the depositor decides to
provide such information, the applicable prospectus supplement accompanying this
prospectus will disclose the specific Internet address where such information is
posted.
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
57
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.
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.
58
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.
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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.
In October 2004, Congress passed legislation extending all the provisions of
the Higher Education Act through September 30, 2005.
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
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to attend the institution to determine the student's need for financial aid.
Some of this need is met by grants, 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.
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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.
Maximum Borrower
Trigger Date Borrower Rate 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; 8% for 48 months, 3.25% for loans made before
thereafter, then 10% 7/23/92 and for loans
91-day Treasury + Interest made on or before
Rate Margin 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.
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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.
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.
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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.
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Interest. The interest rates for PLUS Loans and SLS Loans are presented in
the chart below.
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
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January 1, 1993, Consolidation Loans were available only to borrowers who had
aggregate outstanding student loan balances of at least $5,000.
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,
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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 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 (or a
reduced rate) by furnishing to us a correct, complete and executed 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 furnishing to us a correct, complete and executed 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. Exemption for U.S. persons--Form W-9. U.S. persons can obtain a complete
exemption from the withholding tax and backup withholding by furnishing to us a
correct, complete and executed 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
it holds (e.g., a 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 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.
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
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.................... $701,946.91
Accounting fees and expenses............ $150,000.00
Legal fees and expenses................. $750,000.00
Printing costs.......................... $120,000.00
Trustee's fees.......................... $120,000.00
Rating Agency fees...................... $1,464,375.00
Miscellaneous........................... $123,678.09
-------------
Total............................ $3,430,000.00
- ------------
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
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of SLC Student Loan Receivables I, Inc.***
3.2 By-Laws of SLC Student Loan Receivables I, Inc. ***
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)****
24.1 Power of Attorney authorizing execution of Registration Statement on
Form S-3 on behalf of certain directors and officers of the
Registrant****
25.1 Statement of Eligibility of Wachovia Bank, National Association, as
Trustee on Form T-1****
II-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**
* Incorporated by reference to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-3 filed by the Registrant on August 10, 2004
(SEC File No. 333-118089).
** Incorporated by reference to the Registration Statement on Form S-3 filed by
the Registrant on August 10, 2004 (SEC File No. 333-118089).
*** Incorporated by reference to the Registration Statement on Form S-3 filed by
the Registrant on December 26, 2001 (SEC File No. 333-75952).
**** Previously Filed.
ITEM 17. UNDERTAKINGS.
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this 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.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in the post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
Provided further, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment is provided pursuant to Item 1100(c) of Regulation AB.
(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.
(b) 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
II-2
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.
(c) 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.
(d) 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)(1) 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 Securities
Act of 1933, 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.
(e) 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.
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 of a third party that is incorporated by reference in the
Registration Statement in accordance with Item 1100(c)(1) of Regulation AB 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.
(g) The undersigned Registrant hereby undertakes that, except as otherwise
provided by Item 1105 of Regulation AB, information provided in response to that
Item pursuant to Rule 312 of Regulation S-T (17 CFR 232.312) through the
specified Internet address in the prospectus is deemed to be a part of the
prospectus included in the Registration Statement. In addition, the undersigned
Registrant hereby undertakes to provide to any person without charge, upon
request, a copy of the information provided in response to Item 1105 of
Regulation AB pursuant to Rule 312 of Regulation S-T through the specified
Internet address as of the date of the prospectus included in the Registration
Statement if a subsequent update or change is made to the information.
II-3
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 25, 2005.
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 25, 2005
- ------------------------------- and Director (Principal
Name: Michael J. Reardon Executive Officer)
* Chief Financial Officer August 25, 2005
- ------------------------------- and Director (Principal
Name: Daniel McHugh Financial and Accounting
Officer)
* Director August 25, 2005
- -------------------------------
Name: Catherine A. Birch
* By: /s/ Michael J. Reardon
- -------------------------------
Name: Michael J. Reardon,
Attorney-in-Fact
EXHIBIT INDEX
Exhibit
No. Description
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of SLC Student Loan Receivables I, Inc.***
3.2 By-Laws of SLC Student Loan Receivables I, Inc. ***
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)****
24.1 Power of Attorney authorizing execution of Registration Statement on
Form S-3 on behalf of certain directors and officers of the
Registrant****
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**
* Incorporated by reference to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-3 filed by the Registrant on August 10, 2004
(SEC File No. 333-118089).
** Incorporated by reference to the Registration Statement on Form S-3 filed by
the Registrant on August 10, 2004 (SEC File No. 333-118089).
*** Incorporated by reference to the Registration Statement on Form S-3 filed by
the Registrant on December 26, 2001 (SEC File No. 333-75952).
**** Previously Filed.