File Pursuant to Rule 424(b)(5)
Registration No.: 333-133028
Prospectus Supplement to Prospectus dated June 18, 2006
$2,252,500,000
SLC Student Loan Trust 2006-1
Issuing Entity
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Sponsor, Seller, Servicer and Administrator
Student Loan Asset-Backed Notes
On or about June 28, 2006, the issuing entity will issue the following classes
of notes:
Original Principal Initial Public Underwriting Proceeds to
Class Amount Interest Rate Maturity Offering Price Discount The Depositor
- -------------------------------------------------------------------------------------------------------------------------------
A-1 Notes $190,000,000 3-month LIBOR minus 0.03% December 15, 2010 100% 0.1750% 99.8250%
A-2 Notes $418,000,000 3-month LIBOR June 15, 2015 100% 0.1825% 99.8175%
A-3 Notes $221,000,000 3-month LIBOR plus 0.03% September 15, 2017 100% 0.2020% 99.7980%
A-4 Notes $451,000,000 3-month LIBOR plus 0.08% December 15, 2021 100% 0.2200% 99.7800%
A-5 Notes $442,000,000 3-month LIBOR plus 0.11% March 15, 2027 100% 0.2400% 99.7600%
A-6 Notes $463,000,000 3-month LIBOR plus 0.16% December 15, 2038 100% 0.2500% 99.7500%
B Notes $ 67,500,000 3-month LIBOR plus 0.21% March 15, 2039 100% 0.3000% 99.7000%
The issuing entity will make payments quarterly, beginning September 15, 2006,
primarily from collections on a pool of student loans made under the Federal
Family Education Loan Program (FFELP) which are consolidation student loans.
Interest and principal will be paid to the applicable noteholders quarterly on
the 15th of each March, June, September and December, beginning on September
15th, 2006. In general, the issuing entity will pay principal allocable to the
class A notes sequentially to the class A-1 through class A-6 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 September 2012 or (ii) the first date on which no class A
notes are outstanding. The class B notes will then 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. Credit
enhancement for the notes consists of excess interest on the trust student
loans, subordination of the class B notes to the class A notes, the reserve
account and, until the distribution date in September 2007, the capitalized
interest account. The notes are LIBOR-based notes. A description of how LIBOR is
determined appears under "Certain Information Regarding the Notes--Determination
of Indices--LIBOR" in the base prospectus and "Description of the
Notes--Determination of LIBOR" in this prospectus supplement.
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 Limited
for the class A notes to be admitted to the Official List and to begin trading
on its regulated market. There can be no assurance that such a listing will be
obtained. The issuance and settlement of the notes is not conditioned on the
listing of the class A notes on The Irish Stock Exchange Limited.
We are not offering the notes in any state or other jurisdiction where the offer
is prohibited.
We expect the proceeds to the depositor from the sale of the notes to be
$2,247,545,230, before deducting expenses payable by the depositor estimated to
be $1,550,000.
You should consider carefully the risk factors beginning on page S-21 of this
prospectus supplement and on page 17 of the base prospectus. The notes are
asset-backed securities and are obligations of the issuing entity, which is a
trust. They are not obligations of or interests in 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 notes or determined whether this
prospectus supplement or the base prospectus is accurate or complete. Any
contrary representation is a criminal offense.
Citigroup
Lehman Brothers
Merrill Lynch & Co.
June 22, 2006
TABLE OF CONTENTS
SUMMARY OF TERMS ........................................................ S-7
Principal Parties .................................................... S-7
The Notes ............................................................ S-7
Dates ................................................................ S-8
Information About the Notes .......................................... S-8
Indenture Trustee .................................................... S-10
Eligible Lender Trustee .............................................. S-10
Indenture Administrator and Paying Agent ............................. S-11
Administrator and Sub-administrator .................................. S-11
Servicer and Sub-servicer ............................................ S-11
Owner Trustee ........................................................ S-11
Irish Listing Agent and Paying Agent ................................. S-11
Information About the Issuing Entity ................................. S-12
Capitalization of the Trust .......................................... S-14
Administration of the Trust .......................................... S-14
Transfer of the Assets to the Trust .................................. S-17
Termination of the Trust ............................................. S-18
Trust Certificateholder .............................................. S-19
Certain U.S. Federal Income Tax Considerations ....................... S-19
Certain ERISA Considerations ......................................... S-19
Ratings of the Notes ................................................. S-20
Listing Information .................................................. S-20
Risk Factors ......................................................... S-20
Identification Numbers ............................................... S-20
RISK FACTORS ............................................................ S-21
DEFINED TERMS ........................................................... S-22
FORMATION OF THE TRUST .................................................. S-23
The Trust ............................................................ S-23
Eligible Lender Trustee .............................................. S-24
ADDITIONAL INFORMATION CONCERNING OTHER PRINCIPAL PARTIES ............... S-26
Indenture Trustee .................................................... S-26
Sub-servicer ......................................................... S-26
USE OF PROCEEDS ......................................................... S-27
THE TRUST STUDENT LOAN POOL ............................................. S-28
General .............................................................. S-28
Eligible Trust Student Loans ......................................... S-28
Characteristics of the Trust Student Loans ........................... S-28
Insurance of Trust Student Loans; Guarantors of Trust Student Loans .. S-35
Cure Period for Trust Student Loans .................................. S-39
Consolidation of Federal Benefit Billings and Receipts and Guarantor
Claims with Other Trusts .......................................... S-39
DESCRIPTION OF THE NOTES ................................................ S-40
General .............................................................. S-40
The Notes ............................................................ S-40
Determination of LIBOR ............................................... S-42
Notice of Interest Rates ............................................. S-43
Additional Information Concerning Accounts and Eligible Investments .. S-43
Servicing Compensation ............................................... S-43
Additional Information Concerning Servicing Procedures ............... S-43
Additional Information Concerning Payments on Student Loans .......... S-44
Additional Information Concerning Servicer Covenants ................. S-44
Distributions ........................................................ S-44
Distributions Following an Event of Default and Acceleration of the
Maturity of the Notes ............................................. S-45
Voting Rights and Remedies ........................................... S-46
Credit Enhancement ................................................... S-46
Trust Fees and Expenses .............................................. S-47
S-2
Determination of Indices ............................................. S-47
Optional Purchase .................................................... S-48
Auction of Trust Assets .............................................. S-48
STATIC POOLS ............................................................ S-49
Prepayments, Extensions, Weighted Average Lives and Expected
Maturities of the Notes ........................................... S-49
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS .......................... S-50
EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME .............. S-50
CERTAIN ERISA CONSIDERATIONS ............................................ S-51
REPORTS TO NOTEHOLDERS .................................................. S-52
UNDERWRITING ............................................................ S-52
LISTING AND GENERAL INFORMATION ......................................... S-54
LEGAL PROCEEDINGS ....................................................... S-54
RATINGS OF THE NOTES .................................................... S-54
LEGAL MATTERS ........................................................... S-55
GLOSSARY FOR PROSPECTUS SUPPLEMENT ...................................... S-56
EXHIBIT I: PREPAYMENTS, EXTENSIONS, WEIGHTED AVERAGE LIVES AND
EXPECTED MATURITIES OF THE NOTES .................................... I-1
S-3
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING BASE 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.
We have not authorized anyone to provide you with different information.
We sometimes refer to the accompanying prospectus as the base prospectus. You
should read both the base prospectus and this prospectus supplement to
understand the notes.
For your convenience, we include cross-references in this prospectus
supplement and in the base prospectus to captions in these materials where you
can find related information. The Tables of Contents on pages S-2 and S-3 of
this prospectus supplement and on pages 3-5 of the base prospectus provide the
pages on which you can find these captions.
Affiliates of the issuing entity expect to enter into market-making
transactions in the notes 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
___________________
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.
Certain statements contained in or incorporated by reference in this
prospectus supplement and the accompanying base prospectus consist of
forward-looking statements relating to future economic performance or
projections and other financial items. These statements can be identified by the
use of forward-looking words such as "may," "will," "should," "expects,"
"believes," "anticipates," "estimates," or other comparable words.
Forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ from the projected results. Those
risks and uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental regulations,
customer preferences and various other matters, many of which are beyond our
control. Because we cannot predict the future, what actually happens may be very
different from what is contained in our forward-looking statements.
IRISH STOCK EXCHANGE INFORMATION
In connection with the proposed listing of the class A notes on the
Official List of The Irish Stock Exchange Limited, the depositor accepts
responsibility for the information contained in this prospectus supplement and
the accompanying prospectus. To the best of the depositor's knowledge and
belief, having taken all reasonable care to ensure that such is the case, 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 Limited in connection with the listing of the class A notes.
S-4
SUMMARY OF PARTIES TO THE TRANSACTION*
This chart provides only a simplified overview of the relations between
the principal parties to the transaction. Refer to this prospectus supplement
for a further description.
( )
( )
( Sale )
( of )
___________________( Trust )__________________
| ( Student ) |
| ( Loans ) |
| ( ) |
| ( ) |
| |
| |---------------------------|
| | |
| | SLC Student Loan |
| |------------------------| | Receivables I, Inc. |
| | | | (Depositor) |
| | CitiMortgage, Inc. | | |
| | (Sub-administrator) | |---------------------------|
| | | |
| |------------------------| |
| | |
| | |---------------------------|
| | | | |--------------------------|
| ) | Wilmington Trust Company | | |
| ( ) | (Owner Trustee) | /| Citibank, N.A. |
| ( ) | | / | (Eligible Lender Trustee |
| ( ) |---------------------------| / | and Indenture |
| ( Administration ) | / | Administrator) |
| of the | / | |
- ----------------------------| ( Issuing Entity )\ | / |--------------------------|
| | ( ) \ |-----------------------------| /
| |----------( ) \ | | /
| | ( ) \| |/
| Student Loan Corporation | ) |SLC Student Loan Trust 2006-1|\
|(Sponsor, Seller, Servicer | /| (Issuing Entity) | \
| and Administrator) | ) / | | \
| | ( ) / | | \ |--------------------------|
| |----------( ) / |-----------------------------| \ | |
| | ( ) / | \ \ | U.S. Bank, National |
|---------------------------| Servicing of / | \ \ | Association |
( Trust Student ) |---------------------------| \ \ | (Indenture Trustee) |
Loans | | \ \| |
( ) | | \ |--------------------------|
( ) | Citigroup | \
( ) | Lehman Brothers | \ (
) | Merrill Lynch & Co. | \ ( )
| | (Underwriters) | \ ( Trust )
| | | ( Certificate )
|------------------------| |---------------------------| ( )
| | | ( )
| Citibank USA, | | (
| National | |
| Association | ( ( ( ( ) ) ) )
| (Sub-servicer) | ( )
| | ( )
|------------------------| ( Class A-1 Notes )
( Class A-2 Notes )
( Class A-3 Notes )
( Class A-4 Notes )
( Class A-5 Notes )
( Class A-6 Notes )
( Class B Notes )
( )
( )
( ( ( ( ) ) ) )
* This chart provides only a simplified overview of the relations between
the key parties to the transaction. Refer to this prospectus supplement
for a further description.
Affiliations, Certain Relationships and Related Transactions
o The depositor is a wholly-owned, special-purpose subsidiary of the
sponsor;
o The sponsor, seller, servicer and administrator are the same entity
and an 80% owned indirect subsidiary of Citigroup, Inc., and are
affiliates of the eligible lender trustee, indenture administrator
and sub-servicer;
o The sub-servicer is an indirect wholly owned subsidiary of
Citigroup, Inc., the parent of the sponsor;
o The sub-administrator is an affiliate of the sponsor and the
depositor; and
o The eligible lender trustee and the indenture administrator are the
same entity and own 80% of the outstanding common stock of the
sponsor.
There are no business relationships, agreements, arrangements,
transactions or understandings entered into outside the ordinary course of
business or on terms other than those that would be obtained in an arm's length
transaction with an unrelated third party that are material to noteholders other
than as described in this prospectus supplement and the accompanying base
prospectus between or among the sponsor and the issuing entity and any other
principal party.
S-5
PAYMENT FLOWS AND DELIVERIES
|---------------------------|/ Loans for $ |------------------------------------|
| |-------------------------------------------------------------| |
| |\ $ for Loans \| |
| |-------------------------------------------------------------| |
| | /| |
| | Trust Certificate \| |
| |-------------------------------------------------------------| |
| SLC Student Loan | /| Student Loan Corporation |
| Receivables I, Inc. | | |
| |/ Trust Certificate |-----------------------------| | |
| |------------------------| | | |
| |\ | | | |
| |/ $ for Loans | | | |
| |------------------------| | | |
| |\ \| | |------------------------------------|
| |------------------------|SLC Student Loan Trust 2006-1| |
|---------------------------| Loans for $ /| | |
| | |
/ Notes for $ | | |
|---------------------------|------------------------| | |
| |\ \| | | Legal
| |------------------------| | | Title for
| | $ for Notes /|-----------------------------| | Loans
| | | |
| Underwriters | | |
| | | |
| | | Quarterly |
| | | Distribution |
| | | of $ |
|---------------------------| | |
/|\ | | \|/
| | | |-----------------------------------|
$ for Notes | | Notes for $ | | |
| | | | |
| | | | |
| \|/ \|/ | |
|---------------------------| |-----------------------------| | |
| | Quarterly | | | Eligible Lender Trustee |
| | Distribution of $ | | | |
| | | | | |
| Investors |------------------------| Indenture Trustee | | |
| | | | | |
| | | | | |
| | | | | |
|---------------------------| |-----------------------------| |-----------------------------------|
S-6
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 base prospectus. You should read the full
description of this information appearing elsewhere in this prospectus
supplement and in the base prospectus to understand all of the terms of the
offering of the notes.
Principal Parties
Issuing Entity
SLC Student Loan Trust 2006-1
Depositor
SLC Student Loan Receivables I, Inc.
Sponsor, Seller, Servicer and Administrator
The Student Loan Corporation
Sub-servicer
Citibank USA, National Association
Sub-administrator
CitiMortgage, Inc.
Indenture Trustee
U.S. Bank National Association
Indenture Administrator
Citibank, N.A.
Eligible Lender Trustee
Citibank, N.A.
Owner Trustee
Wilmington Trust Company
The Notes
The issuing entity 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 $190,000,000;
o Floating Rate Class A 2 Student Loan Asset Backed Notes in the
amount of $418,000,000;
o Floating Rate Class A 3 Student Loan Asset Backed Notes in the
amount of $221,000,000;
S-7
o Floating Rate Class A 4 Student Loan Asset Backed Notes in the
amount of $451,000,000;
o Floating Rate Class A 5 Student Loan Asset Backed Notes in the
amount of $442,000,000; and
o Floating Rate Class A 6 Student Loan Asset Backed Notes in the
amount of $463,000,000;
Class B Notes:
o Floating Rate Class B Student Loan Asset Backed Notes in the amount
of $67,500,000.
We sometimes refer to the class A-1, A-2, A-3, A-4, A-5 and A-6 notes,
collectively, as the class A notes, and to the class A notes and the class B
notes, collectively, as the notes.
Dates
The closing date for this offering is anticipated to be on or about June
28, 2006.
The information about the trust student loans in this prospectus
supplement is calculated and presented as of April 28, 2006. We refer to this
date as the statistical cutoff date.
The cutoff date for the pool of trust student loans will be the closing
date, after which time the issuing entity will be entitled to receive all
collections and proceeds on the trust student loans.
A distribution date for each class of notes is the 15th of each March,
June, September and December, beginning September 15, 2006. 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 issuing entity only. The notes will
receive payments primarily from collections on the pool of trust student loans
acquired by the issuing entity on the closing date.
The notes are LIBOR-based notes. 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 for the notes begins on a distribution date and ends
on the day before the next distribution date. The first accrual period for the
notes, however, will begin on the closing date and end on September 14, 2006,
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 or minus the
applicable spread listed in the table below:
Class Spread
---------------------- -----------
A-1 Notes............. minus 0.03%
A-2 Notes............. plus 0.00%
A-3 Notes............. plus 0.03%
A-4 Notes............. plus 0.08%
A-5 Notes............. plus 0.11%
A-6 Notes............. plus 0.16%
B Notes............... plus 0.21%
See "Description of the Notes--The Notes--The Class A Notes--Distributions
of Interest" in this prospectus supplement for a description of how LIBOR will
be 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 and "Certain
Information Regarding the Notes--Determination of Indices--
S-8
LIBOR" in the base prospectus. 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-6 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.
The class B percentage is zero prior to the stepdown date and on any other
distribution date if a trigger event is in effect. On each other distribution
date, it is the percentage obtained by dividing:
o the aggregate principal balance of the class B notes, by
o the aggregate principal balance, or U.S. Dollar equivalent, of all
outstanding notes less all amounts on deposit, exclusive of any
investment earnings, in any accumulation account, in each case
determined immediately prior to that distribution date.
The stepdown date will be the earlier of:
o the distribution date in September 2012, or
o the first date on which no class A notes remain outstanding.
A trigger event will be in effect on any distribution date (i) while any
of the class A notes are outstanding, if the outstanding principal balance of
the notes, after giving effect to distributions to be made on that distribution
date, would exceed the pool balance for that distribution date 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.
See "Description of the Notes--Distributions" in this prospectus
supplement for a more detailed description of principal payments. See also
"Description of the Notes--Distributions Following an Event of Default and
Acceleration of the Maturity of the Notes" in this prospectus supplement for a
description of the cash flows on each distribution date following the occurrence
of an event of default and an acceleration of the maturity of the notes.
Maturity Dates. Each class of notes will mature no later than the date set
forth below for that class:
o The class A 1 notes will mature no later than December 15, 2010;
S-9
o the class A 2 notes will mature no later than June 15, 2015;
o the class A 3 notes will mature no later than September 15, 2017;
o the class A 4 notes will mature no later than December 15, 2021;
o the class A 5 notes will mature no later than March 15, 2027;
o the class A 6 notes will mature no later than December 15, 2038; and
o the class B notes will mature no later than March 15, 2039.
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 cannot 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, cannot occur until
the first distribution date on which the pool balance is 10% or less
of the initial pool balance).
Prepayments, Extensions, Weighted Average Lives and Expected Maturities of
the Notes. The projected weighted average life, expected maturity date and
percentages of remaining principal balance of each class of notes under various
assumed prepayment scenarios may be found under "Prepayments, Extensions,
Weighted Average Lives and Expected Maturities of the Notes" included as Exhibit
I attached to this prospectus supplement.
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. 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.
Losses and Shortfalls. If and to the extent that any losses in collections
on the trust student loan assets are not covered or offset by credit
enhancement, such losses may result in shortfalls of distributions to the
noteholders and other payees in the order of priority of distributions. See
"Description of the Notes--Distributions--Distributions from the Collection
Account" 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 and Euroclear. 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
issuing entity, primarily the trust student loans.
Indenture Trustee
The issuing entity will issue the notes under an indenture to be dated as
of the closing date. Under the indenture, U.S. Bank National Association will
act as indenture trustee.
Eligible Lender Trustee
Citibank, N.A. will be the eligible lender trustee under the eligible
lender trust agreements. It will hold legal title to the assets of the issuing
entity for the benefit of the issuing entity.
S-10
Indenture Administrator and Paying Agent
Citibank, N.A. 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 issuing entity 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 base
prospectus.
Servicer and Sub-servicer
Under the servicing agreement, SLC will service the trust student loans on
behalf of the issuing entity. Under the circumstances described in the base
prospectus, the servicer may transfer or subcontract its obligations to other
entities. See "Servicing and Administration" in the base prospectus.
Under the subservicing agreement, Citibank USA, National Association will
sub-service the trust student loans on behalf of the issuing entity. 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 March 31, 2006, Citibank USA, National Association
and its affiliates had approximately 3,200 employees located at the Sioux Falls
facility. More than 800 employees located at the Sioux Falls facility or other
facilities service student loans on behalf of SLC. As of March 31, 2006,
Citibank USA, National Association serviced approximately $26 billion 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
Wilmington Trust Company will be the owner trustee under the trust
agreement. Wilmington Trust Company is a Delaware banking corporation with trust
powers incorporated in 1903. Wilmington Trust Company's principal place of
business is located at 1100 North Market Street, Wilmington, Delaware 19890.
Wilmington Trust Company has served as owner trustee in numerous asset-backed
securities transactions involving student loan receivables. Wilmington Trust
Company is subject to various legal proceedings that arise from time to time in
the ordinary course of business. Wilmington Trust Company does not believe that
the ultimate resolution of any of these proceedings will have a materially
adverse effect on its services as owner trustee.
Wilmington Trust Company has provided the above information for purposes
of complying with Regulation AB. Other than the above paragraph, Wilmington
Trust Company has not participated in the preparation of any other information
contained in this Prospectus Supplement.
Irish Listing Agent and Paying Agent
McCann FitzGerald Listing Services Limited will act as the Irish listing
agent and Custom House Administration and Corporate Services Limited 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 Dublin, Ireland.
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.
S-11
Information About the Issuing Entity
Formation of the Trust
The issuing entity is a Delaware statutory trust created under a trust
agreement dated as of June 15, 2006. We sometimes refer to the issuing entity as
a "trust" in this prospectus supplement.
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 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 December 31, 2006), 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 from SLC
and will sell them to the trust. Citibank, N.A., as eligible lender trustee,
will hold legal title to the student loans for the benefit of 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; 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.
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.
See "Appendix A--Federal Family Education Loan Program" to the base prospectus
for a description of each type of FFELP student loan.
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
$2,208,519,917 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 3.51% and
their weighted average remaining term to scheduled maturity was approximately
258 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.
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 base prospectus.
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Any special allowance payments on the trust student loans are based on the
three-month financial commercial paper rate.
The guarantee agencies described in this prospectus supplement guarantee
all of the trust student loans. See "The Trust Student Loan Pool--Insurance of
Trust Student Loans; Guarantors of Trust Student Loans" in this prospectus
supplement. The trust student loans are also reinsured by the U.S. Department of
Education.
Significant Guarantors. California Student Aid Commission, guarantees
17.10% of the trust student loans; New York State Higher Education Services
Corporation, guarantees 40.46% of the trust student loans; United Student Aid
Funds, Inc., guarantees 28.67% of the trust student loans. See "The Trust
Student Loan Pool--Insurance of Trust Student Loans; Guarantors of Trust Student
Loans" in this prospectus supplement.
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 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 base
prospectus.
A collection period is the three-month period ending on the last day of
February, May, August or November, 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 August 31, 2006.
Excess Interest. Excess interest (as part of all interest collections)
will be collected and deposited into the collection account and will become part
of the available funds. There can be no assurance as to the rate, timing or
amount, if any, of excess interest. See "Description of the Notes --Credit
Enhancement--Excess Interest" in this prospectus supplement.
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 of the
sale of the notes into the reserve account on the closing date. The initial
deposit will be in cash or eligible investments equal to $5,521,300.
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 remaining 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 0.25% of the pool balance at the end of the related collection
period; and
o $3,312,780.
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
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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 the market value of securities and cash in the reserve account on any
distribution date are 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. See "Description of the Notes--Credit
Enhancement--Reserve Account" in this prospectus supplement.
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
$43,000,000.
On or prior to the September 2007 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 September
2007 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 September 2007 distribution date.
Because it will not be replenished, in certain circumstances the capitalized
interest account could be depleted. This depletion could result in shortfalls in
interest distributions to noteholders.
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 $ 190,000,000
A-2 Notes $ 418,000,000
A-3 Notes $ 221,000,000
A-4 Notes $ 451,000,000
A-5 Notes $ 442,000,000
A-6 Notes $ 463,000,000
B Notes $ 67,500,000
--------------
Total $2,252,500,000
==============
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
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administrator, the indenture trustee, the owner trustee and the eligible lender
trustee not to exceed $30,000 per annum in the aggregate), and then generally as
shown in the chart below. See "Description of Note--Distributions" in this
prospectus supplement.
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----------------------------------
COLLECTION ACCOUNT
----------------------------------
|
|
v
----------------------------------
SERVICER
1st (Primary Servicing Fee and
Administration Fee)
----------------------------------
|
|
v
----------------------------------
CLASS A NOTEHOLDERS
2nd (Class A Noteholders'
Interest Distribution Amount)
----------------------------------
|
|
v
----------------------------------
3rd CLASS B NOTEHOLDERS
(if the Class B Interest Subordination (Class B Noteholders'
Condition is not in effect) Interest Distribution Amount)
----------------------------------
|
|
|
4th v
(first to class A-1 until paid in full, ----------------------------------
then to class A-2 until paid in full, CLASS A NOTEHOLDERS
then to class A-3 until paid in full, (Class A Noteholders'
then to class A-4 until paid in full, Principal Distribution Amount)
then to class A-5 until paid in full, ----------------------------------
and then to class A-6 until paid in full) |
|
|
v
----------------------------------
5th CLASS B NOTEHOLDERS
(if the Class B Interest Subordination (Class B Noteholders'
Condition is in effect) Interest Distribution Amount)
----------------------------------
|
6th |
((i) on or after the Stepdown Date and |
(ii) provided that (x) if a Trigger Event v
has occurred and is continuing and (y) any ----------------------------------
class A notes are outstanding, then the CLASS B NOTEHOLDERS
remaining Available Funds will be (Class B Noteholders'
distributed sequentially to the class A-1, Principal Distribution Amount)
class A-2, class A-3, class A-4, ----------------------------------
Class A-5 and Class A-6 |
noteholders, in that order, until each such |
class is paid in full) |
v
----------------------------------
RESERVE ACCOUNT
(Amount, if any, necessary to
7th reinstate the Reserve Account
balance to the Specified Reserve
Account Balance)
----------------------------------
|
|
v
----------------------------------
8th SERVICER
(Carryover Servicing Fee, if any)
----------------------------------
|
|
v
----------------------------------
9th INDENTURE ADMINISTRATOR
(pro rata, for all amounts due to them and INDENTURE TRUSTEE
not previously paid for the related OWNER TRUSTEE
distribution date) ELIGIBLE LENDER TRUSTEE
----------------------------------
|
|
v
----------------------------------
10th HOLDER OF TRUST
CERTIFICATE
(any remaining amounts)
----------------------------------
S-16
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 an 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.
SLC will have similar obligations under the purchase agreement. See
"Transfer Agreements--Purchase of Student Loans by the Depositor;
Representations and Warranties of the Sellers" in the base prospectus.
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 U.S. Department of Education. See "Servicing and
Administration--Servicing Procedures" and "Servicing and
Administration--Administration Agreement" in the base prospectus. Under some
circumstances, the servicer may transfer its obligations as servicer. See
"Servicing and Administration--Certain Matters Regarding the Servicer" in the
base 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 "Servicing and Administration--Servicer Covenants" in the
base prospectus.
Under a subservicing agreement, Citibank USA, National Association, as
sub-servicer, will agree to perform some or most 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 U.S.
Department of Education in recognition of its exceptional level of performance
in servicing FFELP student loans. As a result, instead of receiving the standard
rate of 97% for loans disbursed on or after July 1, 2006 (and 98% for loans
disbursed prior to July 1, 2006), SLC will receive 99% reimbursement on all
eligible FFELP default claims filed for reimbursement on or after July 1, 2006
(and 100% for default claims filed prior to July 1, 2006) on loans that SLC
services including the trust student loans. The reimbursement rate could be
reduced as a result of a variety of factors, including further 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 1/12th of 0.50% 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 15th of each month,
or if the 15th is not a business day, then on the next business day, beginning
in July, 2006. 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.
S-17
The carryover servicing fee is the sum of:
o the amount of specified increases in the costs incurred by the
servicer;
o the amount of specified conversion, transfer and removal fees;
o any amounts described in the first two bullets that remain unpaid
from prior distribution dates; and
o interest on any unpaid amounts.
See "Description of the Notes --Distributions" and "--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 base 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.
See "Description of the Notes--Optional Purchase" in this prospectus
supplement.
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 third 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 higher of:
S-18
o the minimum purchase amount described under "--Optional Purchase"
above (plus any amounts owed to the servicer as carryover servicing
fees); or
o the fair market value of the trust student loans as of the end of
the related collection period.
If at least two bids are not received or the highest bid after the
re-solicitation process does not equal or exceed that amount, the financial
advisor will not complete the sale. The indenture administrator at the direction
of the depositor will be required to consult with a financial advisor, including
an underwriter of the securities or the administrator, to determine the fair
market value of the trust student loans. 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.
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 or allocations of note principal.
See "The Student Loan Pools--Termination" in the base prospectus.
Upon termination of the trust, any remaining assets of that trust, after
giving effect to final distributions to the noteholders, will be transferred to
the reserve account and paid as provided under "Description of the Notes--Credit
Enhancement--Reserve Account" in this prospectus supplement.
Trust Certificateholder
Under the sale agreement between the trust and the depositor, the trust
will issue a trust certificate to the depositor. This trust certificate will
represent the ownership of the residual interest in the trust. Under the
purchase agreement between the depositor and SLC, the depositor will transfer a
trust certificate to SLC as part of the consideration for the sale of the trust
student loans being sold to the depositor by SLC under the related purchase
agreement.
Certain 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 "Certain U.S. Federal Income Tax Considerations" in the base 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 base 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.
S-19
See "Certain ERISA Considerations" in this prospectus supplement and the
base 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 Aaa/AAA/AAA
A-2 Notes Aaa/AAA/AAA
A-3 Notes Aaa/AAA/AAA
A-4 Notes Aaa/AAA/AAA
A-5 Notes Aaa/AAA/AAA
A-6 Notes Aaa/AAA/AAA
B Notes Aa1/AA+/AA+
See "Ratings of the Notes" in this prospectus supplement.
Listing Information
Application will be made to The Irish Stock Exchange Limited for the class
A notes to be admitted to the Official List and to trading on its regulated
market. There can be no assurance that such a listing will be obtained. You may
consult with the Irish listing agent to determine their status. You can contact
the listing agent at 2 Habourmaster Place, International Financial Services
Centre, Dublin 1, Ireland.
We expect that the notes will be accepted for clearance and settlement by
Clearstream 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 base prospectus
under "Risk Factors."
Identification Numbers
The offered notes will have the following CUSIP Numbers and International
Securities Identification Numbers (ISIN):
Class CUSIP Numbers ISINs
--------------- ------------- ------------
Class A-1 notes 784427 AA 4 US784427AA44
Class A-2 notes 784427 AB 2 US784427AB27
Class A-3 notes 784427 AC 0 US784427AC00
Class A-4 notes 784427 AD 8 US784427AD82
Class A-5 notes 784427 AE 6 US784427AE65
Class A-6 notes 784427 AF 3 US784427AF31
Class B notes 784427 AG 1 US784427AG14
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RISK FACTORS
You should carefully consider the following risk 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 base prospectus describes additional risk factors that you should
also consider beginning on page 17 of the base 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 and, to lesser extent, holder of class A notes with
higher numerical designations, bear a greater risk of loss than holders of class
A notes with lower numerical designations because:
o On each distribution date, distributions of interest on the class B
notes will be subordinate to the payment of interest and, if class B
interest subordination condition is in effect, to the payment of
principal 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;
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; and
o No principal will be paid to any holders of class A notes with
higher numerical designations until each class of the class A notes
having lower numerical designation 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 on 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.
Certain Credit Enhancement Features Are Limited and if They Are Depleted,
There May Be Shortfalls in Distributions to Noteholders
Certain credit enhancement features, including the reserve account,
consist of a limited amount of funds. In certain circumstances, for example, if
there is a shortfall in available funds, such amounts may be depleted. This
depletion could result in shortfalls in distributions to noteholders.
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
S-21
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
actual characteristics of the trust student loans will vary somewhat from the
characteristics of the trust student loans presented in this prospectus
supplement as of the statistical cutoff date.
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 U.S.
Department of Education in recognition of its exceptional level of performance
in servicing FFELP student loans, will receive 99% reimbursement, on all
eligible FFELP default claims filed for reimbursement on or after July 1, 2006
on loans that SLC services (and 100% reimbursement for all eligible FFELP
default claims filed by SLC prior to July 1, 2006). This rate could be further
reduced as a result of a variety of factors, including further changes to FFELP
or in SLC's servicing performance. If a borrower defaults on a student loan that
is guaranteed at a level less than 100% the trust will experience a loss equal
to the unguaranteed percentage of the outstanding principal and interest with
respect to the defaulted student loan. Non-exceptional performers will be
reimbursed at a percentage rate level of 98% for loans made prior to July 1,
2006 and at the 97% level for loans made on or after July 1, 2006. 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 effective
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 indices or do
not adjust at all. 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. The Higher Education Reconciliation Act
of 2005 extended the current provisions of FFELP through 2012. Under this Act, a
number of changes to the Higher Education Act, including changing loan limits,
changing interest rate provisions and decreasing origination fees, were made.
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 SLC, 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. 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.
DEFINED TERMS
In later sections, we use a few terms that we define in the Glossary at
the end of this prospectus supplement. These terms appear in bold face on their
first use and in initial capital letters in all cases.
S-22
FORMATION OF THE TRUST
The Trust
The SLC Student Loan Trust 2006-1 is a statutory trust newly formed under
Delaware law and under a short-form trust agreement dated as of June 15, 2006,
between the depositor and the owner trustee. The short-form trust agreement will
be amended on the closing date pursuant to an amended and restated trust
agreement dated as of the closing date among the depositor and the owner
trustee.
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; 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 capitalized interest account and the reserve
account, and to purchase, on behalf of the trust, the trust student loans. The
trust 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 the trust to
pay to SLC the purchase price for 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 agreements and the 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; and
o its rights under the guarantee agreements with guarantors.
The Sections "Transfer Agreements", "Servicing and Administration" and
"Description of the Notes" in the base prospectus contain descriptions of the
material provisions of the transaction documents.
The notes will be secured by the property of the trust. The collection
account, the reserve account and the capitalized interest account will be
maintained by the indenture administrator 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 at 1100 North Market Street, Wilmington,
Delaware 19890, in care of Wilmington Trust Company, as owner trustee.
Other than issuing the notes, the trust will not be permitted to borrow
money or make loans to other persons. The permitted activities of the trust may
be amended only with the consent of a majority of all of the noteholders;
S-23
however, the trust agreement may be modified without noteholder consent if an
opinion of counsel is provided to the effect that such proposed revisions would
not adversely affect in any material respect the interests of any noteholder.
The trust and its assets (other than the trust student loans) will be
administered by the administrator pursuant to the administration agreement. The
servicer will be responsible for the servicing and collection of the trust
student loans pursuant to the servicing agreement. See "Servicing and
Administration" in the base prospectus.
The trust will not own any other assets. The fiscal year of the trust will
be a calendar year.
The trust certificate will represent the ownership of the residual
interest in the trust. Under the related purchase agreement between the
depositor and SLC, the depositor will transfer the trust certificate to SLC as
part of the consideration for the sale of the trust student loans being sold to
the depositor by SLC under the related purchase agreement.
Non-Petition. Each transaction agreement will contain "non-petition"
covenants to prevent the commencement of any bankruptcy or insolvency
proceedings against the depositor and/or the trust, as applicable, by any of the
transaction parties or by the noteholders.
Security Interest. We have structured the transactions described in this
prospectus supplement to assure that each transfer of trust student loans to the
depositor and to the issuing entity constitutes a "true sale" of those trust
student loans. If the transfer constitutes a "true sale", the trust student
loans and related proceeds would not be property of the applicable seller should
that seller become subject to any insolvency law. Although SLC and the depositor
will express its intent to treat the conveyance of the trust student loans as a
sale, each of them will also grant to the eligible lender trustee on behalf of
the trust, a security interest in the trust student loans. This security
interest is intended to protect the interests of the noteholders if a bankruptcy
court were to characterize SLC's or the depositor's transfer of the trust
student loans as a borrowing secured by a pledge of the trust student loans. In
the event that a bankruptcy court did characterize the transaction as a
borrowing by SLC or the depositor, that borrowing would be secured by the trust
student loans in which SLC or the depositor granted a security interest to the
eligible lender trustee. SLC and the depositor have agreed to take any actions
that are necessary to maintain the security interest granted to the eligible
lender trustee as a first priority, perfected security interest in the trust
student loans, including the filing of Uniform Commercial Code financing
statements, as necessary. This security interest will be assigned to the
indenture trustee for the benefit of the noteholders.
Eligible Lender Trustee
The Eligible Lender Trustee is Citibank, N.A., a national banking
association and wholly owned subsidiary of Citigroup Inc., a Delaware
corporation. Citibank, N.A. performs as trustee through the Agency and Trust
line of business, which is part of the Global Transaction Services division.
Citibank, N.A. has primary corporate trust offices located in both New York, New
York and London, England. Citibank, N.A. is a leading provider of corporate
trust services offering a full range of agency, fiduciary, tender and exchange,
depositary and escrow services. As of the first quarter of 2006, Citibank's
Agency & Trust group manages in excess of $3.3 trillion in fixed income and
equity investments on behalf of approximately 2,500 corporations worldwide.
Since 1987, Citibank Agency & Trust has provided trustee services for
asset-backed securities containing pool assets consisting of airplane leases,
auto loans and leases, boat loans, commercial loans, commodities, credit cards,
durable goods, equipment leases, foreign securities, funding agreement backed
note programs, truck loans, utilities, student loans and commercial and
residential mortgages. As of the first quarter of 2006, Citibank, N.A. acts as
eligible lender trustee and/or paying agent for approximately 5 student loan
asset-backed note transactions.
Citibank, N.A. is the eligible lender trustee for the trust under the
trust agreement. The eligible lender trustee will acquire on behalf of the trust
legal title to all the trust student loans acquired under the sale agreement on
the closing date. 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 U.S. 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 base 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. The
eligible lender
S-24
trustee will be entitled to be indemnified by the trust for any loss, liability
or expense (including reasonable attorneys' fees) incurred by it in connection
with the performance of its duties under the eligible lender trust agreement
except for any loss, liability or expenses caused by the eligible lender
trustee's bad faith or negligence. See "Description of the Notes" in this
prospectus supplement and "Transfer Agreements" in the base prospectus.
There is a $30,000 per annum aggregate limit on the amounts, including
fees and expenses, payable to the eligible lender trustee, the indenture
administrator, the indenture trustee and the owner trustee from the cash flow on
the trust student loans prior to the amounts distributed to the noteholders.
Remaining amounts, if any, payable to the eligible lender trustee, indenture
administrator, indenture trustee and owner trustee will be subordinate to
amounts payable to the noteholders. See "Description of the
Notes--Distributions--Distributions from the Collection Account" in this
prospectus supplement.
Affiliates of the depositor maintain customary banking relations on
arm's-length terms with the eligible lender trustee.
The eligible lender trustee may resign at any time. The administrator may
also remove the eligible lender trustee if it becomes insolvent or ceases to be
eligible to continue as eligible lender trustee. In the event of such a
resignation or removal, the administrator will appoint a successor. The
resignation or removal of the eligible lender trustee and the appointment of a
successor will become effective only when a successor accepts its appointment.
The depositor will be responsible for the payment of expenses incurred in
connection with the replacement of the eligible lender trustee.
The depositor's obligations after issuance of the notes include (i)
repurchasing trust student loans in the event of certain breaches of
representations or warranties made by the depositor, (ii) providing tax-related
information to the eligible lender trustee, and (iii) maintaining the eligible
lender trustee's first priority perfected security interest in the assets of the
trust.
S-25
ADDITIONAL INFORMATION CONCERNING OTHER PRINCIPAL PARTIES
Indenture Trustee
The trust will issue the notes under an indenture to be dated as of the
closing date. Under the indenture, U.S. Bank National Association will act as
indenture trustee.
U.S. Bank National Association is a national banking association and a
wholly-owned subsidiary of U.S. Bancorp, which is currently ranked as the sixth
largest bank holding company in the United States with total assets exceeding
$210 billion as of March 31, 2006. As of March 31, 2006, U.S. Bancorp served
approximately 13.4 million customers, operated 2,430 branch offices in 24 states
and had over 51,000 employees. A network of specialized U.S. Bancorp offices
across the nation, inside and outside its 24-state footprint, provides a
comprehensive line of banking, brokerage, insurance, investment, mortgage, trust
and payment services products to consumers, businesses, governments and
institutions.
U.S. Bank National Association has one of the largest corporate trust
businesses in the country with offices in 31 U.S. cities. The indenture will be
administered from U.S. Bank National Association's corporate trust office
located at One Federal Street, Third Floor, Boston, Massachusetts 02110. The
telephone number of the indenture trustee is (617) 603-6413.
U.S. Bank National Association has provided corporate trust services since
1924. As of March 31, 2006, U.S. Bank National Association was acting as trustee
with respect to approximately 56,104 issuances of securities with an aggregate
outstanding principal balance of over $1.5 trillion. This portfolio includes
corporate and municipal bonds, mortgage-backed and asset-backed securities and
collateralized debt obligations.
On December 30, 2005, U.S. Bank National Association purchased the
corporate trust and structured finance trust services businesses of Wachovia
Corporation. Following the closing of the acquisition, the Wachovia affiliate
named as fiduciary or agent, as applicable, under each client agreement will
continue in that role until U.S. Bank National Association succeeds to that role
in accordance with the terms of the governing instrument or agreement and
applicable law.
As of December 31, 2005, U.S. Bank National Association (and its affiliate
U.S. Bank Trust National Association) was acting as trustee on 65 issuances of
student loan-backed securities with an outstanding aggregate principal balance
of approximately $4,489,000,000.
Affiliates of the depositor maintain customary banking relations on
arm's-length terms with the indenture trustee.
The indenture trustee will act on behalf of the noteholders and represent
their interests in the exercise of their rights under the indenture.
The depositor will be responsible for the payment of expenses incurred in
connection with the replacement of the indenture trustee.
The indenture trustee will not be personally liable for any actions or
omissions that were not the result of its own bad faith, fraud, willful
misconduct or negligence. The indenture trustee will be entitled to be
indemnified by the administrator for any loss, liability or expense (including
reasonable attorneys' fees) incurred by it in connection with the performance of
its duties under the indenture and the other transaction documents. Upon the
occurrence of an event of default, and in the event the administrator fails to
reimburse the indenture trustee, the indenture trustee will be entitled to
receive all such amounts owed from cash flow on the trust student loans prior to
any amounts being distributed to the noteholders.
Sub-servicer
Servicing History and Experience
Citibank USA, National Association ("Citibank USA"), a national banking
association, is an indirect wholly owned subsidiary of Citigroup, with over
$6,627,113,000 in assets. Headquartered in Sioux Falls, South Dakota, Citibank
USA services student loans, principally Federally Family Education Loans (FFEL),
Parent Loans for
S-26
Undergraduate Students (PLUS), Loan Consolidation, and CitiAssist, Citibank's
Private Loan. Citibank USA processes to originate and service federally insured
student loans as well as consumer loans made to finance educational costs,
including student loans made under Title IV, Part B of the Higher Education Act
of 1965, as amended (collectively referred to as "Education Loans") in
accordance with the laws, rules and regulations applicable to those loans.
Citibank USA began its education loan servicing operation in 1998. It
offers student loan servicing to schools, guarantors and other third party
lending institutions. Citibank USA 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 allows SLC to utilize the
substantial employee base that Citibank USA 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 March 31, 2006, Citibank USA, National Association and its
affiliates had approximately 3,200 employees located at the Sioux Falls
facility. More than 800 employees located at the Sioux Falls facility or other
facilities service student loans on behalf of SLC. As of March 31, 2006 Citibank
USA serviced approximately $26 billion in student loans.
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, and will follow the same servicing procedures of the servicer.
USE OF PROCEEDS
The trust will use the net proceeds of $2,247,545,230 from the sale of the
notes, together with any other amount contributed by the depositor, to make the
initial deposits into the reserve account and the capitalized interest account,
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 respective purchase prices 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. Such expenses are not paid from
proceeds of the sale of the notes. Expenses to be paid by the depositor are
estimated to be $1,550,000.
S-27
THE TRUST STUDENT LOAN POOL
General
The eligible lender trustee, on behalf of the trust, will purchase the
pool of the trust student loans from the depositor under the sale agreement 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 April 28, 2006, which is the statistical cutoff date.
Eligible Trust Student Loans
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 FFELP
student loans owned by SLC or one of its affiliates by employing several
criteria, including requirements that each trust student loan as of the
statistical cutoff date:
o is a consolidation loan that 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 U.S. Department of
Education in accordance with 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.
No trust student loan as of the statistical cutoff date was subject to any
prior obligation to sell that loan to a third party.
Characteristics of the Trust Student Loans
The following tables provide a description of certain characteristics of
the trust student loans as of the statistical cutoff date. The aggregate
outstanding principal balance of the trust student loans in each of the
following tables includes the principal balance due from borrowers, plus accrued
interest to be capitalized of $8,091,928 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 terms to maturity of the
trust student loans as of the statistical cutoff date may vary significantly
from the actual terms to maturity of any of the trust student loans as a result
of prepayments or the granting of deferral and forbearance periods on any of the
trust student loans.
The following tables also contain information concerning the total number
of loans and the total number of borrowers in the portfolio of trust student
loans. For ease of administration, the servicer separates a consolidation loan
on its system into two separate loan segments representing subsidized and
unsubsidized segments of the same loan. The following tables reflect those loan
segments within the number of loans.
Percentages and dollar amounts in any table may not total 100% or the
trust student loan balance, as applicable, due to rounding.
S-28
COMPOSITION OF THE TRUST STUDENT LOANS
AS OF THE STATISTICAL CUTOFF DATE
Aggregate Outstanding Principal Balance..................... $2,208,519,917
Number of Borrowers......................................... 86,583
Average Outstanding Principal Balance Per Borrower.......... $25,508
Number of Loans............................................. 149,988
Average Outstanding Principal Balance Per Loan.............. $14,725
Weighted Average Remaining Term to Scheduled Maturity....... 258 months
Weighted Average Annual Borrower Stated Interest Rate....... 3.51%
We determined the weighted average remaining term to maturity shown in the
table from the statistical cutoff date to the stated maturity date of the
applicable trust student loan without giving effect to any deferral or
forbearance periods that may be granted in the future. See Appendix A to the
base prospectus and "The Student Loan Pools--The Student Loan Corporation's
Student Loan Business" in the base prospectus.
The weighted average annual borrower interest rate shown in the table is
exclusive of special allowance payments. The weighted average spread, including
special allowance payments, to the three-month commercial paper rate was 2.64%
as of the statistical cutoff date. See "Federal Family Education Loan
Program--Special Allowance Payments" in Appendix A to the base prospectus.
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.
S-29
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY ANNUAL BORROWER STATED INTEREST RATES AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool by
Aggregate Outstanding Outstanding
Stated Interest Rates Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
Less than 3.00% ................................................... 59,464 $901,701,386 40.83%
3.00% to 3.49% .................................................... 39,971 505,665,941 22.90%
3.50% to 3.99% .................................................... 14,897 233,921,138 10.59%
4.00% to 4.49% .................................................... 18,052 297,023,285 13.45%
4.50% to 4.99% .................................................... 6,543 102,617,162 4.65%
5.00% to 5.49% .................................................... 6,440 79,986,389 3.62%
Greater than 5.49% ................................................ 4,621 87,604,616 3.97%
--------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY OUTSTANDING PRINCIPAL BALANCE PER BORROWER
AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool by
Range of Outstanding Number of Aggregate Outstanding Outstanding
Principal Balance Borrowers Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
Less than $500.00 ................................................. 78 $20,996 *
$500.00 - $999.99 ................................................. 174 137,272 0.01%
$1,000.00 - $1,999.99 ............................................. 691 1,073,866 0.05%
$2,000.00 - $2,999.99 ............................................. 1,448 3,668,655 0.17%
$3,000.00 - $3,999.99 ............................................. 1,707 6,021,154 0.27%
$4,000.00 - $5,999.99 ............................................. 5,208 26,341,770 1.19%
$6,000.00 - $7,999.99 ............................................. 5,781 40,295,127 1.82%
$8,000.00 - $9,999.99 ............................................. 5,729 51,419,930 2.33%
$10,000.00 - $14,999.99 ........................................... 14,623 181,599,313 8.22%
$15,000.00 - $19,999.99 ........................................... 13,588 235,507,586 10.66%
$20,000.00 - $24,999.99 ........................................... 7,776 173,654,331 7.86%
$25,000.00 - $29,999.99 ........................................... 5,953 162,798,269 7.37%
$30,000.00 - $34,999.99 ........................................... 4,513 146,471,393 6.63%
$35,000.00 - $39,999.99 ........................................... 4,933 183,834,394 8.32%
$40,000.00 - $49,999.99 ........................................... 4,505 201,349,181 9.12%
$50,000.00 - $59,999.99 ........................................... 3,321 181,905,074 8.24%
$60,000.00 - $69,999.99 ........................................... 1,835 118,512,066 5.37%
$70,000.00 - $79,999.99 ........................................... 1,357 101,615,996 4.60%
$80,000.00 - $89,999.99 ........................................... 872 73,775,076 3.34%
$90,000.00 - $99,999.99 ........................................... 566 53,596,682 2.43%
$100,000.00 - $109,999.99 ......................................... 386 40,405,691 1.83%
$110,000.00 - $119,999.99 ......................................... 342 39,377,456 1.78%
$120,000.00 - $129,999.99 ......................................... 301 37,441,119 1.70%
$130,000.00 - $139,999.99 ......................................... 199 26,801,226 1.21%
$140,000.00 - $149,999.99 ......................................... 153 22,217,066 1.01%
$150,000.00 and greater ........................................... 544 98,679,228 4.47%
--------------- --------------------- ------------------
Total ........................................................ 86,583 $2,208,519,917 100.00%
=============== ===================== ==================
- -----------------------------------------------
* Represents a percentage less than 0.01%.
S-30
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool
Number of Months Remaining Aggregate Outstanding by Outstanding
to Scheduled Maturity Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
0 to 24 ........................................................... 442 $376,690 0.02%
25 to 36 .......................................................... 339 424,940 0.02%
37 to 48 .......................................................... 385 600,895 0.03%
49 to 60 .......................................................... 467 1,344,553 0.06%
61 to 72 .......................................................... 466 1,056,904 0.05%
73 to 84 .......................................................... 458 1,080,111 0.05%
85 to 96 .......................................................... 548 1,642,605 0.07%
97 to 108 ......................................................... 1,168 3,822,896 0.17%
109 to 120 ........................................................ 16,735 65,539,115 2.97%
121 to 132 ........................................................ 652 2,980,587 0.13%
133 to 144 ........................................................ 10,688 62,308,594 2.82%
145 to 156 ........................................................ 296 1,543,818 0.07%
157 to 168 ........................................................ 1,215 9,760,368 0.44%
169 to 180 ........................................................ 46,205 426,987,145 19.33%
181 to 192 ........................................................ 139 1,170,378 0.05%
193 to 220 ........................................................ 220 2,508,864 0.11%
221 to 260 ........................................................ 42,029 652,015,408 29.52%
261 to 300 ........................................................ 16,039 420,274,959 19.03%
Over 300 .......................................................... 11,497 553,081,089 25.04%
--------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
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
base prospectus and "The Student Loan Pools--The Student Loan Corporation's
Student Loan Business" in the base prospectus. Also, see "Risk Factors--You Will
Bear Prepayment and Extension Risk Due to Actions Taken by Individual Borrowers
and Other Variables Beyond Our Control" in the base prospectus.
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY CURRENT BORROWER PAYMENT STATUS AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool
Aggregate Outstanding by Outstanding
Current Borrower Payment Status Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
Deferral .......................................................... 36,062 $586,484,839 26.56%
Forbearance ....................................................... 8,903 201,258,611 9.11%
Repayment
First year in repayment ........................................ 105,023 1,420,776,467 64.33%
--------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
Current borrower payment status refers to the status of the borrower of
each trust student loan as of the statistical cutoff date. The borrower:
o may have temporarily ceased repaying the loan through a deferral or
a forbearance period; or
o may be currently required to repay the loan--repayment.
See Appendix A to the base prospectus and "The Student Loan Pools--The
Student Loan Corporation's Student Loan Business" in the base prospectus.
S-31
The weighted average number of months in repayment for all trust student
loans currently in repayment is approximately 4, calculated as the number of
months from the disbursement date to the statistical cutoff date.
SCHEDULED WEIGHTED AVERAGE REMAINING MONTHS IN STATUS OF THE
TRUST STUDENT LOANS BY CURRENT BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE
Scheduled Months in Status
-------------------------------------
Current Borrower Payment Status Deferral Forbearance Repayment(1)
- ------------------------------- -------- ----------- ------------
Deferral ..................... 14.4 0.0 274.84
Forbearance .................. 0.0 5.8 298.97
Repayment .................... 0.0 0.0 245.83
- ------------------------
(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. Of the $586,484,839 aggregate outstanding principal balance of
the trust student loans in deferral as of the statistical cutoff date,
$353,611,198 or approximately 16% of such loans are to borrowers who had not
graduated as of that date. We expect that a significant portion of these loans
could qualify for additional deferrals or forbearances at the end of their
current deferral periods as the related borrowers continue their education
beyond their current degree programs. As a result, the overall duration of any
applicable deferral and forbearance periods as well as the likelihood of future
deferral and forbearance periods within this pool of trust student loans is
likely to be higher than in other pools of student loans without similar numbers
of in-school consolidation loans. See Appendix A to the base prospectus and "The
Student Loan Pools--The Student Loan Corporation's Student Loan Business" in the
base prospectus.
S-32
GEOGRAPHIC DISTRIBUTION OF THE
TRUST STUDENT LOANS AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool by
Aggregate Outstanding Outstanding
Geographic Distribution Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
Alabama ........................................................... 1,255 $19,311,656 0.87%
Alaska ............................................................ 130 1,723,328 0.08%
Arizona ........................................................... 1,810 25,989,734 1.18%
Arkansas .......................................................... 349 4,541,508 0.21%
California ........................................................ 21,304 310,413,840 14.06%
Colorado .......................................................... 1,631 21,662,096 0.98%
Connecticut ....................................................... 2,037 33,110,467 1.50%
Delaware .......................................................... 219 3,711,328 0.17%
District of Columbia .............................................. 1,323 22,199,777 1.01%
Florida ........................................................... 6,848 96,843,435 4.38%
Georgia ........................................................... 7,667 113,329,777 5.13%
Guam .............................................................. 21 317,155 0.01%
Hawaii ............................................................ 509 8,093,528 0.37%
Idaho ............................................................. 361 4,566,462 0.21%
Illinois .......................................................... 7,873 120,411,568 5.45%
Indiana ........................................................... 1,264 16,486,913 0.75%
Iowa .............................................................. 290 4,301,256 0.19%
Kansas ............................................................ 454 6,714,643 0.30%
Kentucky .......................................................... 414 5,723,223 0.26%
Louisiana ......................................................... 1,145 18,305,214 0.83%
Maine ............................................................. 264 4,234,093 0.19%
Maryland .......................................................... 4,248 65,138,539 2.95%
Massachusetts ..................................................... 3,616 54,093,327 2.45%
Michigan .......................................................... 2,417 35,068,697 1.59%
Minnesota ......................................................... 1,287 17,954,061 0.81%
Mississippi ....................................................... 520 8,166,456 0.37%
Missouri .......................................................... 1,049 16,280,849 0.74%
Montana ........................................................... 134 1,852,432 0.08%
Nebraska .......................................................... 211 3,127,626 0.14%
Nevada ............................................................ 738 10,215,239 0.46%
New Hampshire ..................................................... 454 6,860,255 0.31%
New Jersey ........................................................ 6,379 95,215,099 4.31%
New Mexico ........................................................ 380 5,312,127 0.24%
New York .......................................................... 38,332 570,306,994 25.82%
North Carolina .................................................... 5,157 65,019,966 2.94%
North Dakota ...................................................... 76 926,803 0.04%
Ohio .............................................................. 1,948 31,882,445 1.44%
Oklahoma .......................................................... 512 8,164,556 0.37%
Oregon ............................................................ 1,418 17,904,517 0.81%
Pennsylvania ...................................................... 3,268 52,674,440 2.39%
Puerto Rico ....................................................... 425 8,114,640 0.37%
Rhode Island ...................................................... 316 4,938,539 0.22%
South Carolina .................................................... 2,753 37,354,366 1.69%
South Dakota ...................................................... 236 2,741,831 0.12%
Tennessee ......................................................... 1,226 19,673,607 0.89%
Texas ............................................................. 7,702 107,547,485 4.87%
Utah .............................................................. 318 4,808,064 0.22%
Vermont ........................................................... 170 2,522,739 0.11%
Virgin Islands .................................................... 34 459,626 0.02%
Virginia .......................................................... 3,757 56,858,359 2.57%
Washington ........................................................ 1,972 28,998,988 1.31%
S-33
Percent of Pool by
Aggregate Outstanding Outstanding
Geographic Distribution Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
West Virginia ..................................................... 189 3,042,306 0.14%
Wisconsin ......................................................... 1,059 15,026,213 0.68%
Wyoming ........................................................... 82 1,280,072 0.06%
Other ............................................................. 437 6,997,652 0.32%
--------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
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 March 2009 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.
S-34
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY LOAN TYPE AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool by
Aggregate Outstanding Outstanding
Loan Type Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
Subsidized (Consolidated) ......................................... 74,579 $978,571,455 44.31%
Unsubsidized (Consolidated) ....................................... 75,409 1,229,948,462 55.69%
.................................................................. --------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY REPAYMENT TERMS AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool by
Aggregate Outstanding Outstanding
Loan Repayment Terms Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
Level Repayment ................................................... 137,394 $1,966,597,647 89.05%
Other Repayment Options(1) ........................................ 12,594 241,922,270 10.95%
--------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
- ------------------------
(1) 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 of Pool
Aggregate Outstanding by Outstanding
Disbursement Date Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
After October 1, 1993 ............................................. 149,988 $2,208,519,917 100.00%
--------------- --------------------- ------------------
Total ............................................................. 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY NUMBER OF DAYS OF DELINQUENCY AS OF THE
STATISTICAL CUTOFF DATE
Percent of Pool
Aggregate Outstanding by Outstanding
Days Delinquent Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
0-30 .............................................................. 144,718 $2,132,520,490 96.56%
31-60 ............................................................. 2,358 33,433,677 1.51%
61-90 ............................................................. 899 12,171,098 0.55%
91-120 ............................................................ 690 10,320,733 0.47%
121-150 ........................................................... 521 8,492,629 0.38%
151-180 ........................................................... 459 6,498,651 0.29%
181-209 ........................................................... 343 5,082,639 0.23%
--------------- --------------------- ------------------
Total ............................................................. 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
Insurance of Trust Student Loans; Guarantors of Trust Student Loans
General. Each trust student loan is currently required to be guaranteed as
to at least 98% (97% for loans disbursed on or after July 1, 2006) of the
outstanding principal and interest accrued under the loan at the time of the
making of a claim by one of the guarantee agencies described below and reinsured
by the U.S. Department of
S-35
Education under the Higher Education Act and must be eligible for special
allowance payments and, in the case of some trust student loans, interest
subsidy payments by the U.S. Department of Education.
As a general rule, student loans disbursed on or after July 1, 2006 are
97% guaranteed (and student loans disbursed on or after October 1, 1993 and
prior to July 1, 2006 are 98% guaranteed) by the applicable guarantor, and
reinsured against default by the U.S. Department of Education. However, SLC,
which was designated as an Exceptional Performer by the U.S. Department of
Education in recognition of its exceptional level of performance in servicing
FFELP student loans, receives 99% for all eligible FFELP default claims filed by
SLC for student loans that SLC services on or after July 1, 2006 (and 100%
reimbursement for eligible FFELP default claims filed prior to July 1, 2006).
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 base prospectus.
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 U.S. Department of Education 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 U.S. 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 U.S. Department of
Education and the U.S. 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 U.S. Department
of Education's obligation to pay guarantee claims directly in this fashion is
contingent upon the U.S. Department of Education making the determination
referred to above. We cannot assure you that the U.S. Department of Education
would ever make that determination with respect to a guarantee agency or, if
that 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 base
prospectus.
The following table provides information with respect to the portion of
the trust student loans guaranteed by each guarantor:
S-36
DISTRIBUTION OF THE TRUST STUDENT LOANS BY
GUARANTEE AGENCY AS OF THE STATISTICAL CUTOFF DATE
Percent of Pool
Aggregate Outstanding by Outstanding
Guarantee Agency Number of Loans Principal Balance Principal Balance
- -------------------------------------------------------------------- --------------- --------------------- ------------------
California Student Aid Commission ................................. 27,030 $377,735,822 17.10%
Educational Credit Management Corp. of Virginia ................... 780 8,851,492 0.40%
Georgia Higher Education Assistance Corporation ................... 2,475 36,845,040 1.67%
Illinois Student Assistance Commission ............................ 7,232 113,127,881 5.12%
Kentucky Higher Education Assistance Authority .................... 586 8,894,730 0.40%
Nebraska Student Loan Program ..................................... 2,992 44,086,253 2.00%
New York State Higher Education Services Corporation .............. 59,564 893,497,840 40.46%
Tennessee Student Assistance Corporation .......................... 315 3,684,305 0.17%
Texas Guaranteed Student Loan Corporation ......................... 6,413 84,644,815 3.83%
United Student Aid Funds, Inc. .................................... 42,298 633,223,084 28.67%
Other ............................................................. 303 3,928,655 0.18%
--------------- --------------------- ------------------
Total ........................................................ 149,988 $2,208,519,917 100.00%
=============== ===================== ==================
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 U.S. 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:
Loans Guaranteed
------------------------------------------------------------------------------
Federal Fiscal Year
------------------------------------------------------------------------------
Name of Guarantee Agency 2001 2002 2003 2004 2005
- --------------------------------- ------------- ------------- ------------- ------------- --------------
California Student Aid Commission 2,792,000,000 3,523,000,000 4,421,000,000 5,712,000,000 6,577,000,000
New York State Higher Education
Services Corporation 1,926,000,000 2,156,000,000 2,414,000,000 2,563,000,000 2,711,000,000
United Student Aid Funds, Inc. 7,379,000,000 8,162,000,000 9,587,000,000 9,907,000,000 10,724,000,000
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 U.S. 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:
S-37
Reserve Ratio as of Close of
Federal Fiscal Year
--------------------------------
Guarantors 2001 2002 2003 2004 2005
- ---------------------------------------------------- ---- ---- ---- ---- ----
California Student Aid Commission ................. 0.9% 0.4% 0.3% 0.3% 0.3%
New York State Higher Education Services Corporation 0.8% 0.7% 0.5% 0.4% 0.3%
United Student Aid Funds, Inc ..................... 1% 0.7% 0.7% 0.6% 0.5%
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:
Reserve Ratio as of Close of
Federal Fiscal Year
-------------------------------------
Guarantors 2001 2002 2003 2004 2005
- ---------------------------------------------------- ----- ----- ----- ----- -----
California Student Aid Commission ................. 19.3% 23.1% 27.2% 27% 31.1%
New York State Higher Education Services Corporation n/s n/s n/s n/s n/s
United Student Aid Funds, Inc ..................... 33.9% 32.8% 30.1% 35.5% 35.1%
n/s: Not supplied by the New York State Higher Education Services Corporation.
Claims Rate. The following table shows the claims rates of the Significant
Guarantors for the last five federal fiscal years:
Reserve Ratio as of Close of
Federal Fiscal Year
--------------------------------
Guarantors 2001 2002 2003 2004 2005
- ---------------------------------------------------- ---- ---- ---- ---- ----
California Student Aid Commission ................. 2.6% 2.5% 2.1% 2.1% 2.8%
New York State Higher Education Services Corporation 1.6% 1.4% 1.9% 1.5% 1.7%
United Student Aid Funds, Inc ..................... 2.5% 2.0% 1.4% 1.1% 1.4%
The U.S. Department of Education is required to make reinsurance payments
to guarantors with respect to FFELP student 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 student 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 base prospectus.
Each guarantee agency's guarantee obligations with respect to any trust
student loan is conditioned upon the satisfaction of all the conditions in the
applicable guarantee agreement. These conditions include, but are not limited
to, the following:
o the origination and servicing of the trust student loan being
performed in accordance with the FFELP, the Higher Education Act,
the guarantee agency's rules and other applicable requirements;
o the timely payment to the guarantee agency of the guarantee fee
payable on the trust student loan; and
o the timely submission to the guarantee agency of all required
pre-claim delinquency status notifications and of the claim on the
trust student loan.
Failure to comply with any of the applicable conditions, including those
listed above, may result in the refusal of the guarantee agency to honor its
guarantee agreement on the trust student loan, in the denial of guarantee
coverage for certain accrued interest amounts or in the loss of certain interest
subsidy payments and special allowance payments.
Prospective investors may consult the U.S. Department of Education Data
Books for further information concerning the guarantors.
S-38
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 that 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
Agreements--Sale of Student Loans to the Issuing Entity; Representations and
Warranties of the Depositor" and "--Purchase of Student Loans by the Depositor;
Representations and Warranties of the Sellers" in the base prospectus.
Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims with
Other Trusts
Due to a U.S. 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 U.S. Department of Education lender
identification number applicable to the trust. In that event, the billings
submitted to the U.S. 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 U.S.
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 U.S. Department of Education regards the eligible lender trustee as
the party primarily responsible to the U.S. Department of Education for any
liabilities owed to the U.S. Department of Education or guarantee agencies
resulting from the eligible lender trustee's activities in the FFELP. As a
result, if the U.S. Department of Education or a guarantee agency were to
determine that the eligible lender trustee owes a liability to the U.S.
Department of Education or a guarantee agency on any student loan included in a
trust using the shared lender identification number, the U.S. 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 U.S. Department
of Education on the loans in the other trusts, resulting in the consolidated
payment from the U.S. 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 U.S. 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 U.S. Department of Education or a
guarantee agency arising from the student loans held by the eligible lender
trustee on the trust's behalf.
S-39
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 to which this prospectus
supplement relates. 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 indenture and the trust agreement. The base prospectus
describes other terms of the notes. See "Description of the Notes" and "Certain
Information Regarding the Notes" in the base prospectus. The following summary
presents only brief descriptions of the material terms of these transaction
documents and is subject to actual provisions of the notes, 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 or
minus the following applicable spread:
Class of Notes Spread
- ---------------------------------------------------- -----------
Class A-1........................................... minus 0.03%
Class A-2........................................... plus 0.00%
Class A-3........................................... plus 0.03%
Class A-4........................................... plus 0.08%
Class A-5........................................... plus 0.11%
Class A-6........................................... plus 0.16%
LIBOR for the first accrual period for all classes of notes will be
determined by the following formula:
x + [a/b x (y - x)]
where:
x = two-month LIBOR;
y = three-month LIBOR;
a = the actual number of days from the maturity date of two-month LIBOR to
the first distribution date; and
b = the actual number of days from the maturity date of two-month LIBOR
and the maturity date of three-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
S-40
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 base 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 0.21%, 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 LIBOR-based 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 to the extent of Available Funds.
The actual date on which the final distribution on the class B notes will be
made may be earlier than the class B maturity date, however, based on a variety
of factors.
Subordination of the Class B Notes. On any distribution date,
distributions of interest on the class B notes will be subordinated to the
payment of interest, 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.
Consequently, on any distribution date, Available Funds, amounts on
deposit in the reserve account remaining after payment of the primary servicing
fee, and, through the September 2007 distribution date, amounts on deposit in
the capitalized interest account will be applied to the payment of interest on
the class A notes prior to any payment of interest on the class B notes, and no
payments of the principal balance on the class B notes will be made on that
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distribution date until the class A notes have received the applicable Class A
Noteholders' Principal Distribution Amount.
Notwithstanding the foregoing, if
(1) on any distribution date following distributions under clauses (a)
through (j) under "--Distributions--Distributions from the Collection Account"
below 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. So long as any class A notes are outstanding,
the failure to pay interest on any class B notes will not constitute an event of
default.
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, any other applicable
index, 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. For each class of notes listed on the Irish Stock Exchange, the
administrator will also notify the Irish paying agent, and will cause the Irish
Stock Exchange to be notified, of the current interest rate for each class of
notes listed on the exchange prior to the first day of each accrual period.
Additional Information Concerning Accounts and Eligible Investments
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 in the name of the indenture trustee, for the
benefit of the noteholders;.
The indenture administrator will invest funds in the collection account,
the reserve account and the capitalized interest account in eligible investments
as provided in the indenture. Eligible investments are generally limited to
investments acceptable to the rating agencies as being consistent with the
ratings of the notes. Subject to some conditions, eligible investments may
include debt instruments or other obligations (including asset-backed notes)
issued by the depositor or its affiliates, other trusts originated by the
depositor or its affiliates or third parties and repurchase obligations of those
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 applicable 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. See "Servicing and
Administration--Accounts" in the base prospectus for a more complete description
of eligible investments.
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.
Texas has recently enacted legislation providing for a margin tax. If this
tax is applicable to the issuing entity, the primary servicing fee with respect
to the issuing entity will be reduced by an amount equal to that tax.
Additional Information Concerning Servicing Procedures
The servicer will keep ongoing records on the trust student loans and its
collection activities utilizing the same standards it uses for similar student
loans owned by SLC and its affiliates in compliance with the applicable
guarantee agreements and all other applicable federal and state laws, including
the Higher Education Act. It will also furnish periodic statements to the
indenture trustee, the indenture administrator, the eligible lender trustee and
the noteholders. See "Servicing and Administration--Statements to Indenture
Trustee, Indenture Administrator and Trust" in the base prospectus.
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Additional Information Concerning Payments on Student Loans
The servicing agreement will not require the servicer to make advances to
any trust and no such advances have been made by the servicer with respect to
any trust student loans.
Additional Information Concerning Servicer Covenants
The servicer 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
the same standards it uses for similar student loans owned by SLC and its
affiliates in compliance with the applicable guarantee agreements and all other
applicable federal and state laws, including the Higher Education Act. See
"Servicing and Administration--Servicer Covenants" in the base prospectus.
All expenses related to the resignation or removal for cause of the
servicer or any successor servicer will be paid solely by the servicer being
replaced.
Distributions
Deposits into the Collection Account. 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 the trust student loans and all proceeds of the trust student loans
collected by it during each collection period into the collection account within
two business days of receipt. Except as provided in the next paragraph, the
eligible lender trustee will deposit all interest subsidy payments and all
special allowance payments on the student loans received by it for each
collection period into the collection account within two business days of
receipt.
Distributions from the Collection Account. On each monthly servicing
payment date that is not a distribution date, the administrator will instruct
the indenture administrator to pay to the servicer the primary servicing fee due
for the period from and including the preceding monthly servicing payment date
from amounts on deposit in the collection account.
On or before each distribution date, the administrator will instruct the
indenture administrator to first pay or reimburse itself and the indenture
trustee for all amounts due to it and the indenture trustee under the indenture
for the related distribution date, next 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 $30,000
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 September 2007 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,
class A-5 and class A-6 noteholders, in that order, until each such class
is paid in full, the Class A Noteholders' Principal Distribution Amount;
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(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, class A-5 and class A-6 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 Limited 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.
The trust certificate will represent the ownership of the residual
interest in the trust. Under the purchase agreement between the depositor and
SLC, the depositor will transfer the trust certificate to SLC as part of the
consideration for the sale of the trust student loans being sold to the
depositor by SLC under the related purchase agreement.
Distributions Following an Event of Default and Acceleration of the Maturity of
the Notes
Following the occurrence of an event of default and an acceleration of the
notes, as described under "Description of the Notes--The Indenture--Events of
Default; Rights upon Event of Default" in the base prospectus, the priority of
distributions on each distribution date shown above under
"--Distributions--Distributions from the Collection Account" will be made in the
following order of priority:
first, to the indenture trustee and the indenture administrator for
amounts due to the indenture trustee and the indenture administrator,
respectively, for fees and expenses (but only to the extent not paid by the
administrator or the depositor), to the owner trustee for amounts due to it
under the trust agreement and to the eligible lender trustee for amounts due to
it under the eligible lender trust agreements;
second, to the servicer for due and unpaid primary servicing fees;
third, to the class A noteholders, for amounts due and unpaid on the class
A notes for interest at the applicable rate of interest on such notes, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the class A notes for such interest;
fourth, to the class A noteholders, ratably, an amount sufficient to
reduce the respective principal balances of those class A notes to zero,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the class A notes for such principal;
fifth, to the class B noteholders for amounts due and unpaid on the class
B notes for interest at the applicable rate of interest on such notes;
sixth, to the class B noteholders, an amount sufficient to reduce the
outstanding principal amount of the class B notes to zero;
seventh, to the servicer, for any unpaid carryover servicing fees; and
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eighth, to the trust certificateholder, any remaining funds.
Voting Rights and Remedies
Noteholders will have the voting rights and remedies described in the base
prospectus. See "Transfer Agreements--Amendments to Transfer 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
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 Notes--Definitive Notes" in the base prospectus.
Credit Enhancement
Excess Interest. Excess interest is created when interest collections
received on the trust student loans during a collection period and related
investment earnings exceed the interest on the note at the related note interest
rates and certain fees and expenses of the trust. Excess interest with respect
to the trust student loans is intended to provide "first loss" protection for
the notes. Excess interest (as part of all interest collections) will be
collected and deposited into the collection account and will become part of the
Available Funds. There can be no assurance as to the rate, timing or amount, if
any, of excess interest. The application of excess interest to the payment of
principal on your notes will affect the weighted average life and yield on your
investment. Excess interest not applied to make required distributions on any
distribution date, and not deposited into the reserve account, will be paid to
the trust certificateholder and will not be available on subsequent distribution
dates to make payments on any class of the notes.
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 $5,521,300. The reserve account may be replenished on each
distribution date, by a 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 above.
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
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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 $43,000,000. 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 September 2007 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
September 2007 distribution date will be transferred to the collection account
and included in Available Funds on that distribution date.
The capitalized interest account is intended to enhance the likelihood of
timely distributions of interest to the noteholders through the September 2007
distribution date.
Priority of the 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.
Trust Fees and Expenses
Expenses incurred to establish the trust and issue the notes (other than
fees that are due to the underwriters) are payable by the depositor. Such
expenses are not paid from proceeds of the sale of the notes.
The table below sets forth the fees payable by or on behalf of the trust
after issuance of the notes.
Party Amount
- ---------------------------------------------- -------------------------------
Servicer(1)................................. The primary servicing fee for
any month is equal to 1/12th of
an amount not to exceed 0.50%
of the outstanding principal
amount of the trust student
loans, plus the amount of any
carryover servicing fee.
Eligible Lender Trustee, Indenture Trustee and $5,000 per annum total, payable
Indenture Administrator(2).............. in advance.
Owner Trustee(2)............................ $4,000 per annum, payable in
advance.
Irish Paying Agent(3)....................... (euro)650 per annum, payable
annually in arrears from the
date of listing.
- ------------------------
(1) To be paid before any amounts are distributed to the noteholders.
(2) Fees and expenses up to $30,000 per annum in the aggregate to be paid
before amounts distributed to the noteholders. Remaining amounts, if any,
will be subordinate to amounts payable to the noteholders.
(3) Subordinate to amounts payable to the noteholders.
Determination of Indices
For a discussion of the day count basis, interest rate determination
dates, interest rate change dates and possible interest rate indices applicable
for a class of notes, see "Certain Information Regarding the
Notes--Determination of Indices" in the base prospectus.
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Optional Purchase
The servicer may purchase or arrange for the purchase of all remaining
trust student loans on any distribution date on or after the first distribution
date when the pool balance is 10% or less of the initial pool balance.
The exercise of this purchase option will result in the early retirement
of the remaining notes. The purchase price will equal the amount required to
prepay in full, including all accrued interest, the remaining trust student
loans as of the end of the preceding collection period, but not less than a
prescribed minimum purchase amount.
This prescribed minimum purchase amount is the amount that would be
sufficient to:
o pay to noteholders the interest payable on the related distribution
date; and
o reduce the outstanding principal amount of each class of notes then
outstanding on the related distribution date to zero.
See "The Student Loan Pools--Termination" in the base prospectus.
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 third 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 higher of:
o the minimum purchase amount described under "--Optional Purchase"
above (plus any amounts owed to the servicer as carryover servicing
fees); or
o the fair market value of the trust student loans as of the end of
the related collection period.
If at least two bids are not received or the highest bid after the
re-solicitation process does not equal or exceed that amount, the financial
advisor will not complete the sale. The indenture administrator at the direction
of the depositor will be required to consult with a financial advisor, including
an underwriter of the securities or the administrator, to determine the fair
market value of the trust student loans. 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.
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.
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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 or allocations of note principal.
See "The Student Loan Pools--Termination" in the base prospectus.
Upon termination of the trust, any remaining assets of that trust, after
giving effect to final distributions to the noteholders, will be transferred to
the reserve account and paid as provided under "Description of the Notes--Credit
Enhancement--Reserve Account" in this prospectus supplement.
STATIC POOLS
Information concerning the static pool performance data of previous FFELP
student loan securitizations of the sponsor may be obtained through the
following procedure: first, go to the sponsor's Internet site, which is
http://www.citimortgagembs.com; second, click on the "Reg AB" bar located on the
left hand side of the window titled "Welcome to MBS Investor Information
Security Data"; and third, choose "SLC" from the drop-down menu titled "Shelf".
This website presents the static pool performance data of the sponsor's previous
securitizations involving student loans in the form of published charts. The
information presented with respect to pools that were established prior to
January 1, 2006 is not to be deemed a part of this prospectus supplement, the
base prospectus or the related registration statement. We caution you that this
pool of trust student loans may not perform in a similar manner to student loans
in other trusts.
Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the
Notes
The rate of payment of principal of the notes and the yield on the notes
will be affected by prepayments on the trust student loans that may occur as
described below. Therefore, payments on the notes could occur significantly
earlier than expected. Consequently, the actual maturities on the notes could be
significantly earlier, average lives of the notes could be significantly
shorter, and periodic balances could be significantly lower, than expected. Each
trust student loan is prepayable in whole or in part, without penalty, by the
borrowers at any time, or as a result of a borrower's default, death, disability
or bankruptcy and subsequent liquidation or collection of guarantee payments
with respect thereto. The rate of such prepayments cannot be predicted and may
be influenced by a variety of economic, social, competitive and other factors,
including as described below. In general, the rate of prepayments may tend to
increase to the extent that alternative financing becomes available on more
favorable terms or at interest rates significantly below the interest rates
applicable to the trust student loans. Prepayments could increase as a result of
certain borrower benefit programs, among other factors. In addition, the
depositor is obligated to repurchase any trust student loan (or substitute an
eligible student loan) as a result of a breach of any of its representations and
warranties relating to trust student loans contained in the sale agreement, and
the servicer is obligated to purchase any trust student loan pursuant to the
servicing agreement as a result of a breach of certain covenants with respect to
such trust student loan, in each case, where such breach materially adversely
affects the interests of the trust in that trust student loan and is not cured
within the applicable cure period. See "Transfer Agreements--Purchase of Student
Loans by the Depositor; Representations and Warranties of Sellers" and
"Servicing and Administration--Servicer Covenants" in the base prospectus. See
also "Summary--Termination of the Trust" in this prospectus supplement regarding
the servicer's option to purchase the trust student loans when the Pool Balance
is less than or equal to 10% of the initial Pool Balance and the auction of the
trust student loans if the servicer does not exercise such option.
On the other hand, the rate of principal payments and the yield on the
notes will be affected by scheduled payments with respect to, and maturities and
average lives of, the trust student loans. These may be lengthened as a result
of, among other things, grace periods, deferral periods, forbearance periods, or
repayment term or monthly payment amount modifications agreed to by the
servicer. Therefore, payments on the notes could occur significantly later than
expected. Consequently, actual maturities and weighted average lives of the
notes could be significantly longer than expected and periodic balances could be
significantly higher than expected. The rate of payment of principal of the
notes and the yield on the notes may also be affected by the rate of defaults
resulting in losses on defaulted trust student loans which have been liquidated,
by the severity of those losses and by the timing of those losses, which may
affect the ability of the guarantors to make timely guarantee payments with
respect thereto. In addition, the maturity of certain of the trust student loans
could extend beyond the latest legal maturity date for the notes.
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The rate of prepayments on the trust student loans cannot be predicted due
to a variety of factors, some of which are described above, and any reinvestment
risks resulting from a faster or slower incidence of prepayment of trust student
loans will be borne entirely by the noteholders. Such reinvestment risks may
include the risk that interest rates and the relevant spreads above particular
interest rate indices are lower at the time noteholders receive payments from
the trust than such interest rates and such spreads would otherwise have been if
such prepayments had not been made or had such prepayments been made at a
different time.
Exhibit I, "Prepayments, Extensions, Weighted Average Lives and Expected
Maturities of the Notes," attached to this prospectus supplement, shows the
projected weighted average life, expected maturity date and percentages of
remaining principal balance of each class of notes under various assumed
prepayment scenarios.
CERTAIN 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 "Certain U.S. Federal Income Tax Considerations" in the base prospectus.
The class B notes may be treated as issued with "original issue discount," as
described under "Certain U.S. Federal Income Tax Considerations" in the base
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 took effect
on 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.
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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) and wholly owned
subsidiaries thereof (collectively, "Plans").
ERISA also imposes various duties on persons who are fiduciaries of Plans
subject to ERISA and prohibits certain transactions between a Plan and its
so-called Parties in Interest under ERISA or Disqualified Persons under the Code
("Parties in Interest"). Certain Parties in Interest that participate in a
prohibited transaction may be subject to a civil penalty (or excise tax) imposed
pursuant to ERISA or an excise tax unpaid pursuant to Section 4975 of 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 base
prospectus. However, acquisition of the notes could still cause prohibited
transactions under Section 406 of ERISA and/or 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
base prospectus.
Before making an investment in the notes, prospective Plan investors
should consult with their legal advisors concerning the impact of ERISA and
Section 4975 of 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 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 Section 4975 of 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.
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REPORTS TO NOTEHOLDERS
Quarterly distribution reports and annual servicing and administration
reports concerning the trust will be delivered to noteholders. See "Reports to
Noteholders" in the base prospectus. The first quarterly distribution report is
expected to be available on or about September 15, 2006.
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 Notes--Book-Entry Registration" in the base prospectus.
UNDERWRITING
The notes listed below are offered severally by the underwriters, 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 and the
Euroclear System, on or about June 28, 2006, against payment in immediately
available funds.
Subject to the terms and conditions in the underwriting agreement dated
June 22, 2006, 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:
Underwriter Class A-1 Notes Class A-2 Notes Class A-3 Notes Class A-4 Notes
- ------------------------------------- ------------------ ------------------ ----------------- ------------------
Citigroup Global Markets Inc......... $ 123,500,000 $ 271,700,000 $ 143,650,000 $ 293,150,000
Lehman Brothers Inc.................. 19,000,000 41,800,000 22,100,000 45,100,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................... 47,500,000 104,500,000 55,250,000 112,750,000
------------------ ------------------ ----------------- ------------------
Total.......... $ 190,000,000 $ 418,000,000 $ 221,000,000 $ 451,000,000
Underwriter Class A-5 Notes Class A-6 Notes Class B Notes
- ------------------------------------- ------------------ ------------------ -----------------
Citigroup Global Markets Inc......... $ 287,300,000 $ 300,950,000 $ 43,875,000
Lehman Brothers Inc.................. 44,200,000 46,300,000 6,750,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................... 110,500,000 115,750,000 16,875,000
------------------ ------------------ -----------------
Total.......... $ 442,000,000 $ 463,000,000 $ 67,500,000
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase all of the notes listed above if any of the
notes are purchased. The underwriters have advised the depositor that they
propose initially to offer the notes to the public at the prices listed below,
and to certain dealers at these prices less concessions not in excess of the
concessions listed below. The underwriters may allow and such dealers may
reallow concessions to other dealers not in excess of the reallowances listed
below. After the initial public offering, these prices and concessions may be
changed.
Initial Public Underwriting Proceeds to
Offering Price Discount The Depositor Concession Reallowance
---------------- ------------ ---------------- ---------- -----------
Per Class A-1 Note...................... 100% 0.1750% 99.8250% 0.1050% 0.0525%
Per Class A-2 Note...................... 100% 0.1825% 99.8175% 0.1095% 0.0548%
Per Class A-3 Note...................... 100% 0.2020% 99.7980% 0.1212% 0.0606%
Per Class A-4 Note...................... 100% 0.2200% 99.7800% 0.1320% 0.0660%
Per Class A-5 Note...................... 100% 0.2400% 99.7600% 0.1440% 0.0720%
Per Class A-6 Note...................... 100% 0.2500% 99.7500% 0.1500% 0.0750%
Per Class B Note........................ 100% 0.3000% 99.7000% 0.1800% 0.0900%
Total............................... $ 2,252,500,000 $ 4,954,770 $ 2,247,545,230
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
$1,550,000 payable by the depositor.
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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.
Citigroup Global Markets Inc. is an affiliate of SLC. Affiliates of the
trust 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 respective
affiliates.
The trust may, from time to time, invest the funds in the trust accounts
in eligible investments acquired from the underwriters.
During and after the offering, the underwriters may engage in
transactions, including open market purchases and sales, to stabilize the prices
of the notes.
The underwriters, for example, may over-allot the notes for the account of
the underwriting syndicate to create a syndicate short position by accepting
orders for more notes than are to be sold.
In addition, the underwriters may impose a penalty bid on the
broker-dealers who sell the notes. This means that if an underwriter purchases
notes in the open market to reduce a broker-dealer's short position or to
stabilize the prices of the notes, it may reclaim the selling concession from
the broker-dealers who sold those notes as part of the offering.
In general, over-allotment transactions and open market purchases of the
notes for the purpose of stabilization or to reduce a short position could cause
the price of a note to be higher than it might be in the absence of such
transactions.
Each underwriter has represented and agreed that:
o it has 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 issuing entity; 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 this prospectus supplement, the prospectus, the initial free-writing
prospectus, the term sheet distributed to potential investors prior to the
pricing of this transaction (collectively, the "disclosure package"), 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 all or any part of the disclosure package
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 disclosure package, 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 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.
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LISTING AND GENERAL INFORMATION
Application will be made to The Irish Stock Exchange Limited for the class
A notes to be admitted to the Official List and to trading on its regulated
market. There can be no assurance that such listing will be obtained.
For so long as the class A notes are listed on The Irish Stock Exchange
Limited 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,
the administration agreement and other basic documents will be made available
for inspection at the principal office of the depositor, where electronic or
physical copies thereof may be obtained upon request. Once the notes have been
listed, trading may be effected on The Irish Stock Exchange Limited. The Irish
Stock Exchange Limited will also be advised if any class of notes is delisted.
The notes, the indenture, 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 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
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 April 28, 2006, 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.
The indenture administrator will serve as the registrar for the notes. The
address for the indenture administrator is Citibank, N.A., 111 Wall Street, 15th
Floor, New York, New York 10005.
LEGAL PROCEEDINGS
As of the date of this prospectus supplement, none of the depositor, SLC,
the indenture trustee or the eligible lender trustee are involved in any
governmental, litigation or arbitration proceeding relating to the issuance of
the notes that could be considered to be material to the noteholders. We are not
aware of any proceedings relating to the issuance of the notes, whether pending
or threatened.
RATINGS OF THE NOTES
The notes are required to be rated as follows:
Rating Agency
Class (Moody's / S&P / Fitch)
--------- -----------------------
A-1 Notes Aaa/AAA/AAA
A-2 Notes Aaa/AAA/AAA
A-3 Notes Aaa/AAA/AAA
A-4 Notes Aaa/AAA/AAA
A-5 Notes Aaa/AAA/AAA
A-6 Notes Aaa/AAA/AAA
B Notes Aa1/AA+/AA+
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.
S-54
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 counsel for the trust, will give an opinion on specified legal
matters for the trust. Stroock & Stroock & Lavan LLP also will give opinions on
specified legal matters for the underwriters.
S-55
GLOSSARY
FOR PROSPECTUS SUPPLEMENT
"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
U.S. 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 amounts received by the trust from SLC in respect of borrower
benefits;
o on the September 2007 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.
S-56
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 September 2007 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.
"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.
S-57
"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.
"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.
S-58
"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 amount by which
the Adjusted Pool Balance for the preceding distribution date exceeds the
Adjusted Pool Balance for that distribution date.
"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) 0.25% of the Pool Balance as of the close of business on the
last day of the related collection period; and
(b) $3,312,780;
provided that in no event will that balance exceed the aggregate outstanding
principal balance of the notes.
"Stepdown Date" means the earlier to occur of (i) the September 2012
distribution date 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.
S-59
EXHIBIT I
PREPAYMENTS, EXTENSIONS, WEIGHTED AVERAGE LIVES
AND EXPECTED MATURITIES OF THE NOTES
Prepayments on pools of student loans can be measured or calculated based
on a variety of prepayment models. The models used to calculate prepayments in
this prospectus supplement are the pricing prepayment curve ("PPC") model and
the constant percentage rate ("CPR") model. The following tables show, for each
class of notes, the weighted average lives, expected maturities and percentages
of the original principal amount remaining at certain distribution dates based
on various assumptions.
PPC Assumptions
The PPC model assumes that:
o Student loans will prepay at an annual rate of 1/12th of 1.0% in the
first month after origination;
o The prepayment rate will increase by an annual rate of 1/12th of
1.0% per month up to the 119th month after origination; and
o The monthly prepayment rate will be constant at 10% per annum in the
120th month after origination and in all subsequent months.
This assumption is called "100% PPC." For example, at 100% PPC, student
loans with a loan age of 72 months are assumed to prepay at 6.0% CPR; at 50%
PPC, student loans with a loan age of 48 months are assumed to prepay at 2.0%
CPR; at 200% PPC, student loans with a loan age of 96 months are assumed to
prepay at 16.0% CPR; and so forth. The following table illustrates the CPR in
effect for the indicated months of seasoning at various percentages of PPC.
Constant Prepayment Rate
Number of Months Seasoning
-----------------------------------
Percentage of PPC 24 48 72 96 120
- ----------------- ---- ---- ----- ----- -----
50% 1.0% 2.0% 3.0% 4.0% 5.0%
100% 2.0% 4.0% 6.0% 8.0% 10.0%
150% 3.0% 6.0% 9.0% 12.0% 15.0%
200% 4.0% 8.0% 12.0% 16.0% 20.0%
CPR Assumptions
The CPR assumes that student loans will prepay in each month according to
the following formula:
Monthly Prepayments = Balance After Scheduled Payments x (1-(1-CPR)^1/12)
Accordingly, monthly prepayments assuming a $1000 balance after scheduled
payments would be as follows for various CPR examples:
CPR 0% 5% 7% 12% 15%
- ------------------ ----- ----- ----- ------ ------
Monthly Prepayment $0.00 $4.27 $6.03 $10.60 $13.45
I-1
Other Assumptions
For purposes of the PPC model and the CPR model, it is assumed, among
other things, that:
o the statistical cutoff date for the trust student loans is as of
April 28, 2006;
o the closing date will be on June 28, 2006;
o all trust student loans (as grouped within the "rep lines" described
below) are in repayment status with accrued interest having been
capitalized upon entering repayment;
o no trust student loan moves from repayment to any other status;
o no delinquencies or defaults occur on any of the trust student
loans, no repurchases for breaches of representations, warranties or
covenants occur, and all borrower payments are collected, in full,
on the 1st day of each month;
o consolidation rebate fees are paid based on the principal balance of
the student loans at the beginning of the related monthly collection
period and reduce the amount in the collection account that would
otherwise earn investment income;
o there are government payment delays of 60 days for interest subsidy
and special allowance payments;
o index levels for calculation of borrower and government payments
are:
o 91-day Treasury bill rate of 4.70%; and
o three-month commercial paper rate of 5.04%;
o quarterly distributions begin on September 15, 2006, and payments
are made quarterly on the 15th day of every March, June, September
and December thereafter, whether or not the 15th is a business day;
o the interest rate for each class of outstanding notes is a constant
rate of three-month LIBOR plus or minus the applicable spread, which
on all distribution dates will be equal to:
o Class A-1 notes: 5.14%;
o Class A-2 notes: 5.17%;
o Class A-3 notes: 5.21%;
o Class A-4 notes: 5.25%;
o Class A-5 notes: 5.28%;
o Class A-6 notes: 5.33%; and
o Class B notes: 5.42%;
o a servicing fee equal to 1/12th of the then outstanding principal
amount of the trust student loans times 0.50% is paid monthly by the
trust to the servicer;
o the reserve account has an initial balance equal to $5,521,300 and
at all times a balance equal to the greater of (1) 0.25% of the
applicable Pool Balance, and (2) $3,312,780;
o the collection account has an initial current balance equal to $0;
o the capitalized interest account has an initial balance equal to
$43,000,000 and on the September 2007 distribution date, that amount
will be included in Available Funds;
I-2
o all payments are assumed to be made at the end of the month and
amounts on deposit in the collection account, reserve account and
capitalized interest account, including reinvestment income earned
in the previous month, net of servicing fees and consolidation
rebate fees, are reinvested in eligible investments at the assumed
reinvestment rate of 4.50% per annum through the end of the
collection period and, reinvestment earnings are available for
distribution from the prior collection period;
o the average loan age is 4 months;
o prepayments on the trust student loans are applied monthly in
accordance with PPC or CPR, as the case may be, as described above;
o an optional redemption by the servicer occurs on the distribution
date immediately following the collection period during which the
Pool Balance falls below 10% of the initial Pool Balance; and
o the pool of trust student loans consists of 663 representative loans
("rep lines"), which have been created for modeling purposes from
individual trust student loans based on combinations of similar
individual student loan characteristics, which include, but are not
limited to, loan status, interest rate, loan type, index, margin,
rate cap and remaining term.
The following tables have been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance
of the rep lines, which will differ from the characteristics and performance of
the actual pool of trust student loans) and should be read in conjunction
therewith. In addition, the diverse characteristics, remaining terms and loan
ages of the trust student loans could produce slower or faster principal
payments than implied by the information in here, even if the dispersions of
weighted average characteristics, remaining terms and loan ages are the same as
the assumed characteristics, remaining terms and loan ages.
I-3
The PPC Model
The PPC model does not purport to describe historical prepayment
experience or to predict the prepayment rate of any actual student loan pool.
The student loans will not prepay at any constant percentage of PPC, nor will
all of the student loans prepay at the same rate. You must make an independent
decision regarding the appropriate principal prepayment scenarios to use in
making any investment decision.
This model shows the weighted average remaining lives and expected
maturity dates of the notes at each payment date under various PPC scenarios.
Weighted Average Lives and Expected Maturity Dates of the Notes
At Various PPC Percentages(1)
Weighted Average Life
(years)(2) 0% 50% 100% 150% 200%
- ---------------------- ----- ----- ----- ----- -----
Class A-1 notes....... 1.10 1.05 1.00 0.96 0.92
Class A-2 notes....... 4.03 3.39 3.00 2.72 2.52
Class A-3 notes....... 7.18 5.78 5.00 4.47 4.08
Class A-4 notes....... 10.40 8.23 7.00 6.19 5.61
Class A-5 notes....... 15.07 11.89 10.00 8.78 7.91
Class A-6 notes....... 21.00 17.07 14.37 12.48 11.11
Class B notes ........ 14.36 12.15 10.78 9.85 9.18
Expected Maturity Date 0% 50% 100% 150% 200%
- ---------------------- ------------------ ------------------ ----------------- ----------------- ------------------
Class A-1 notes....... June 15, 2008 March 15, 2008 December 15, 2007 December 15, 2007 December 15, 2007
Class A-2 notes....... September 15, 2012 June 15, 2011 December 15, 2010 June 15, 2010 December 15, 2009
Class A-3 notes....... September 15, 2014 December 15, 2012 March 15, 2012 June 15, 2011 December 15, 2010
Class A-4 notes....... December 15, 2018 June 15, 2016 December 15, 2014 December 15, 2013 March 15, 2013
Class A-5 notes....... March 15, 2024 September 15, 2020 June 15, 2018 December 15, 2016 September 15, 2015
Class A-6 notes....... December 15, 2028 September 15, 2024 December 15, 2021 December 15, 2019 June 15, 2018
Class B notes......... December 15, 2028 September 15, 2024 December 15, 2021 December 15, 2019 June 15, 2018
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the date on which the Pool Balance falls below 10% of the
initial Pool Balance.
(2) The weighted average life of the notes (assuming a 360-day year consisting
of twelve 30-day months) is determined by: (1) multiplying the amount of
each principal payment on the applicable class of notes by the number of
years from the closing date to the related distribution date, (2) adding
the results, and (3) dividing that sum by the aggregate principal amount
of the applicable class of notes as of the closing date.
I-4
Class A-1 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 72% 70% 67% 64% 62%
March 2008 1% 0% 0% 0% 0%
March 2009 0% 0% 0% 0% 0%
March, 2010 0% 0% 0% 0% 0%
March, 2011 0% 0% 0% 0% 0%
March 2012 0% 0% 0% 0% 0%
March 2013 0% 0% 0% 0% 0%
March 2014 0% 0% 0% 0% 0%
March 2015 0% 0% 0% 0% 0%
March 2016 0% 0% 0% 0% 0%
March 2017 0% 0% 0% 0% 0%
March 2018 0% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-5
Class A-2 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 95% 90% 86% 81%
March 2009 78% 67% 57% 46% 36%
March, 2010 55% 37% 20% 3% 0%
March, 2011 31% 5% 0% 0% 0%
March 2012 7% 0% 0% 0% 0%
March 2013 0% 0% 0% 0% 0%
March 2014 0% 0% 0% 0% 0%
March 2015 0% 0% 0% 0% 0%
March 2016 0% 0% 0% 0% 0%
March 2017 0% 0% 0% 0% 0%
March 2018 0% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-6
Class A-3 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March, 2010 100% 100% 100% 100% 74%
March, 2011 100% 100% 62% 17% 0%
March 2012 100% 46% 0% 0% 0%
March 2013 66% 0% 0% 0% 0%
March 2014 19% 0% 0% 0% 0%
March 2015 0% 0% 0% 0% 0%
March 2016 0% 0% 0% 0% 0%
March 2017 0% 0% 0% 0% 0%
March 2018 0% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-7
Class A-4 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March, 2010 100% 100% 100% 100% 100%
March, 2011 100% 100% 100% 100% 87%
March 2012 100% 100% 92% 64% 38%
March 2013 100% 92% 56% 23% 0%
March 2014 100% 61% 20% 0% 0%
March 2015 86% 31% 0% 0% 0%
March 2016 63% 3% 0% 0% 0%
March 2017 40% 0% 0% 0% 0%
March 2018 17% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-8
Class A-5 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March, 2010 100% 100% 100% 100% 100%
March, 2011 100% 100% 100% 100% 100%
March 2012 100% 100% 100% 100% 100%
March 2013 100% 100% 100% 100% 93%
March 2014 100% 100% 100% 83% 51%
March 2015 100% 100% 85% 46% 15%
March 2016 100% 100% 53% 14% 0%
March 2017 100% 74% 25% 0% 0%
March 2018 100% 49% 1% 0% 0%
March 2019 94% 26% 0% 0% 0%
March 2020 73% 7% 0% 0% 0%
March 2021 52% 0% 0% 0% 0%
March 2022 35% 0% 0% 0% 0%
March 2023 17% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-9
Class A-6 Notes
Percentages of Original Principal of the Notes Remaining at
Certain Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March, 2010 100% 100% 100% 100% 100%
March, 2011 100% 100% 100% 100% 100%
March 2012 100% 100% 100% 100% 100%
March 2013 100% 100% 100% 100% 100%
March 2014 100% 100% 100% 100% 100%
March 2015 100% 100% 100% 100% 100%
March 2016 100% 100% 100% 100% 85%
March 2017 100% 100% 100% 88% 62%
March 2018 100% 100% 100% 68% 45%
March 2019 100% 100% 81% 52% 0%
March 2020 100% 100% 66% 0% 0%
March 2021 100% 89% 52% 0% 0%
March 2022 100% 76% 0% 0% 0%
March 2023 100% 63% 0% 0% 0%
March 2024 99% 50% 0% 0% 0%
March 2025 79% 0% 0% 0% 0%
March 2026 70% 0% 0% 0% 0%
March 2027 61% 0% 0% 0% 0%
March 2028 51% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-10
Class B Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various PPC Percentages(1)
Distribution Date 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March, 2010 100% 100% 100% 100% 100%
March, 2011 100% 100% 100% 100% 100%
March 2012 100% 100% 100% 100% 100%
March 2013 95% 93% 90% 88% 86%
March 2014 88% 83% 78% 74% 67%
March 2015 82% 74% 67% 58% 52%
March 2016 75% 64% 54% 46% 38%
March 2017 69% 56% 45% 36% 28%
March 2018 62% 48% 36% 27% 20%
March 2019 56% 41% 29% 21% 0%
March 2020 50% 35% 24% 0% 0%
March 2021 44% 29% 19% 0% 0%
March 2022 39% 25% 0% 0% 0%
March 2023 34% 20% 0% 0% 0%
March 2024 29% 16% 0% 0% 0%
March 2025 23% 0% 0% 0% 0%
March 2026 21% 0% 0% 0% 0%
March 2027 18% 0% 0% 0% 0%
March 2028 15% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-11
The CPR Model
The CPR is stated as an annualized rate and is calculated as the
percentage of principal outstanding at the beginning of a period (after applying
scheduled payments) that prepays during that period.
The CPR model does not purport to describe historical prepayment
experience or to predict the prepayment rate of any actual student loan pool.
The student loans will not prepay at any constant CPR, nor will all of the
student loans prepay at the same rate. You must make an independent decision
regarding the appropriate principal prepayment scenarios to use in making any
investment decision.
The below models show the weighted average remaining lives and expected
maturity dates of the notes at each payment date under various CPR scenarios.
Weighted Average Lives and Expected Maturity Dates of the Notes
at Various CPRs(1)
Weighted Average Life
(years)(2) 0% 4% 8% 12% 16%
- ---------------------- ----- ----- ----- ----- ----
Class A-1 notes....... 1.10 0.76 0.57 0.47 0.39
Class A-2 notes....... 4.03 2.31 1.64 1.29 1.07
Class A-3 notes....... 7.18 4.38 3.05 2.32 1.87
Class A-4 notes....... 10.40 6.88 4.90 3.75 3.01
Class A-5 notes....... 15.07 11.00 8.21 6.34 5.08
Class A-6 notes....... 21.00 16.70 13.39 10.78 8.85
Class B notes ........ 14.36 12.21 10.70 9.52 8.59
Expected Maturity Date 0% 4% 8% 12% 16%
- ---------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Class A-1 notes....... June 15, 2008 September 15, 2007 June 15, 2007 March 15, 2007 March 15, 2007
Class A-2 notes....... September 15, 2012 March 15, 2010 December 15, 2008 June 15, 2008 December 15, 2007
Class A-3 notes....... September 15, 2014 September 15, 2011 March 15, 2010 March 15, 2009 September 15, 2008
Class A-4 notes....... December 15, 2018 March 15, 2015 September 15, 2012 June 15, 2011 June 15, 2010
Class A-5 notes....... March 15, 2024 December 15, 2019 December 15, 2016 September 15, 2014 December 15, 2012
Class A-6 notes....... December 15, 2028 June 15, 2024 March 15, 2021 June 15, 2018 June 15, 2016
Class B notes......... December 15, 2028 June 15, 2024 March 15, 2021 June 15, 2018 June 15, 2016
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the date on which the Pool Balance falls below 10% of the
initial Pool Balance.
(2) The weighted average life of the notes (assuming a 360-day year consisting
of twelve 30-day months) is determined by: (1) multiplying the amount of
each principal payment on the applicable class of notes by the number of
years from the closing date to the related distribution date, (2) adding
the results, and (3) dividing that sum by the aggregate principal amount
of the applicable class of notes as of the closing date.
I-12
Class A-1 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 72% 42% 10% 0% 0%
March 2008 1% 0% 0% 0% 0%
March 2009 0% 0% 0% 0% 0%
March 2010 0% 0% 0% 0% 0%
March 2011 0% 0% 0% 0% 0%
March 2012 0% 0% 0% 0% 0%
March 2013 0% 0% 0% 0% 0%
March 2014 0% 0% 0% 0% 0%
March 2015 0% 0% 0% 0% 0%
March 2016 0% 0% 0% 0% 0%
March 2017 0% 0% 0% 0% 0%
March 2018 0% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-13
Class A-2 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 90% 75%
March 2008 100% 68% 36% 5% 0%
March 2009 78% 29% 0% 0% 0%
March 2010 55% 0% 0% 0% 0%
March 2011 31% 0% 0% 0% 0%
March 2012 7% 0% 0% 0% 0%
March 2013 0% 0% 0% 0% 0%
March 2014 0% 0% 0% 0% 0%
March 2015 0% 0% 0% 0% 0%
March 2016 0% 0% 0% 0% 0%
March 2017 0% 0% 0% 0% 0%
March 2018 0% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-14
Class A-3 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 53%
March 2009 100% 100% 69% 0% 0%
March 2010 100% 86% 0% 0% 0%
March 2011 100% 20% 0% 0% 0%
March 2012 100% 0% 0% 0% 0%
March 2013 66% 0% 0% 0% 0%
March 2014 19% 0% 0% 0% 0%
March 2015 0% 0% 0% 0% 0%
March 2016 0% 0% 0% 0% 0%
March 2017 0% 0% 0% 0% 0%
March 2018 0% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-15
Class A-4 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 95% 59%
March 2010 100% 100% 90% 44% 4%
March 2011 100% 100% 51% 1% 0%
March 2012 100% 79% 16% 0% 0%
March 2013 100% 50% 0% 0% 0%
March 2014 100% 23% 0% 0% 0%
March 2015 86% 0% 0% 0% 0%
March 2016 63% 0% 0% 0% 0%
March 2017 40% 0% 0% 0% 0%
March 2018 17% 0% 0% 0% 0%
March 2019 0% 0% 0% 0% 0%
March 2020 0% 0% 0% 0% 0%
March 2021 0% 0% 0% 0% 0%
March 2022 0% 0% 0% 0% 0%
March 2023 0% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-16
Class A-5 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March 2010 100% 100% 100% 100% 100%
March 2011 100% 100% 100% 100% 57%
March 2012 100% 100% 100% 63% 20%
March 2013 100% 100% 85% 33% 0%
March 2014 100% 100% 57% 8% 0%
March 2015 100% 98% 33% 0% 0%
March 2016 100% 74% 12% 0% 0%
March 2017 100% 52% 0% 0% 0%
March 2018 100% 31% 0% 0% 0%
March 2019 94% 12% 0% 0% 0%
March 2020 73% 0% 0% 0% 0%
March 2021 52% 0% 0% 0% 0%
March 2022 35% 0% 0% 0% 0%
March 2023 17% 0% 0% 0% 0%
March 2024 0% 0% 0% 0% 0%
March 2025 0% 0% 0% 0% 0%
March 2026 0% 0% 0% 0% 0%
March 2027 0% 0% 0% 0% 0%
March 2028 0% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-17
Class A-6 Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March 2010 100% 100% 100% 100% 100%
March 2011 100% 100% 100% 100% 100%
March 2012 100% 100% 100% 100% 100%
March 2013 100% 100% 100% 100% 93%
March 2014 100% 100% 100% 100% 73%
March 2015 100% 100% 100% 87% 57%
March 2016 100% 100% 100% 71% 44%
March 2017 100% 100% 93% 57% 0%
March 2018 100% 100% 78% 45% 0%
March 2019 100% 100% 64% 0% 0%
March 2020 100% 96% 53% 0% 0%
March 2021 100% 81% 0% 0% 0%
March 2022 100% 70% 0% 0% 0%
March 2023 100% 58% 0% 0% 0%
March 2024 99% 47% 0% 0% 0%
March 2025 79% 0% 0% 0% 0%
March 2026 70% 0% 0% 0% 0%
March 2027 61% 0% 0% 0% 0%
March 2028 51% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-18
Class B Notes
Percentages of Original Principal of the Notes Remaining at Certain
Distribution Dates at Various CPR Percentages(1)
Distribution Date 0% 4% 8% 12% 16%
- ----------------- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100%
March 2007 100% 100% 100% 100% 100%
March 2008 100% 100% 100% 100% 100%
March 2009 100% 100% 100% 100% 100%
March 2010 100% 100% 100% 100% 100%
March 2011 100% 100% 100% 100% 100%
March 2012 100% 100% 100% 100% 100%
March 2013 95% 92% 89% 86% 83%
March 2014 88% 82% 76% 71% 65%
March 2015 82% 73% 65% 58% 51%
March 2016 75% 64% 55% 47% 39%
March 2017 69% 56% 46% 37% 0%
March 2018 62% 49% 38% 30% 0%
March 2019 56% 42% 32% 0% 0%
March 2020 50% 36% 26% 0% 0%
March 2021 44% 31% 0% 0% 0%
March 2022 39% 26% 0% 0% 0%
March 2023 34% 22% 0% 0% 0%
March 2024 29% 18% 0% 0% 0%
March 2025 23% 0% 0% 0% 0%
March 2026 21% 0% 0% 0% 0%
March 2027 18% 0% 0% 0% 0%
March 2028 15% 0% 0% 0% 0%
March 2029 0% 0% 0% 0% 0%
March 2030 0% 0% 0% 0% 0%
March 2031 0% 0% 0% 0% 0%
March 2032 0% 0% 0% 0% 0%
March 2033 0% 0% 0% 0% 0%
March 2034 0% 0% 0% 0% 0%
March 2035 0% 0% 0% 0% 0%
- ------------------------
(1) Assuming for purposes of this table that, among other things, the optional
redemption by the servicer occurs on the distribution date immediately
following the collection period during which the Pool Balance falls below
10% of the initial Pool Balance.
I-19
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 2006-1
Citibank, N.A., U.S. Bank National Association, Citibank, N.A.,
as Eligible Lender Trustee as Indenture Trustee as Indenture Administrator
388 Greenwich Street, 14th Floor 1 Penn Plaza, Suite 2700 388 Greenwich Street, 14th Floor
New York, New York 10013 New York, New York 10119 New York, New York 10013
IRISH PAYING AGENT
Custom House Administration and Corporate Services Limited
25 Eden Quay
Dublin 1, Ireland
IRISH LISTING AGENT
McCann FitzGerald Listing Services Limited
2 Habourmaster Place
International Financial Services Centre
Dublin 1, Ireland
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
Citigroup Global Markets Inc. Lehman Brothers Inc. Merrill Lynch, Pierce,
388 Greenwich Street, 19th Floor 745 Seventh Avenue, 7th Floor Fenner & Smith Incorporated
New York, New York 10013 New York, New York 10019 4 World Financial Center
10th Floor
New York, New York 10080
$2,252,500,000
SLC Student Loan Trust 2006-1
Issuing Entity
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Sponsor, Seller, Servicer and Administrator
Student Loan Asset-Backed Notes
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
Citigroup
Lehman Brothers
Merrill Lynch & Co.
June 22, 2006
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering notes in any state or other jurisdiction where the
offer is not permitted.
We represent the accuracy of the information in this prospectus supplement
and prospectus only as of the dates of their respective covers.
Until 90 days after the date of this prospectus supplement, all dealers
that effect transactions in the notes, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus.
This is in addition to the dealers' obligation to deliver a prospectus
supplement and prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PROSPECTUS
The SLC Student Loan Trusts
The SLC Private Credit Student Loan Trusts
Issuing Entities
Student Loan Asset-Backed Notes
---------------------
SLC Student Loan Receivables I, Inc.
Depositor
The Student Loan Corporation
Sponsor, 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 Notes
The depositor intends to form trusts periodically to issue student loan
asset-backed notes. Each issue will have its own characteristics and series
designation. We will sell the notes in amounts, at prices and on terms
determined at the time of offering and sale. Each series will include one or
more classes of notes secured by the assets of that trust.
A class of notes may:
o be senior or subordinate to other classes; and
o receive payments from one or more forms of credit or liquidity
enhancements designed to reduce the risk to investors caused by
shortfalls in payments on the related student loans.
Each class of 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.
Assets of the Issuing Entity
The assets of each issuing entity will include:
o education loans to students or parents of students;
o specified types of credit enhancement; and
o other moneys, investments and property including derivative
instruments in some cases.
Each supplement to this prospectus will describe the specific amounts, prices
and terms of the notes of each series. The supplement will also give details of
the specific student loans, credit enhancement, and other assets of the related
issuing entity.
You should consider carefully the risk factors described in this prospectus
beginning on page 17 and in the prospectus supplement that accompanies this
prospectus.
Each issue of notes represents obligations of, or interests in, the applicable
issuing entity only. They do not represent interests in or obligations of The
Student Loan Corporation, any other seller, the depositor or any of their
affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the notes or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
June 18, 2006
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT
For each issue, we will provide information to you about the notes in two
separate documents that progressively provide more detail:
o this prospectus, including the Appendices hereto, which provides general
information, some of which may not apply to your series of notes; and
o the related prospectus supplement, which describes the specific terms of
your series of notes, 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 notes.
In making any investment decision, you should rely only on the information
contained or incorporated in this prospectus and the related prospectus
supplement. We have not authorized anyone to provide you with different
information. We are not offering the notes 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.
For certain information concerning the notes, we have provided
cross-references to captions in this prospectus and the accompanying prospectus
supplement under which you can find further related discussions. The following
table of contents and the table of contents in the related prospectus supplement
indicate where these captions are located.
2
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ............................................................................... 6
Principal Parties ........................................................................... 6
The Notes ................................................................................... 7
Assets of the Issuing Entity ................................................................ 8
Collection Account .......................................................................... 9
Pre-Funding Account ......................................................................... 9
Reserve Account ............................................................................. 10
Capitalized Interest Account ................................................................ 10
Other Accounts .............................................................................. 10
Pre-Funding Period .......................................................................... 10
Revolving Period ............................................................................ 11
Credit and Liquidity or other Enhancement or Derivative Arrangements ........................ 11
Purchase Agreements ......................................................................... 11
Sale Agreements ............................................................................. 11
Servicing Agreements ........................................................................ 11
Servicing Fee ............................................................................... 12
Administration Agreement .................................................................... 12
Administration Fee .......................................................................... 12
Representations and Warranties of the Depositor ............................................. 12
Representations and Warranties of the Sellers under the Purchase Agreements ................. 13
Covenants of the Servicer ................................................................... 14
Optional Purchase ........................................................................... 14
Call Option and Collateral Call ............................................................. 14
Auction of Trust Assets ..................................................................... 15
U.S. Federal Income Tax Considerations ...................................................... 15
Certain ERISA Considerations ................................................................ 15
Ratings ..................................................................................... 16
RISK FACTORS ..................................................................................... 17
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS ................................................ 30
FORMATION OF THE ISSUING ENTITIES ................................................................ 31
The Issuing Entities ........................................................................ 31
The Eligible Lender Trustee ................................................................. 31
USE OF PROCEEDS .................................................................................. 32
THE STUDENT LOAN CORPORATION, THE DEPOSITOR, THE SUB-SERVICER AND THE SUB-ADMINISTRATOR .......... 33
The Sponsor, Primary Seller, Servicer and Administrator ..................................... 33
The Depositor ............................................................................... 34
The Sub-Servicer ............................................................................ 35
The Sub-Administrator ....................................................................... 35
THE STUDENT LOAN POOLS ........................................................................... 36
FFELP Delinquencies, Defaults, Claims and Net Losses ........................................ 36
Static Pool Data ............................................................................ 37
Prepayments and Yield ....................................................................... 37
Payment of Notes ............................................................................ 37
Termination ................................................................................. 38
The Student Loan Corporation's Student Loan Business ........................................ 38
TRANSFER AGREEMENTS .............................................................................. 41
General ..................................................................................... 41
Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers ... 41
Sale of Student Loans to the Issuing Entity; Representations and Warranties of the Depositor 41
Custodian of Promissory Notes ............................................................... 42
3
Additional Fundings ......................................................................... 42
Amendments to Transfer Agreements ........................................................... 43
SERVICING AND ADMINISTRATION ..................................................................... 44
General ..................................................................................... 44
Accounts .................................................................................... 44
Servicing Procedures ........................................................................ 45
Payments on Student Loans ................................................................... 46
Servicer Covenants .......................................................................... 47
Servicing Compensation ...................................................................... 48
Net Deposits ................................................................................ 49
Evidence as to Compliance ................................................................... 49
Certain Matters Regarding the Servicer ...................................................... 49
Servicer Default ............................................................................ 50
Rights Upon Servicer Default ................................................................ 50
Waiver of Past Defaults ..................................................................... 51
Administration Agreement .................................................................... 51
Administrator Default ....................................................................... 51
Rights Upon Administrator Default ........................................................... 52
Statements to Indenture Trustee, Indenture Administrator and Issuing Entity ................. 52
Evidence as to Compliance ................................................................... 53
TRADING INFORMATION .............................................................................. 54
Pool Factors ................................................................................ 55
DESCRIPTION OF THE NOTES ......................................................................... 56
General ..................................................................................... 56
Principal and Interest on the Notes ......................................................... 56
Call Option on the Notes .................................................................... 56
Collateral Call ............................................................................. 57
The Indenture ............................................................................... 57
CERTAIN INFORMATION REGARDING THE NOTES .......................................................... 61
Fixed Rate Notes ............................................................................ 61
Floating Rate Notes ......................................................................... 61
The Auction Rate Notes ...................................................................... 61
The Reset Rate Notes ........................................................................ 63
Distributions ............................................................................... 80
Credit and Liquidity or other Enhancement or Derivative Arrangements ........................ 81
Book-Entry Registration ..................................................................... 84
Reset Rate Notes ............................................................................ 86
Non-U.S. Dollar Denominated Notes ........................................................... 88
Definitive Notes ............................................................................ 89
List of Noteholders ......................................................................... 90
Reports to Noteholders ...................................................................... 90
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS ....................................................... 91
Transfer of Student Loans ................................................................... 91
Consumer Protection Laws .................................................................... 91
Loan Origination and Servicing Procedures Applicable to Student Loans ....................... 92
Student Loans Generally Not Subject to Discharge in Bankruptcy .............................. 92
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS ................................................... 93
General ..................................................................................... 93
Tax Characterization of the Trust ........................................................... 94
Tax Consequences to U.S. Holders ............................................................ 94
Tax-Exempt Organizations .................................................................... 98
Tax Treatment of Non-U.S. Holders ........................................................... 98
State, Local And Foreign Taxes .............................................................. 99
CERTAIN ERISA CONSIDERATIONS ..................................................................... 100
AVAILABLE INFORMATION ............................................................................ 102
REPORTS TO NOTEHOLDERS ........................................................................... 102
4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .................................................. 103
THE PLAN OF DISTRIBUTION ......................................................................... 104
LEGAL MATTERS .................................................................................... 105
APPENDIX A Federal Family Education Loan Program ................................................. A-1
APPENDIX B Global Clearance, Settlement and Tax Documentation Procedures ......................... B-1
5
PROSPECTUS SUMMARY
This summary highlights selected information concerning the notes. 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 notes.
Principal Parties
Issuing Entity.............. Each issuing entity will be a Delaware statutory
trust to be formed for each series of notes under
a trust agreement between the depositor and an
owner trustee. We sometimes refer to an issuing
entity as a "trust" in this prospectus.
Eligible Lender Trustee..... If the trust student loans include FFELP student
loans, for each series of notes, the related
prospectus supplement will specify the eligible
lender trustee for the related trust. See
"Formation of the Issuing Entities--The Eligible
Lender Trustee" in this prospectus.
Owner Trustee............... For each series of notes, 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. For notes backed
by FFELP student loans, an eligible lender trustee
will be specified in the related prospectus
supplement and that eligible lender trustee will
hold legal title to the FFELP 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 FFELP student loans.
Sponsor..................... The sponsor is The Student Loan Corporation. We
sometimes refer to The Student Loan Corporation as
"SLC" in this prospectus.
Servicer.................... The servicer is The Student Loan Corporation or
another servicer specified in the prospectus
supplement for your notes.
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 notes, the related prospectus
supplement will specify the sub-servicer for your
notes.
Other Originators........... To the extent that private credit student loans
have been originated by one or more originators
not affiliated with SLC or the depositor and those
loans constitute a material portion of the related
loan pool, the identity of those originators will
be disclosed, to the extent known in the related
prospectus supplement. The requisite information
6
concerning those originators, to the extent
available, will also be provided in the related
prospectus supplement.
Indenture Trustee........... For each series of notes, 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 notes, 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 issuing entity. Under the
circumstances described in this prospectus, it may
transfer its obligations as administrator. See
"Servicing and Administration--Administration
Agreement" in this prospectus.
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" in this prospectus.
The Notes
Each series will include one or more classes of
student loan asset-backed notes. The notes will be
issued under an indenture among the issuing
entity, the indenture trustee, the eligible lender
trustee, if applicable, and the indenture
administrator. We may offer each class of notes
publicly or privately, as specified in the related
prospectus supplement. The depositor may
denominate the notes in U.S. Dollars or a non-U.S.
Dollar currency as specified in the related
prospectus supplement. The notes 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 Notes--Book-Entry
Registration" and "--Definitive Notes" in this
prospectus.
Each class of notes will have a stated principal
amount and will bear interest at a specified rate
described in the related prospectus supplement.
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.
7
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" in this prospectus.
If a series includes two or more classes of notes:
o timing and priority of payments, seniority,
interest rates and/or the method of
determining 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.
Assets of the Issuing Entity
The assets of each issuing entity will consist
primarily of a pool of student loans. These
student loans may be:
o FFELP student loans--education loans to
students or parents of students made under
FFELP; or
o non-FFELP student loans or "private credit
student loans"-- other education loans not
made under FFELP.
"Student loans", as used in this prospectus or in
the related prospectus supplement, refers to FFELP
student loans, private credit student loans, or
both, as applicable.
Student loans owned by a specific trust are called
"trust student loans".
The assets of the issuing entity 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 or an unaffiliated seller
under a purchase agreement. If a seller of the
student loans is not described in this prospectus,
the related prospectus supplement will describe
that seller. The student loans will be selected
based on criteria listed in that purchase
agreement. We will sell the student loans to the
issuing entity 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 issuing entity will also include amounts on
deposit in specific trust accounts, including a
collection account, any capitalized interest
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 issuing entity. See "Formation of the
Issuing Entities--The Issuing Entities."
8
Each FFELP student loan sold to an issuing entity
will be guaranteed as to the payment of principal
and interest by a state guaranty agency or a
private non-profit guarantor. The applicable
guarantee percentage will be set forth in the
prospectus supplement for your notes. 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
U.S. Department of Education for a percentage 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 FFELP student 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" in this
prospectus.
Private credit student loans may or may not be
insured by a private guarantor or surety. If
insured private credit student loans are included
in the assets sold to an issuing entity, the
issuing entity and the holders of the publicly
offered notes related to that issuing entity may
or may not have the benefit of the guarantee. If
your notes have the benefit of a private guarantee
or surety, the related prospectus supplement will
either describe the private guarantee or surety or
you will be told that the private guarantee or
surety was not considered by the rating agencies
in the rating of your notes and the private
guarantee or surety should not be considered in
connection with your investment decision.
An issuing entity may also have among its assets
various agreements with counterparties providing
for interest rate swaps, currency swaps, interest
rate caps and similar financial contracts. These
agreements will be described in the prospectus
supplement for that issuing entity.
Collection Account
For each issuing entity, the indenture
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. The related prospectus supplement will
describe the permitted uses of funds in the
collection account and the conditions for their
application.
Pre-Funding Account
The prospectus supplement may indicate that a
portion of the net proceeds of the sale of the
notes may be kept in a pre-funding account--in the
form of a supplemental purchase account or an
add-on consolidation loan 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 issuing entity. The
prospectus supplement will describe the permitted
uses of any funds in the pre-funding account and
the conditions to their application.
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Reserve Account
The administrator will establish an account for
each series called the reserve account. The
reserve account will be in the name of the
indenture trustee and will be an asset of the
issuing entity. On the relevant closing date, we
will make a deposit into the reserve account, as
specified in the related 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 issuing entity
will describe how amounts in the reserve account
will be available to cover shortfalls in payments
due on the notes. It will also describe how
amounts on deposit in the reserve account in
excess of the required reserve account balance
will be distributed.
Capitalized Interest Account
The prospectus supplement may indicate that the
indenture administrator will establish and
maintain a capitalized interest account as an
asset of the issuing entity in the name of the
indenture trustee. If established, the related
issuing entity will make an initial deposit, in
cash or eligible investments, from the net
proceeds of the sale of the notes into the
capitalized interest account as specified in the
related prospectus supplement.
Funds in the capitalized interest account will be
available to cover shortfalls in payments of
interest due to senior noteholders and payments
due to each swap counterparty (other than any
termination payments) pursuant to any swap
agreement then in effect and, after that,
shortfalls in payments of interest to subordinate
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.
Other Accounts
The prospectus supplement for your notes will also
describe any other accounts established for the
related issuing entity. These accounts may include
cash collateralization accounts, supplemental
interest accounts, investment reserve accounts,
investment premium purchase accounts, currency
accounts, and for any series that contains reset
rate notes, one or more accumulation accounts.
Pre-Funding Period
The prospectus supplement for your notes will
inform you if there is a pre-funding period and
the length of that pre-funding period for the
issuing entity to acquire additional student loans
with amounts on deposit in the pre-funding
account. The length of the pre-funding period will
not extend for more than one year from the date of
issuance of the related series of notes. The
portion of the proceeds for the pre-funding
account will not involve more than 50% of the
proceeds of the offering of the related series of
notes. The additional student loans will have the
same general characteristics as the original trust
student loans in the related pool.
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Revolving Period
The prospectus supplement for your notes will
inform you if there is a revolving period and the
length of that revolving period for the issuing
entity to acquire additional student loans with
the cash flows from the related pool of trust
student loans. The length of the revolving period
will not extend for more than three years from the
date of issuance of the related series of notes.
The prospectus supplement for your notes will
describe the characteristics or selection criteria
for the additional trust student loans.
Credit and Liquidity or other
Enhancement or Derivative
Arrangements
Credit or liquidity enhancement for any series of
notes may include one or more items described
under "Certain Information Regarding the
Notes--Credit and Liquidity or Other Enhancement
or Derivative Arrangements--General" in this
prospectus.
If any credit or liquidity enhancement applies to
an issuing entity or any of the notes issued by
that issuing entity, the related prospectus
supplement will describe the specific enhancement
as well as the conditions for their application. A
credit or liquidity enhancement may have
limitations and exclusions from coverage. If
applicable, the related prospectus supplement will
describe these limitations or exclusions. See
"Certain Information Regarding the Notes--Credit
and Liquidity or other Enhancement or Derivative
Arrangements" in this prospectus.
Purchase Agreements
For each issuing entity, the depositor will
acquire the related student loans under one or
more purchase agreements. The depositor will
assign its rights under the purchase agreements
related to FFELP student loans to the issuing
entity or the eligible lender trustee, on behalf
of the issuing entity, as applicable. The issuing
entity will further assign these rights to the
indenture trustee as collateral for the notes. See
"Transfer 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 those
trust student loans that are FFELP student loans.
The issuing entity will assign its rights under
the sale agreement to the indenture trustee as
collateral for the notes. See "Transfer
Agreements" in this prospectus.
Servicing Agreements
The servicer will enter into one or more servicing
agreements covering the student loans held by each
issuing entity. 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, for trust student loans that are FFELP
student loans, the servicer will file with the
U.S. Department of Education and the
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guarantors all appropriate claims to collect
interest subsidy payments, special allowance
payments and guarantee payments owed on those
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 notes unless any portion
of the servicing fee is expressly subordinated to
payments on the notes, 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 issuing entity
and the servicer. Under each agreement, The
Student Loan Corporation will undertake specific
administrative duties for each issuing entity. 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 notes, 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 issuing entity,
the depositor, as the seller of the student loans
to the issuing entity, will make specific
representations and warranties to the issuing
entity concerning the student loans. The depositor
will have an obligation to repurchase any trust
student loan if the issuing entity 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
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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-- FFELP student loans
(Unsubsidized Stafford, Subsidized Stafford,
PLUS, SLS or, Consolidation) or private credit
student 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 issuing entity 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 the shortfall
(based on the percentage premium paid by the
depositor for the loans being replaced), and
o any accrued interest not guaranteed by, or
that is required to be refunded to, a
guarantor and any program payments lost as a
result of a breach of our representations and
warranties.
See "Transfer Agreements--Sale of Student Loans to
the Issuing Entity; Representations and Warranties
of the Depositor" in this prospectus.
Representations and Warranties
of the Sellers under the
Purchase Agreements
In each purchase agreement, the related seller of
the student loans 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. The
related seller 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 Agreements--Purchase of Student
Loans by the Depositor; Representations and
Warranties of the Sellers" in this prospectus.
13
Covenants of the Servicer
The servicer will agree to service the trust
student loans in compliance with the servicing
agreement and, if applicable, the Higher Education
Act. It will have an obligation to purchase from
an issuing entity, or substitute qualified
substitute student loans for, any trust student
loan if the issuing entity 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 relevant loan program rules,
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 (for example, any breach by the servicer
that is cured within the applicable grace period
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 issuing entity 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" in this prospectus.
Optional Purchase
Subject to any limitations described in the
related prospectus supplement, the servicer or
another entity specified in that prospectus
supplement may, at its option, purchase, or
arrange for the purchase of, all remaining student
loans owned by an issuing entity on any
distribution date when the pool balance of the
remaining student loans is 10% or less of the
initial pool balance, together with the aggregate
initial principal balances of all trust student
loans acquired during any applicable pre-funding
period, plus accrued interest to be capitalized as
of the applicable cutoff dates, or the lesser
percentage as set forth in the related prospectus
supplement. The exercise of this purchase option
will result in the early retirement of the notes
issued by that issuing entity. See "The Student
Loan Pools--Termination" in this prospectus.
Call Option and Collateral
Call
If specified in the related prospectus supplement,
the servicer or one of its affiliates specified in
that prospectus supplement may exercise its option
to call, in full, one or more classes of notes. If
a class of notes has been called, it will either
remain outstanding and be entitled to all interest
and principal payments on that class of notes
under the related
14
indenture, or the servicer or its specified
affiliate will deposit an amount into the
collection account sufficient to redeem the
specified class of notes, subject to satisfaction
of the rating agency condition. See "Description
of the Notes--Call Option on the Notes" in this
prospectus. Each class of reset rate notes will be
subject to a call option as described under
"Certain Information Regarding the Notes--The
Reset Rate Notes--Call Option." In addition, if
specified in the related prospectus supplement and
provided that the rating agency condition is
satisfied, the servicer or one or more of its
affiliates will have the right to purchase certain
of the trust student loans in an amount sufficient
to redeem one or more classes of notes. See
"Description of the Notes--Collateral Call" in
this prospectus.
Auction of Trust Assets
Subject to any limitations described in the
related prospectus supplement, the indenture
administrator may offer, or cause to be offered,
for sale by auction all remaining trust student
loans at the end of the collection period in which
their aggregate pool balance is 10% or less of the
initial pool balance, together with the aggregate
initial principal balances of all trust student
loans acquired during any applicable pre-funding
period, plus accrued interest to be capitalized as
of the applicable cutoff dates, or the lesser
percentage as set forth in the related prospectus
supplement. An auction will occur only if the
entity with the optional purchase right has first
waived its optional purchase right. The auction of
the remaining trust student loans will result in
the early retirement of the notes issued by that
issuing entity. See "The Student Loan
Pools--Termination" in this prospectus and
"Summary of Terms--Auction of Trust Assets" in the
related prospectus supplement.
U.S. Federal Income Tax
Considerations
On each closing date, SLC will receive an opinion
of tax counsel that the issuing entity 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 issuing entity 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 "Certain U.S.
Federal Income Tax Considerations" in this
prospectus and in the related prospectus
supplement.
Certain ERISA Considerations
A fiduciary of any employee benefit plan or other
retirement arrangement subject to Title I of ERISA
and/or Section 4975 of the Internal Revenue Code
of 1986, as amended, should carefully review with
its legal advisors whether the plan's purchase or
holding of any class of notes could give rise to a
transaction prohibited or otherwise impermissible
under ERISA or Section 4975 of the Internal
Revenue
15
Code. See "Certain ERISA Considerations" in this
prospectus and in the related prospectus
supplement.
Ratings
All of the notes will be rated in at least one of
the four highest rating categories by at least two
nationally recognized statistical rating
organizations. The related prospectus supplement
will specify the ratings for the notes being
issued.
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RISK FACTORS
You should carefully consider the following risk factors in deciding whether
to purchase any notes. 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 notes.
Because The Notes May Not Provide Regular or Predictable Payments, You May Not
Receive The Return on Investment That You Expected
The notes 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.
The Notes Are Not Suitable Investments For All Investors
The notes are complex investments that should be considered only by
investors who, either alone or with their financial, tax and legal advisors,
have the expertise to analyze the prepayment, reinvestment, default and market
risk, and tax consequences of an investment, as well as the interaction of these
factors.
If a Secondary Market For Your Notes Does Not Develop, The Value of Your Notes
May Diminish
The notes will be a new issue without an established trading market. While
we intend to list the notes on a European exchange if specified in the related
prospectus supplement, we do not intend to list the notes on any exchange in the
United States. We cannot assure you that listing on a European exchange will be
accepted nor, in any event, that a secondary market for the notes will develop.
If a secondary market does not develop, the spread between the bid price and the
asked price for your notes may widen, thereby reducing the net proceeds to you
from the sale of your notes.
The Issuing Entity Will Have Limited Assets From Which To Make Payments On The
Notes, Which May Result In Losses
The issuing entity will not have, nor will it be permitted to have,
significant assets or sources of funds other than the trust student loans and
the guarantee agreements, and if so provided in the related prospectus
supplement, a reserve account, any other accounts established in the issuing
entity's name, any derivative contracts and other credit or liquidity
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 liquidity enhancements to repay your notes. If these sources of funds are
insufficient to repay your notes, you may experience a loss on your investment.
Private Credit Student Loans May Have Greater Risk Of Default
Private credit student loans are made to students who may have higher debt
burdens than student loan borrowers as a whole. Borrowers of private credit
student loans typically have already borrowed up to the maximum annual or
aggregate limits under FFELP student loans. As a result, borrowers of private
credit student loans may be more likely than other student loan borrowers as a
whole to default on their payments or have a higher rate of forbearances.
Failures by borrowers to timely pay the principal and interest on their private
credit student loans or an increase in deferrals or forbearances could affect
the timing and amount of available funds for any collection period and adversely
affect an issuing entity's ability to pay principal and interest on your notes.
In addition, the private credit student loans are not secured by any collateral
of the borrowers and are not insured by any FFELP guaranty agency or by any
governmental agency. Consequently, if a borrower defaults on a private credit
student loan, you will bear the risk of loss to the extent that the reserve
account or other specified credit enhancement for your notes is insufficient or
unavailable to cover that default.
17
Interests Of Other Persons In Private Credit Student Loans Could Be Superior To
An Issuing Entity's Interest, Which May Result In Reduced Payments On Your
Notes
Another person could acquire an interest in a private credit student loan
that is superior to an issuing entity's interest in that student loan because
the promissory notes evidencing private credit student loans will not be
segregated or marked as belonging to an issuing entity and will not be held by a
third-party custodian on behalf of the indenture trustee. The seller will cause
financing statements to be filed with the appropriate governmental authorities
to perfect an issuing entity's interest in the related private credit student
loans. The servicer will also mark its books and records accordingly. However,
the servicer will continue to hold the promissory notes evidencing private
credit student loans. If another party purchases (or takes a security interest
in) one or more private credit student loans for new value in the ordinary
course of business and obtains possession of those promissory notes evidencing
private credit student loans without actual knowledge of the issuing entity's
interests, the new purchaser (or secured party) will acquire an interest in
those private credit student loans superior to the interest of the applicable
issuing entity.
Risk Of Default By Private Guarantors or Insurers
If a private guarantor or insurer defaults on its guarantee or surety
obligations, you will rely solely on payments from the related borrower for
payments on the related private guaranteed loan. In these circumstances, you
will bear the risk of loss resulting from the failure of any borrower of a
private guaranteed or insured student loan to the extent this loss is not
covered by the limited credit enhancement provided in the financing structure
for your notes.
You May Incur Losses Or Delays In Payments On Your Notes If Borrowers Default On
The Student Loans
Servicers designated as "exceptional performers" by the U.S. Department of
Education receive 99% reimbursement on FFELP student loan default claims filed
on or after July 1, 2006 and 100% on such claims filed prior to July 1, 2006.
Further, if the servicer does not continue to have its "exceptional performance"
designation, most FFELP student loans owned by an issuing entity that are made
on or after July 1, 2006 are only 97% guaranteed and those made prior to such
date are only 98% guaranteed. If a borrower defaults on a trust student loan
that is only 99%, 98% or 97% guaranteed, the related issuing entity will
experience a loss of approximately 1%, 2% or 3%, as applicable, 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 the
related prospectus supplement is insufficient, you may suffer a delay in payment
or losses on your notes.
If A Guarantor Of The FFELP Student Loans Experiences Financial Deterioration Or
Failure, You May Suffer Delays In Payment Or Losses On Your Notes
All of the FFELP student loans will be unsecured. As a result, the primary
security for payment of a FFELP student loan is the guarantee provided by the
applicable guarantor. FFELP student loans acquired by each issuing entity 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 FFELP guarantor's financial condition and ability to honor guarantee
claims could be adversely affected by a number of other factors including:
o the continued voluntary waiver by the guarantor of the guarantee fee
payable by a borrower upon disbursement of a FFELP 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 U.S.
Department of Education, which range from 75% to 100% of the guaranteed
portion of the loan depending on the date the loan was made and the
historical performance of the guarantor; and
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o changes in legislation that may reduce expenditures from the U.S.
Department of Education that support federal guarantors or that may
require guarantors to pay more of their reserves to the U.S. Department
of Education.
If the financial condition of a guarantor or surety deteriorates, it may fail to
make guarantee payments in a timely manner, or at all. In that event, you may
suffer delays in payment or losses on your notes.
The U.S. Department Of Education's Failure To Make Reinsurance Payments May
Negatively Affect The Timely Payment Of Principal And Interest On Your Notes
If a FFELP guarantor is unable to meet its guarantee obligations, the
issuing entity may submit claims directly to the U.S. Department of Education
for payment. The U.S. Department of Education's obligation to pay guarantee
claims directly is dependent upon its determination that the guarantor is unable
to meet its guarantee obligations. If the U.S. Department of Education delays in
making this determination, you may suffer a delay in the payment of principal
and interest on your notes. In addition, if the U.S. Department of Education
determines that the FFELP guarantor is able to meet its guarantee obligations,
the U.S. Department of Education will not make guarantee payments to the issuing
entity. The U.S. Department of Education may or may not make the necessary
determination that the guarantor is unable to meet its guarantee obligations.
Even if the U.S. Department of Education determines that the guarantor is unable
to meet its guarantee obligations, it may or may not make 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.
Financing alternatives consist of various loan consolidation programs including,
among others, in-school consolidation loans and the Federal Direct Lending
Program. The ability of borrowers to consolidate student loans while they are
still in school may cause in-school consolidation loans to experience higher
rate of prepayment as the borrowers incur additional indebtedness to fund their
continuing education. The ability of borrowers to refinance their existing
consolidation loans into the Federal Direct Lending Program may also result in
increased prepayments. In addition, a issuing entity may receive unscheduled
payments due to defaults and to purchases by the servicer or the depositor.
Because a pool may include thousands of student loans, it is impossible to
predict the amount and timing of payments that will be received and paid to
noteholders in any period. Consequently, the length of time that your notes 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 trust student loans. Consequently, the length of time that your notes
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 noteholders.
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
Notes
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 are likely to receive more money to reinvest at a time when other
investments generally are producing lower yields than the yield on the notes.
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Similarly, you are likely to receive less money to reinvest when other
investments generally are producing higher yields than the yield on the notes.
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 Notes
The rules under which the trust student loans were originated, including the
Higher Education Act or the program rules and surety agreements for private
credit student loans, require lenders making and servicing student loans and the
guarantors, if any, 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 U.S. 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 that are FFELP
student loans; or
o the guarantors' or sureties' inability or refusal to make guarantee or
insurance payments on the trust student loans.
Loss of any loan program payments could adversely affect the amount of
available funds and the issuing entity's ability to pay principal and interest
on your notes.
The Inability Of The Depositor Or The Servicer To Meet Its Repurchase Obligation
May Result In Losses On Your Notes
Under some circumstances, the issuing entity has the right to require the
depositor or the servicer to purchase or provide the issuing entity with a
substitute for a trust student loan. This right arises generally if a breach of
the representations, warranties or covenants of we or the servicer, as
applicable, has a material adverse effect on the issuing entity and if the
breach is not cured within the applicable cure period. We cannot guarantee you,
however, that the depositor or the servicer will have the financial resources to
make a purchase or substitution. In this case, you will bear any resulting loss.
Subordination Of Some Classes Of Notes Results In A Greater Risk Of Losses Or
Delays In Payment On Those Notes
Some classes of notes may be subordinate to other classes of the related
series. As long as a senior class of notes is outstanding, the failure to pay
interest or principal on any classes of notes subordinate to that senior class
will not constitute an event of default. Consequently, 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 Notes 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 notes 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 notes outstanding
on that date. If this happens, your yield on the notes may be affected. You will
bear the risk that you cannot reinvest the money you receive in comparable notes
at an equal yield.
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The Principal Of The Student Loans May Amortize Faster Because Of Incentive
Programs
Various incentive programs may be made available to borrowers by the sellers
of the student loans. One of SLC's incentive programs allows for a 0.25%
interest rate reduction to borrowers who elect to have their installments
deducted automatically from their bank accounts. Another of SLC's incentive
programs 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 benefits like these 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 FFELP Student Loan Guarantors Or The U.S. Department Of
Education Could Prevent The Issuing Entity From Paying You The Full Amount Of
The Principal And Interest Due On Your Notes
The eligible lender trustee may use the same U.S. Department of Education
lender identification number for FFELP student loans in an issuing entity as it
uses for other FFELP student loans it holds on behalf of other issuing entities
established by us. If it does, the billings submitted by the eligible lender
trustee or the servicer to the U.S. Department of Education (for items such as
special allowance payments or interest subsidy payments) and the claims
submitted to the guarantors will be consolidated with the billings and claims
for payments for trust student loans under other issuing entities using the same
lender identification number. Payments on those billings by the U.S. 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
lender trustee, in a lump sum. Those payments must be allocated by the
administrator among the various issuing entities that reference the same lender
identification number.
If the U.S. 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 issuing entity for your notes or other issuing
entities, the U.S. Department of Education 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 issuing entity. 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 issuing
entity's ability to pay you principal and interest on the notes.
The servicing agreement for your notes and other servicing agreements of the
depositor will contain provisions for cross-indemnification concerning those
payments and offsets. Such provisions require one entity to compensate the other
or accept a lesser payment to the extent the latter has been assessed for the
liability of the former. Even with cross-indemnification provisions, however,
the amount of funds available to the issuing entity from indemnification would
not necessarily be adequate to compensate the issuing entity and investors in
the notes 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 Notes
If a servicer default occurs, the indenture trustee or the noteholders in a
given series of notes may remove the servicer without the consent of the issuing
entity or the eligible lender trustee, as applicable. Only the indenture trustee
or the noteholders, and not the issuing entity or the eligible lender trustee,
as applicable, 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 the 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.
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Furthermore, the indenture trustee or the noteholders may experience
difficulties in appointing a successor servicer and during any transition phase
it is possible that normal servicing activities could be disrupted, resulting in
increased delinquencies and/or defaults on the trust student loans and a failure
by the servicer to comply with the requirements of the U.S. Department of
Education with respect to FFELP student loans could lead to loss of interest
and/or the guarantee.
The Bankruptcy Of The Servicer Could Delay The Appointment Of A Successor
Servicer Or Reduce Payments On Your Notes
In the event of default by the servicer resulting solely from certain events
of insolvency or the bankruptcy of the servicer, a court, conservator, receiver
or liquidator may have the power to prevent either the indenture trustee or the
noteholders from appointing a successor servicer or prevent the servicer from
appointing a sub-servicer, as the case may be, and delays in the collection of
payments on the trust student loans may occur. Any delay in the collection of
payments on the trust student loans may delay or reduce payments to noteholders.
The Bankruptcy Of The Depositor Or The Student Loan Corporation Could Delay Or
Reduce Payments On Your Notes
We have taken steps to assure that the voluntary or involuntary application
for relief by SLC, or any other applicable seller, 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 or the other sellers.
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 or any other seller 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 notes or reductions in these amounts could result.
SLC, any other sellers of the student loans 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 or any other sellers should any such seller become the
subject of any insolvency proceeding.
If SLC or any other seller were to become subject to an insolvency
proceeding, and a creditor, a trustee-in-bankruptcy or the seller itself were to
take the position that the sale of student loans from the related seller to the
depositor should instead be treated as a pledge of the student loans to secure a
borrowing of that seller, delays in payments on the notes 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 or any other seller to the depositor
is treated as a pledge instead of a sale, a tax or government lien on the
property of that seller that arises before the transfer of those student loans
to us may have priority over the applicable issuing entity's interest in the
student loans.
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 related trust student loans without the consent of the
noteholders (but only in the event that there has been a payment default on a
class of senior notes, and in all other cases, if the purchase price received
from the sale of the trust student loans is sufficient to repay all related
noteholders in full). 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 noteholders whole.
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 that are FFELP 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
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FFELP 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 FFELP 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 FFELP student loans held by
the issuing entity.
Current or Future Changes to the Higher Education Act and Future Legislative
Actions May Result In Increased Prepayments On, Or Other Adverse Changes To,
The FFELP Student Loans
The provisions of the Higher Education Act governing the Federal Family
Education Loan Program are periodically amended and must be reauthorized every
five years in order to prevent sunset of the Higher Education Act. The Federal
Family Education Loan Program has been recently reauthorized through 2012 by the
Higher Education Reconciliation Act of 2005 and various changes have been made
including changes to loan limits, interest rates, guarantee percentages and
consolidation loans.
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 FFELP 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 FFELP
student loans. In addition, if 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.
Funds for payment of interest subsidies and other payments under FFELP are
subject to annual budgetary appropriation by Congress. Federal budget
legislation has in the past contained provisions that restricted payments made
under FFELP to achieve reductions in federal spending. Future federal budget
legislation may adversely affect expenditures by the U.S. Department of
Education, and the financial condition of the guarantee agencies.
It is not possible to predict the effects of the Higher Education
Reconciliation Act or any other future legislation on the FFELP student loans.
The Use Of Master Promissory Notes May Compromise The Indenture Trustee's
Security Interest In Certain FFELP 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, regardless of the loan
period. If a master promissory note is used, a borrower executes only one
promissory note with each lender. Subsequent FFELP student loans from that
lender are evidenced by a confirmation sent to the student. Therefore, if a
lender originates multiple FFELP 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 FFELP student loan made
under that same master promissory note. Each FFELP 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 either through
the secured party taking possession of the original or a copy of the master
promissory note, or the 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 U.S. Department of Education.
It is possible that FFELP 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 FFELP 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.
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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 Notes May Be Issued Only In Book-Entry Form
We expect that each class of notes 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 notes
registered in the name of the holder for a class or series of the notes, we will
so state in the related prospectus supplement. Unless and until definitive notes
are issued, holders of the notes 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 notes are issued, holders of the
notes 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 Notes--Book-Entry Registration" in this
prospectus.
Withdrawal Or Downgrade Of Initial Ratings May Decrease The Prices Of Your Notes
The prospectus supplement for your notes will specify the minimum required
ratings for the notes. The rating of notes is not a recommendation to buy, sell
or hold those notes. 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 notes.
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 those
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 U.S. 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.
We do not know how many FFELP student loans have been or may be affected by
the application of the Relief Act and the U.S. Department of Education's
guidelines. Payments on FFELP 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, 2007, 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
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Secretary deems necessary to ensure that FFELP student loan borrowers who: are
serving 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 federal 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 those 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 FFELP student loan obligations who are called to active
duty.
The number and aggregate principal balance of FFELP 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 FFELP 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 financed FFELP 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 FFELP
student loans and our ability to pay interest in the notes if there are
insufficient funds in the reserve account.
Consumer Protection Laws May Affect Enforceability Of Private Credit Student
Loans
Numerous federal and state consumer protection laws, including various state
usury laws and related regulations, impose substantial requirements upon lenders
and servicers involved in consumer finance. Some states impose finance charge
ceilings and other restrictions on certain consumer transactions and require
contract disclosures in addition to those required under federal law. These
requirements impose specific statutory liability that could affect an assignee's
ability to enforce consumer finance contracts such as the private credit student
loans. In addition, the remedies available to the indenture trustee or the
applicable noteholders upon an event of default under the indenture may not be
readily available or may be limited by applicable state and federal laws.
Risk of Bankruptcy Discharge of Private Credit Student Loans
Student loans are generally not dischargeable by a borrower in bankruptcy;
however, they can become dischargeable if the borrower proves that keeping the
loans non-dischargeable would impose an undue hardship on the debtor and the
debtor's dependents. If you own any notes issued by an issuing entity relating
to private credit student loans that do not have the benefit of a guarantee, you
will bear any risk of loss resulting from the discharge of any borrower of those
private credit student loans to the extent the amount of the default is not
covered by the issuing entity's credit enhancement.
In The Event Of An Early Termination Of A Swap Agreement Due To Certain Swap
Termination Events, An Issuing Entity May Be Required To Make A Large
Termination Payment To Any Related Swap Counterparty
To the extent described in the related prospectus supplement, when a class
of notes bears interest at a fixed rate, an issuing entity may enter into one or
more interest rate swap agreements to hedge basis risk. If at any time a class
of notes is denominated in a currency other than U.S. Dollars, the issuing
entity will be required to enter into one or more currency swap agreements with
eligible swap counterparties to hedge against currency risk.
A swap agreement generally may not be terminated except upon the
occurrence of enumerated termination events set forth in the applicable swap
agreement which will be described in the related prospectus supplement.
Depending on the reason for the termination, however, a swap termination payment
may be due from either the issuing entity or the related swap counterparty.
If a termination event under any of these swap agreements occurs and the
issuing entity owes the related swap counterparty a large termination payment
that is required to be paid pro rata with interest due to the related notes, the
25
issuing entity may not have sufficient available funds on that or future
distribution dates to make required payments of interest or principal, and the
holders of all classes of notes may suffer a loss.
Your Notes Will Have Greater Risk If An Interest Rate Swap Agreement Terminates
If on any distribution date a payment is due to the issuing entity under an
interest rate swap agreement, but the related swap counterparty defaults and the
administrator is unable to arrange for a replacement swap agreement, holders of
those notes will remain entitled to the established rate of interest and
principal, even though the related swap agreement has terminated. If this
occurs, amounts available to make payments on the related notes will be reduced
to the extent the interest rates on those notes exceed the rates which the
issuing entity would have been required to pay to the swap counterparty under
the terminated interest rate swap agreement. In this event, the issuing entity
may not have sufficient available funds on that or future distribution dates to
make required payments of interest or principal to all classes of notes and you
may suffer a loss.
Your Notes Will Have Greater Risk If A Currency Swap Agreement Terminates
To the extent described in the related prospectus supplement, when a class
of notes is to be denominated in a currency other than U.S. Dollars, the issuing
entity will enter into one or more currency swap agreements with eligible swap
counterparties to hedge against currency exchange and basis risks. The currency
swap agreements will be intended to convert:
o principal and interest payments on the related class of notes from U.S.
Dollars to the applicable currency; and
o the interest rate on the related class of notes from a LIBOR-based rate
to a fixed or floating rate payable in the applicable currency.
Among other events, a currency swap agreement may terminate in the event
that either:
o the issuing entity or the related swap counterparty defaults in making a
required payment within three business days of the date that payment was
due; or
o within 30 calendar days of the date on which the credit ratings of that
swap counterparty fall below the required ratings, the related swap
counterparty fails to:
o obtain a replacement cross-currency swap agreement with terms
substantially the same as the initial currency swap agreement;
o obtain a rating affirmation on the notes; or
o post collateral in accordance with a collateral agreement between
the parties or establish another arrangement satisfactory to the
applicable rating agencies.
Upon an early termination of any currency swap agreement, you cannot be
certain that the issuing entity will be able to enter into a substitute currency
swap agreement with similar currency exchange terms. If the issuing entity is
not able to enter into a substitute currency swap agreement, there can be no
assurance that the amount of credit enhancement will be sufficient to cover the
currency risk and the basis risk associated with a class of notes denominated in
a currency other than U.S. Dollars.
In addition, the issuing entity may owe the related swap counterparty swap
termination payments that are required to be paid pro rata with the related
classes of notes. In this event, there can be no assurance that the amount of
credit enhancement will be sufficient to cover the swap termination payments and
payments due on your notes and you may suffer loss.
If any currency swap counterparty fails to perform its obligations or if the
related currency swap agreement is terminated, the issuing entity will have to
exchange U.S. Dollars for the applicable currency during the applicable reset
period at an exchange rate that may not provide sufficient amounts to make
payments of principal and interest
26
to all of the notes in full, including as a result of the inability to exchange
U.S. Dollar amounts then on deposit in any related accumulation account for the
applicable currency. Moreover, there can be no assurance that the spread between
LIBOR and any applicable non-U.S. Dollar currency index will not widen. As a
result, if a currency swap agreement is terminated and the issuing entity is not
able to enter into a substitute currency swap agreement, all of the notes bear
the resulting currency risk and spread risk.
In addition, if a payment is due to the issuing entity under a currency swap
agreement, a default by the related swap counterparty may reduce the amount of
available funds for any collection period and thus impede the issuing entity's
ability to pay principal and interest on your class of notes.
If The Holder Of The Call Option Or Collateral Call Exercises Its Right, You May
Not Be Able To Reinvest In A Comparable Note
If specified in the related prospectus supplement, the servicer will have,
or may transfer to certain of its affiliates, the option to call, in full, one
or more classes of notes. If this option is exercised, the affected class of
notes will either remain outstanding and be entitled to all of the benefits of
the related indenture, or the servicer or its specified affiliate will deposit
an amount into the collection account sufficient to redeem the affected class of
notes, subject to satisfaction of the rating agency condition set forth in the
related prospectus supplement. In addition, if specified in the related
prospectus supplement and subject to satisfaction of the rating agency
condition, the servicer or one or more of its affiliates will have the right to
purchase certain of the trust student loans in an amount sufficient to redeem
one or more classes of notes. If the note call option or collateral call option
is exercised with respect to your class of notes, you will receive a payment of
principal equal to the outstanding principal balance of your notes, less any
amounts distributed to you by the issuing entity as a payment of principal on
the related distribution date, plus all accrued and unpaid interest on that
distribution date, but you may not be able to reinvest the proceeds you receive
in a comparable security with an equivalent yield.
The Interest Rates On Any Auction Rate Notes Are Subject To Limitations, Which
Could Reduce Your Yield
The interest rates on the auction rate notes may be limited by the maximum
rate, which will be based on the least of the maximum auction rate, the maximum
interest rate, generally 18% per annum, or, in certain circumstances, the
student loan rate, which is based on the rates of return on the trust student
loans, less specified administrative costs. If, for any accrual period, the
maximum rate is less than the auction rate determined in accordance with the
auction procedures, interest will be paid on the auction rate notes at the
maximum rate even though there may be sufficient available funds to pay interest
at the auction rate.
For a distribution date on which the interest rate for a class of auction
rate notes is equal to the student loan rate, the excess of (a) the lower of (1)
the amount of interest at the auction rate determined pursuant to the auction
procedures for the auction rate notes and (2) the amount of interest at the
maximum auction rate which would have been applied if the student loan rate were
not a component of the maximum auction rate over (b) the student loan rate will
become a carryover amount, and will be allocated to the applicable notes on
succeeding distribution dates, and paid on the succeeding distribution date,
only to the extent that there are funds available for that purpose and other
conditions are met. It is possible that such carryover amount may never be paid.
Any carryover amount not paid at the time of redemption of an auction rate note
will be extinguished.
If A Currency Swap Agreement Terminates, Additional Interest Will Not Be Paid
To the extent described in the related prospectus supplement, a currency
swap agreement supporting payment of reset rate notes denominated in a currency
other than U.S. Dollars may provide for the payment to all reset rate
noteholders of approximately two business days of interest at the applicable
rate resulting from a required delay in the payment of reset date remarketing
proceeds through Euroclear and Clearstream. If a currency swap agreement is
terminated, however, the issuing entity, in turn, will make payments in respect
of those reset rate notes, but will not make payments for those additional days
of interest resulting from the required delay in the payment of reset date
remarketing proceeds through Euroclear and Clearstream.
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Even If You Do Not Receive Timely Notices, You Will Be Deemed To Have Tendered
Your Reset Rate Notes
Unless notice of the exercise of the call option described below has already
been given, the administrator, not less than fifteen nor more than thirty
calendar days prior to each remarketing terms determination date, will inform
DTC, Euroclear and Clearstream, as applicable, of the identity of the
remarketing agents, whether that class of notes is subject to automatic tender
on the upcoming reset date, unless a holder elects not to tender its reset rate
notes, or whether that class of notes is subject to mandatory tender by all of
the holders. The administrator also will request that DTC, Euroclear and
Clearstream, as applicable, notify its participants of the contents of such
notice given to DTC, Euroclear and Clearstream, as applicable, inform them of
the notices to be given on the remarketing terms determination date and the
spread determination date and the procedures that must be followed if any
beneficial owner of reset rate notes wishes to retain its notes or inform them
of any procedures to be followed in connection with a mandatory tender of those
notes.
Due to the procedures used by the clearing agencies and the financial
intermediaries, however, holders of beneficial interests in any class of reset
rate notes may not receive timely notifications of the reset terms for any reset
date. Despite this potential delay in the distribution of such notices by the
related clearing agencies, even though you may not receive a copy of the notice
to be delivered on the related remarketing terms determination date, you will be
deemed to have tendered your class unless the remarketing agents have received a
hold notice, if applicable, from you on or prior to the related notice date.
If Investments In An Accumulation Account Do Not Perform As Anticipated, Your
Notes May Be Downgraded Or You May Suffer A Loss
During any reset period when an accumulation account is being maintained for
a class of reset rate notes, the administrator, on behalf of the issuing entity,
will invest any funds on deposit in that accumulation account in eligible
investments, as defined in the indenture. Eligible investments include, among
other things, asset-backed securities and repurchase obligations under
repurchase agreements entered into with respect to federally guaranteed student
loans that are serviced by the servicer or an affiliate thereof, that satisfy
the applicable minimum rating requirements set by the applicable rating agencies
and have an expected maturity at least one business day before the next reset
date for the related class of reset rate notes.
There can be no assurance that these investments will not default or that
they will always retain their initial ratings. Any downgrade in these
investments would also likely reduce the market value of such investments. In
this event, if the administrator were to have the issuing entity sell such
investments prior to their maturity, whether to minimize potential future losses
or for any other reason, or if the indenture trustee were to liquidate such
investments following an event of default and an acceleration of your notes, you
may suffer a loss. Furthermore, there is no certainty that these investments
will pay interest and principal at the rates, at the times or in the full
amounts owed. As a result, it is possible that, absent sufficient cash flow from
the assets of the issuing entity, other than the accumulation account, to offset
these losses, you could suffer a loss on your notes.
In The Event That Sums Are Deposited Into A Supplemental Interest Account Or An
Investment Reserve Account, Principal Payments To Subordinated Noteholders May
Be Delayed, Or Subordinated
On and after the date on which the senior notes have been paid in full, or
on and after any earlier date described in the related prospectus supplement,
your subordinated notes may be entitled to principal distributions. However, if
amounts on deposit in an accumulation account for a class of reset rate notes
bearing interest at a fixed rate become sufficiently large, it is possible that
required deposits into the related supplemental interest account may result in a
shortage of available funds, and principal would not be paid to you on that or
succeeding distribution dates until there are sufficient available funds.
In addition, amounts required to be deposited into a related investment
reserve account will be funded on each applicable distribution date, to the
level necessary to satisfy the rating agency condition, subject to a maximum
amount, prior to any distributions of principal to the subordinated notes. If
there are insufficient available funds following any such deposit, principal
payments to your subordinated notes may be delayed.
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In addition, if amounts withdrawn from the investment reserve account are
insufficient to offset losses on eligible investments, and there are
insufficient available funds to both replenish the related accumulation account
and make payments of principal to the subordinated noteholders, you may suffer a
loss.
If The Holder Of The Call Option Exercises The Call Option, You May Not Be Able
To Reinvest In A Comparable Security
The Student Loan Corporation and any other sellers will have, or may
transfer to certain of its subsidiaries, the option to call, in full, any class
of reset rate notes on each related reset date, even if you have delivered a
hold notice. If this option is exercised, you will receive a payment of
principal equal to the outstanding principal balance of your reset rate notes,
less any amounts distributed to you by the issuing entity as a payment of
principal on the related distribution date, plus all accrued and unpaid interest
on that distribution date, but you may not be able to reinvest the proceeds you
receive in a comparable security with an equivalent yield.
If A Failed Remarketing Is Declared, You Will Be Required To Rely On A Sale
Through The Secondary Market If You Wish To Sell Your Reset Rate Notes
In connection with the remarketing of your class of reset rate notes, if a
failed remarketing is declared, your reset rate notes will not be sold even if
you attempted or were required to tender them for remarketing. In this event you
will be required to rely on a sale through the secondary market, which may not
then exist for your class of reset rate notes, independent of the remarketing
process.
If A Failed Remarketing Is Declared, The Failed Remarketing Rate You Will
Receive May Be Less Than The Then-Prevailing Market Rate Of Interest
If a failed remarketing is declared, your class of reset rate notes will
become subject to the applicable failed remarketing rate. If your class is then
denominated in U.S. Dollars, you will receive interest until the next reset date
at the related failed remarketing rate of three-month LIBOR plus a related
spread. If your class is then denominated in a non-U.S. Dollar currency, you
will receive interest until the next reset date at the failed remarketing rate
established on the related spread determination date, which will always be a
floating rate of interest, or at the related initial failed remarketing rate
established for your class of reset rate notes on the closing date, as described
in the related prospectus supplement. The failed remarketing rate may differ
significantly from the rate of interest you received during any previous reset
period, which may have been at a fixed rate or based on an index different than
three-month LIBOR or the applicable index established on the spread
determination date, or on the related closing date, as applicable, with respect
to a class of reset rate notes. We cannot assure you that the failed remarketing
rate will always be at least as high as the prevailing market rate of interest
for similar securities and you may suffer a loss in yield.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus and the prospectus supplement relating to your
notes, 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 notes, 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 notes.
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FORMATION OF THE ISSUING ENTITIES
The Issuing Entities
The depositor will establish a separate issuing entity in the form of a
Delaware statutory trust for each series of notes. Each issuing entity 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 notes;
o enter into one or more swap agreements and/or interest rate cap
agreements, from time to time;
o make payments on the notes; and
o engage in other incidental or related activities.
Unless otherwise specified in a related prospectus supplement, the permitted
activities of the issuing entity may be modified only by amending the related
trust agreement. The trust agreement may be amended without noteholder consent
if an opinion of counsel is provided to the effect that such action would not
adversely affect in any material respect the interests of any noteholder.
Each issuing entity will have only nominal initial capital. Each trust or,
if applicable, the eligible lender trustee, on behalf of the trust, will use the
net proceeds from the sale of the related notes to purchase the trust student
loans.
Following the purchase of the trust student loans, the assets of the issuing
entity will include:
o the trust student loans themselves, legal title to which either the
issuing entity or the eligible lender trustee, as applicable, will hold;
o all funds collected on the trust student loans on or after the date
specified in the prospectus supplement, including any guarantor, surety
or U.S. 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 (amounts on deposit in any account
may be invested in eligible investments as permitted by the related
indenture);
o all applicable rights under each applicable swap agreement and/or
interest rate cap agreement then in effect;
o rights under the related transfer and servicing agreements, including
the right to require the sellers, the depositor or the servicer to
repurchase trust student loans from it or to substitute student loans
under some conditions; and
o rights under the guarantee or surety agreements with guarantors or
insurers.
The notes will represent indebtedness of the issuing entity 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.
The Eligible Lender Trustee
If the trust student loans for your notes include FFELP student loans, we
will specify the eligible lender trustee for that trust in the prospectus
supplement for your notes. Each eligible lender trustee for a trust will be the
bank or trust company as specified in the related prospectus supplement. It will
acquire legal title to all trust student loans that are FFELP student loans on
behalf of that trust and will enter into a guarantee agreement with each of the
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guarantors of those loans. The eligible lender trustee must qualify as an
eligible lender under the Higher Education Act and the guarantee agreements.
If the trust student loans for your notes include private credit student
loans, in lieu of an eligible lender trustee, the trust will acquire legal title
to all such trust student loans.
The liability of the eligible lender trustee in connection with the issuance
and sale of any notes 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 that 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 the appointment of a successor will become
effective only when a successor accepts its appointment.
The prospectus supplement will specify the principal office of each issuing
entity and eligible lender trustee.
USE OF PROCEEDS
On the closing date specified in the applicable prospectus supplement, the
trust or the eligible lender trustee on behalf of the trust will use the net
proceeds of the sale of the notes to purchase student loans from us and make an
initial deposit into the collection account, the reserve account, any
capitalized interest account, any cash collateralization account, any
pre-funding account and any other account specified in the related prospectus
supplement. The trust or the eligible lender trustee, as applicable, 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 corporate
purposes, including purchasing the student loans and acquiring any credit or
liquidity enhancement specified in the related prospectus supplement.
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THE STUDENT LOAN CORPORATION, THE DEPOSITOR,
THE SUB-SERVICER AND THE SUB-ADMINISTRATOR
The Sponsor, Primary Seller, Servicer and Administrator
The Student Loan Corporation acts as the sponsor of the depositor's
securitization programs, the primary seller, servicer and administrator. SLC is
an 80% owned indirect subsidiary of Citigroup, Inc. SLC 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, SLC operated as a division of
Citibank (New York State). On December 22, 1992, the assets of the division were
exchanged with CNYS for 20 million shares of SLC's common stock and SLC'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 SLC's common stock in an initial public offering, retaining an 80%
ownership interest in SLC. In August 2003, CNYS merged with CBNA, and CBNA
succeeded CNYS as the principal shareholder of SLC. At the effective date of the
merger, CBNA became a party to all intercompany agreements that SLC 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. SLC
has a principal executive offices at 750 Washington Boulevard, Stamford, CT
06901. Its telephone number is (203) 975-6851.
SLC is an affiliate of the depositor and the sub-administrator.
SLC has sponsored five trusts, including its first student loan
securitization in 2002. These sponsored trusts have issued, in both public
offerings and private placements, an aggregate principal amount of notes in
excess of $6 billion.
SLC originates, manages and services federally insured student loans through
a trust agreement with Citibank, N.A. an indirect wholly owned subsidiary of
Citigroup Inc. SLC is one of the nation's leading originators and holders of
student loans guaranteed under FFELP, authorized by the U.S. Department of
Education under the Higher Education Act. SLC services more than four million in
FFELP student loan assets and manages approximately $30.5 billion of FFELP
student loans.
SLC also originates and holds student loans that are not insured under the
Higher Education Act, primarily CitiAssist Loans. SLC serves a diverse range of
clients that includes over 6,000 educational and financial institutions and
state agencies. The private CitiAssist Loan program is designed to assist
undergraduate, graduate, health professions students, and others, by providing
education financing that is intended to supplement any financial aid that may be
available under the FFELP. They are installment loans that are credit based and
subject to state laws and federal consumer banking regulations. Most of these
loans are insured by private insurers and are not reinsured by the federal
government.
In order to comply with certain legal and regulatory requirements,
CitiAssist Loans are originated by Citibank, N.A., SLC's principal shareholder,
and are serviced by SLC or a related party servicer in accordance with the
provisions of intercompany agreements. Following full disbursement, SLC
purchases all qualified CitiAssist Loans at CBNA's carrying value, plus
contractual fees.
As of December 31, 2005, SLC owned approximately $19.6 billion of FFELP
student loans and approximately $4.8 billion of private credit student loans,
exclusive of deferred fees. SLC originated approximately $3.2 billion of FFELP
student loans and was committed to purchase approximately $1.6 billion of
private CitiAssist loans during 2005.
As the sponsor and administrator of the depositor's securitization program,
SLC selects portfolios of loans from its own portfolio to securitize. SLC is
also responsible for structuring each transaction.
SLC has been in the business of servicing student loans for almost 50 years
and, as of December 31, 2005, employs approximately 550 employees. As of
December 31, 2005, SLC and its affiliate serviced approximately $19 billion in
student loans. SLC is one of the largest servicers of student loans, servicing
more than four million loans.
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SLC provides education loan servicing to schools and other lending
institutions. As servicer, SLC may delegate or subcontract its duties as
servicer, but no delegation or subcontract will relieve the servicer of
liability under the servicing agreement. These services include processing loan
documents, disbursing loans, reporting and computing loan origination fees and
interest including special allowance, preparing and filing the ED Form 799
report, applying customer payments, accounting for loan status changes,
performing due diligence according to the U.S. Department of Education rules and
regulations, preparing and filing claims, and providing customer service, among
other services.
As administrator, SLC may delegate or subcontract its duties as
administrator, but no delegation or subcontract will relieve the administrator
of liability under the administration agreement.
The prospectus supplement for a series may contain additional information
concerning The Student Loan Corporation as the sponsor, primary seller, servicer
or administrator.
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
or any other seller of student loans and to transfer these student loans to the
issuing entity. The Depositor was incorporated in Delaware on December 20, 2001.
Because the depositor is not an institution eligible to hold legal title to
FFELP student loans, an eligible lender trustee specified in the related
prospectus supplement will hold legal title to the FFELP student loans on behalf
of the depositor.
By forming the depositor to acquire the student loans being transferred to
the issuing entity, 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 SLC;
o refraining from commingling its assets with the assets of SLC; and
o refraining from holding itself out as having agreed to pay, or being
liable for, the debts of SLC.
Each transaction agreement will also contain "non-petition" covenants to
prevent the commencement of any bankruptcy or insolvency proceedings against the
depositor and/or the issuing entity, as applicable, by any of the transaction
parties or by the noteholders.
We have structured the transactions described in this prospectus to assure
that the transfer of the student loans by SLC or any other seller 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 applicable seller should it become subject to any
insolvency proceeding.
Upon each issuance of notes, 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 applicable seller to
the depositor would be characterized as a "true sale" and the student loans and
related proceeds would not be property of the applicable seller under the
insolvency laws.
The transferring depositor will also represent and warrant that each
transfer of student loans by the depositor to the issuing entity is a valid sale
of those loans. The transferring depositor, SLC and each applicable seller will
take all actions that are required so the eligible lender trustee or the owner
trustee, as applicable, will be treated as the legal owner of the trust student
loans while they are held beneficially by either the depositor or the issuing
entity.
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The depositor's obligations after issuance of a series of notes include the
sale of any trust student loans to the related issuing entity to be purchased
with amounts on deposit in any pre-funding account and delivery of certain
related documents and instruments, repurchasing trust student loans in the event
of certain breaches of representations or warranties made by the depositor,
providing tax-related information to the eligible lender trustee or owner
trustee, as applicable, and maintaining the eligible lender trustee's or owner
trustee's first priority perfected security interest in the assets of the
related issuing entity.
The prospectus supplement for a series may contain additional information
concerning the depositor.
The Sub-Servicer
For each series of notes, SLC is expected to contract with a sub-servicer to
sub-service the trust student loans on behalf of the related issuing entity. The
related prospectus supplement will specify the sub-servicer for your notes.
The Sub-Administrator
CitiMortgage, Inc. will act as sub-administrator of each issuing entity.
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, if applicable, 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 sub-administrator.
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THE STUDENT LOAN POOLS
The depositor will purchase the trust student loans from SLC and any other
sellers described in the applicable prospectus supplement out of the portfolio
of student loans held by the applicable sellers. Each pool of trust student
loans owned by any issuing entity may contain FFELP student loans or private
credit student loans, as specified in the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement for any
issuing entity, the trust student loans must meet several criteria, including:
For each FFELP student loan:
o The principal and interest of each FFELP student loan is guaranteed by a
guarantor and is reinsured by the U.S. Department of Education under
FFELP.
o Each FFELP student loan was originated in the United States, its
territories or its possessions in accordance with FFELP.
o Each FFELP student loan contains terms required by FFELP and the
applicable guarantee agreements.
o Each FFELP student 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 FFELP student loan satisfies any other criteria described in the
related prospectus supplement.
For each private credit student loan:
o The principal and interest of the private credit student loan may be
guaranteed or insured by a guarantor or insurer identified in the
related prospectus supplement.
o Each private credit student loan was originated in the United States,
its territories or its possessions in accordance with the rules of the
specific loan program.
o Each private credit student loan contains terms required by the program
and the applicable guarantee agreements.
o Each private credit student 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 private credit student loan satisfies any other criteria described
in the related prospectus supplement.
The prospectus supplement for each series will provide information about the
trust 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 or insured by the
applicable guarantors and insurers.
FFELP Delinquencies, Defaults, Claims and Net Losses
Information about delinquencies, defaults, guarantee claims and net losses
on FFELP student loans is available in the U.S. Department of Education's Loan
Programs Data Books, called DOE Data Books. The delinquency,
36
default, claim and net loss experience on any pool of FFELP trust student loans
may not be comparable to this information.
Static Pool Data
If so specified in the related prospectus supplement, static pool data with
respect to the delinquency, cumulative loss and prepayment data for the trusts
formed by the depositor, or any other affiliated person specified in the related
prospectus supplement, will be made available through an Internet website. The
prospectus supplement related to each series for which the static pool data is
provided through an Internet website will contain the website address to obtain
this information. Except as stated below, the static pool data provided through
any website will be deemed part of this prospectus and the registration
statement of which this prospectus is a part from the date of the related
prospectus supplement.
Notwithstanding the foregoing, the following information will not be deemed
part of the prospectus or the registration statement of which this prospectus is
a part:
o information regarding prior securitized pools of student loans sold to
trusts that were formed by the depositor before January 1, 2006; and
o with respect to information regarding the pool of student loans
described in the related prospectus supplement, information about such
pool for periods before January 1, 2006.
Copies of the static pool data presented on the website and deemed part of
this prospectus may be obtained upon written request by the noteholders of the
related series at the address specified in the related prospectus supplement.
Copies of information related to any periods prior to January 1, 2006 may also
be obtained upon written request.
Static pool data may also be provided in the related prospectus supplement
or may be provided in the form of a CD-ROM accompanying the related prospectus
supplement. The related prospectus supplement will specify how the static pool
data will be presented.
Prepayments and Yield
Prepayments on student loans can be measured relative to a prepayment
standard or model. The prospectus supplement for a series of notes will describe
the prepayment standard or model, if any, used and may contain tables setting
forth the projected weighted average life of each class of notes of that series
based on the assumptions stated in the prospectus supplement (including
assumptions that prepayments on the student loans included in the related trust
are made at rates corresponding to various percentages of the prepayment
standard or model specified in that prospectus supplement).
We cannot give any assurance that the prepayment of the trust student loans
included in the related trust will conform to any level of any prepayment
standard or model specified in the related prospectus supplement. The rate of
principal prepayments on pools of student loans is influenced by a variety of
economic, demographic, geographic, legal, tax, social and other factors.
The yield to an investor who purchases notes in the secondary market at a
price other than par will vary from the anticipated yield if the rate of
prepayment on the student loans is actually different than the rate anticipated
by the investor at the time the notes were purchased.
The prospectus supplement relating to a series of notes will discuss in
greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and expected maturities of the notes.
Payment of Notes
Upon the payment in full of all outstanding notes of a given series, the
eligible lender trustee or owner trustee, as applicable, will succeed to all the
rights of the indenture trustee, on behalf of the holder of the trust
certificate.
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Termination
For each issuing entity, the obligations of the depositor, the servicer, the
administrator, the indenture trustee, the indenture administrator and the
eligible lender trustee, as applicable, 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 noteholders 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
administrator 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 notes issued by that trust. The related prospectus supplement
will describe the procedures relating to the purchase option and the auction.
The Student Loan Corporation's Student Loan Business
Student Loan Portfolio. SLC securitizes its own portfolio of student loans.
SLC's student loan portfolio is composed of both FFELP student loans and loans
originated through alternative programs, such as CitiAssist. SLC is currently
eligible to make the following types of FFELP student 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 student loans are
held, and all new FFELP student 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 student 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.
As described herein and in the related prospectus supplement, substantially
all payments of principal and interest with respect to loans originated through
FFELP will be guaranteed against default, death, bankruptcy or disability of the
applicable borrower, and a closing of or a false certification by that
borrower's school, by certain federal guarantors pursuant to a guarantee
agreement to be entered into between those federal guarantors specified in the
related prospectus supplement (each a "Federal Guarantor" and collectively, the
"Federal Guarantors") and the applicable eligible lender trustee (such
agreements, each as amended or supplemented from time to time, the "Federal
Guarantee Agreements"). See "Appendix A--Federal Family Education Loan Program".
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In addition to the FFELP student loans originated under the Higher Education
Act, SLC has developed student loan programs that are not federally guaranteed
for undergraduate students and/or their parents and graduate students. 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. The holders of
private credit loans are not entitled to receive any federal assistance with
respect thereto.
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.
Each trust may consist of FFELP student loans or private credit student
loans. The prospectus supplement for your notes will identify the specific types
of trust student loans related to your notes and will provide more specific
details of the loan program involved.
Origination of FFELP Student Loans. SLC is one of the nation's largest
originators and holders of student loans guaranteed under FFELP. SLC originated
approximately $3.2 billion FFELP student loans during 2005. 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.
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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.
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TRANSFER AGREEMENTS
General
The following is a summary of the important and material terms of the sale
agreements under which the issuing entities will purchase student loans from the
depositor, the purchase agreements under which the depositor will acquire the
student loans from the sellers. We refer to the purchase agreements and the sale
agreements, collectively, as the "transfer agreements." We have filed forms of
the transfer agreements 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 transfer
agreements.
Purchase of Student Loans by the Depositor; Representations and Warranties
of the Sellers
On the closing date, each seller 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, each seller will make representations and
warranties concerning the student loans being sold by it. 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, if
applicable, or under any applicable guarantee agreement or insurance
agreement; and
o with respect to FFELP student loans, each 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, the applicable seller 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, the affected seller may, in its discretion,
substitute qualified substitute student loans for that loan. In addition, the
affected seller will have an obligation to reimburse the depositor:
o for any shortfall between the purchase amount of the qualified
substitute student loans and 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 each seller
constitute the sole remedy available to the depositor for any uncured breach. A
seller's repurchase or substitution and reimbursement obligations are
contractual obligations that the depositor or trust may enforce against the
seller, 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 U.S. 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 Issuing Entity; Representations and Warranties of
the Depositor
On the closing date, the depositor will sell to the trust or eligible lender
trustee on behalf of the trust, as applicable, without recourse, its entire
interest in the student loans acquired by the depositor from the sellers. Each
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student loan will be listed in an exhibit to the sale agreement. The eligible
lender trustee or the trust, as applicable, concurrently with that sale will
issue the notes. The issuing entity will apply net proceeds from the sale of the
notes 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 issuing entity for the
benefit of noteholders, including representatives and warranties that are
substantially the same as those made by the sellers to the depositor.
Upon discovery of a breach of any representation or warranty that has a
materially adverse effect on the issuing entity, the depositor will have
repurchase or substitution and reimbursement obligations that are substantially
the same as those of the sellers.
The repurchase or substitution and reimbursement obligations of the
depositor will constitute the sole remedy available to the noteholders for any
uncured breach. The depositor's repurchase or substitution and reimbursement
obligations are contractual obligations that the issuing entity 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 issuing entity
is seeking to enforce are based on a violation of the Higher Education Act, a
finding by the U.S. Department of Education that the Higher Education Act was
violated may be required prior to the issuing entity being able to enforce the
agreement.
Expenses incurred in connection with the acquisition of the trust student
loans and the establishment of the related issuing entity (including the
expenses of accountants, underwriters and rating agencies) are paid by the
depositor. Those expenses are not paid from proceeds from the resale of the
related notes.
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 the seller of the student
loans to the depositor and their subsequent sale by the depositor to the trust.
Additional Fundings
Pre-funding. The related prospectus supplement will indicate whether a
pre-funding account will exist for a particular trust. Each pre-funding account
will be in the form of a supplemental purchase account or an add-on
consolidation loan account. 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,
o the percentage of the asset pool and the balance of the notes
represented by the pre-funding account, 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.
With respect to trusts where the trust student loans contain consolidation
loans, the related prospectus supplement will also indicate:
o the amount in the pre-funding account on the closing date,
o the length of the funding period (not to exceed the lesser of (i) the
maximum number of days from the closing date when borrowers may add
additional student loans to an existing consolidation loan pursuant to
the terms of the Higher Education Act, or (ii) the maximum permitted
pre-funding period), and
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o the uses to which the funds in the pre-funding account can be applied
and the conditions to the application of those funds.
If the pre-funding amount has not been fully applied to purchase additional
student loans by the end of the funding period, the noteholders will receive any
remaining amounts.
Amendments to Transfer Agreements
The parties to the transfer agreements may amend them without the consent of
noteholders if, in the opinion of counsel satisfactory to the indenture trustee
and eligible lender trustee, as applicable, the amendment will not materially
and adversely affect the interests of the noteholders. The parties also may
amend the transfer agreements with the consent of a majority in interest of
noteholders. 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.
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SERVICING AND ADMINISTRATION
General
The following is a summary of the important and material 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 indenture 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 notes, 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 notes. 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.
Eligible investments will be limited to the investments set forth in the
definition of "Eligible Investments" in the indenture. 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. Eligible investments may
include book-entry securities, negotiable instruments or securities represented
by instruments in bearer or registered form which evidence:
o direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America, the Government National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Student Loan Marketing
Association (Sallie Mae), or any agency or instrumentality of the United
States of America the obligations of which are backed by the full faith
and credit of the United States of America; provided that obligations
of, or guaranteed by, the Government National Mortgage Association
(GNMA), the Federal Home Loan Mortgage Corporation (Freddie Mac), the
Federal National Mortgage Association (Fannie Mae) or the Student Loan
Marketing Association (Sallie Mae) shall be eligible investments only
if, at the time of investment, they meet the criteria of each of the
applicable rating agencies for collateral for securities having ratings
equivalent to the respective ratings of the related series of notes in
effect at the related closing date;
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o demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of
the United States of America or any State (or any domestic branch of a
foreign bank) and subject to supervision and examination by Federal or
state banking or depository institution authorities (including
depository receipts issued by any such institution or trust company as
custodian with respect to any obligation referred to in the first bullet
point above or portion of such obligation for the benefit of the holders
of such depository receipts); provided that at the time of the
investment or contractual commitment to invest therein (which shall be
deemed to be made again each time funds are reinvested following each
distribution date), the commercial paper or other short-term senior
unsecured debt obligations (other than such obligations the rating of
which is based on the credit of a person other than such depository
institution or trust company) thereof shall have a credit rating from
each of the applicable rating agencies in the highest investment
category granted thereby;
o commercial paper having, at the time of the investment, a rating from
each of the applicable rating agencies in the highest investment
category granted thereby;
o investments in money market funds having a rating from each of the
rating agencies in the highest investment category granted thereby
(including funds for which the indenture trustee, the administrator, the
owner trustee or the indenture administrator or any of their respective
affiliates is investment manager or advisor);
o bankers' acceptances issued by any depository institution or trust
company referred to in the second bullet point above;
o repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or
any agency or instrumentality thereof, the obligations of which are
backed by the full faith and credit of the United States of America, in
either case entered into with a depository institution or trust company
(acting as principal) described in the second bullet point above;
o asset-backed securities, including asset-backed securities issued by
affiliates or entities formed by affiliates of SLC, but excluding
mortgage-backed securities that, at the time of investment, have a
rating in the highest investment category granted by each of the
applicable rating agencies, but not at a purchase price in excess of
par; and
o any other investment which would not result in the downgrading or
withdrawal of any rating of the notes by any of the applicable rating
agencies as affirmed in writing delivered to the indenture trustee.
The servicer will prepare an account reconciliation; however, there will
be no independent verification of the accounts or the transaction activity
therein by either the indenture trustee, the indenture administrator or
any eligible lender trustee.
Servicing Procedures
Under each 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 in compliance with the applicable
guarantee agreements and all other applicable federal and state laws, including,
if applicable, the Higher Education Act.
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
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o sending out statements and payment coupons to borrowers.
In addition, the servicer will keep ongoing records on the loans and its
collection activities utilizing the same standards it uses for similar student
loans owned by SLC and its affiliates in compliance with the applicable
guarantee agreements and all other applicable federal and state laws, including,
if applicable, the Higher Education Act. It will also furnish periodic
statements to the indenture trustee, the issuing entity or the eligible lender
trustee, as applicable, the indenture administrator and the noteholders in
accordance with the servicer's customary practices. See "-Statements to
Indenture Trustee, Indenture Administrator and Issuing Entity" below.
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.
Prior to the purchase of a FFELP student loan by the depositor, the servicer
or a third party servicing agent surveys such loan documents for compliance with
U.S. Department of Education and guarantor requirements. Once acquired, FFELP
student loans are serviced through the servicer or third party servicers, in
each case under contractual arrangements with affiliates of the servicer.
The U.S. Department of Education and the various guarantors prescribe rules
and regulations which govern the servicing of federally insured loans. These
rules and regulations include specific procedures for contacting delinquent
borrowers, locating borrowers who can no longer be contacted at their documented
address or telephone number, and filing claims for reimbursement on loans in
default. Payments under a guarantor's guarantee agreement require strict
adherence to these stated due diligence and collection procedures.
Regulations require that collection efforts commence within ten days of any
delinquency and continue for the period of delinquency until the FFELP student
loan is deemed to be in default status. During the delinquency period, the
holder of the FFELP student loan must diligently attempt to contact the
borrower, in writing and by telephone, at specified intervals. Most FFELP
student loans are considered to be in default when they become 270 days
delinquent. Claims for guarantee payments must be filed with the guarantor no
later than 360 days of delinquency to prevent loss of guarantee.
A guarantor may reject any claim for payment under a guarantee agreement if
the specified due diligence and collection procedures required by that guarantee
agreement have not been strictly followed and documented or if the claim is not
timely filed. Minor errors in due diligence may result in the imposition of
interest penalties, rather than a complete loss of the guarantee. In instances
in which a claim for payment under a guarantee agreement is denied due to
servicing or claim-filing errors, the guaranteed status of the affected FFELP
student loans may be reinstated by following specified procedures, called
"curing the defect". Interest penalties are commonly incurred on loans that are
cured. The servicer's recent experience has been that the significant majority
of all rejected claims are cured within two years, either internally or through
collection agencies.
The servicer's internal procedures support compliance with existing U.S.
Department of Education and guarantor regulations and reporting requirements,
and provide high quality service to borrowers. SLC's servicing is heavily
dependent on computer-based information and data processing systems. SLC uses a
computerized collections system to track the due diligence process and maintain
phone call and demand letter history. This collections system automatically
generates delinquency mailings based on guarantor and the U.S. Department of
Education regulations. The timing of mailing delinquency notices is
automatically updated in the collection system based on the number of days a
payment is past due. Moreover, the collection system identifies customer
accounts that require other due diligence in accordance with the U.S. Department
of Education regulations.
The servicing procedures pertaining to the private credit student loans will
be set forth in the related prospectus supplement.
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.
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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 or Wilmington, Delaware 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.
No servicing agreement will require the servicer to make advances to any
trust and no such advances have been made by the servicer with respect to any
trust student loans.
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, if applicable,
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
or, with respect to private student loans, such write off is in
accordance with established servicing procedures;
o it will do nothing to impair the rights of the 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
the same standards it uses for similar student loans owned by SLC and
its affiliates in compliance with the applicable guarantee agreements
and all other applicable federal and state laws, including, if
applicable, the Higher Education Act.
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 loans unless the breach is cured within the applicable cure period
specified on the related prospectus supplement. However, with respect to FFELP
student loans, 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 that is
a FFELP student loan will not be considered to have a material adverse effect.
In addition, a finding by the U.S. Department of Education that the Higher
Education Act was violated or that a FFELP student 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 of the trust student loan will equal the unpaid principal
amount of that trust student loan plus any accrued interest. If the trust
student loan to be purchased is a FFELP student loan, the purchase price will
also be calculated using the applicable percentage that would have been insured
pursuant to Section 428(b)(1)(G) of the Higher Education Act--generally, 97% for
trust student loans made on or after July 1, 2006 (98% for trust student loans
made prior to July 1, 2006)--plus any interest subsidy payments or special
allowance payments not paid by, or required to be refunded to, the U.S.
Department of Education for that trust student loan as a result of a breach of
any
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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 notes, to the extent specified in the applicable prospectus
supplement.
The servicing fee compensates the servicer for performing the functions of a
third party servicer of student loans, including:
o collecting and posting all payments,
o responding to inquiries of borrowers on the trust student loans,
o investigating delinquencies,
o pursuing, filing and collecting any program payments,
o accounting for collections,
o furnishing monthly and annual statements to the trustees, and
o paying taxes, accounting fees, outside auditor fees, data processing
costs and other costs incurred in administering the student loans.
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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, as applicable, and the noteholders 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 related 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 to the
eligible lender trustee or the issuing entity, as applicable, 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 or issuing entity, as applicable.
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.
Each 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 applicable rating agencies confirm that this will not result in a
downgrading or a withdrawal of the ratings then applicable to the notes.
All expenses related to the resignation or removal for cause of any servicer
will be paid solely by the servicer being replaced.
Each 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 noteholders for taking or not taking any action under the
servicing agreement, or for errors in judgment. However, the servicer will not
be protected against:
o its obligation to purchase trust student loans from a trust as required
in the related servicing agreement or to pay to the trust the amount of
any program payment which a guarantor or the U.S. Department of
Education refuses to pay, or requires the trust to refund, as a result
of the servicer's actions, or
49
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, each 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 each 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 each 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, as applicable, 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 and continues
for 60 days after written notice of the failure is given (1) to the
servicer by the indenture trustee or the eligible lender trustee, as
applicable, or the administrator or (2) to the servicer, the indenture
trustee and the eligible lender trustee, as applicable, by holders of
50% or more of the notes;
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
FFELP 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 that are FFELP 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 remains unremedied, 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, if applicable, 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. 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 in the
case of any servicer default which does not adversely affect the indenture
trustee or the noteholders may, on behalf of all noteholders, 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. No waiver will extend to any subsequent
default or impair the noteholders' 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, if applicable, 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 or issuing entity, as applicable, and the indenture
trustee and the indenture administrator and any related U.S. 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 applicable rating
agencies confirm that the assignment will not result in a downgrading or a
withdrawal of the ratings then applicable to the notes.
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 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 issuing entity, as
applicable, or
(2) to the administrator, the indenture trustee, the indenture
administrator and the eligible lender trustee or issuing entity, as
applicable, by holders of 50% or more of the notes; and
o the occurrence of an insolvency event involving the administrator.
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Rights Upon Administrator Default
As long as any administrator default has not been remedied, the indenture
trustee or holders of not less than 50% of the outstanding notes, 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. In the case of FFELP
student loans, only the indenture trustee or the noteholders and not the
eligible lender trustee 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. 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 Issuing Entity
Before each distribution date, the administrator will prepare and provide a
statement to the indenture trustee, the indenture administrator and the eligible
lender trustee or issuing entity, as applicable, 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 beginning and at the end of the preceding
collection period;
o the outstanding principal amount and the note pool factor for each class
of the notes 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, 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, if applicable, for each class
of notes, 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 any seller 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;
o any amounts paid to any credit enhancement provider or swap
counterparty;
52
o the balance of any reserve account or capitalized interest account,
after giving effect to changes in the balance on that distribution date;
o to the extent applicable, any amount of available credit enhancement
drawn upon with respect to that distribution date;
o any material modifications, extensions or waivers to the terms of the
trust student loans, fees, penalties or payments during the related
collection period or that cumulatively become material over time;
o any material breaches of representations and warranties regarding the
trust student loans or if any applicable triggers or asset tests are
then in effect;
o if applicable, the amount of trust student loans added during a
pre-funding period (including any add-on consolidation loans) or a
revolving period and the amount of any required repurchases or
substitutions of trust student loans, to the extent material, and the
balance of any related trust accounts as of both the prior and current
distribution dates; and
o amounts distributed to the holders of the trust certificates and the
uses of available funds to the extent not otherwise set forth above.
Evidence as to Compliance
Each 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 or owner trustee, as applicable,
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 or owner trustee, as applicable.
53
TRADING INFORMATION
The weighted average lives of the notes 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;
o an unpaid school refund;
o liquidation of the student loan or collection of the related guarantee
payments; and
o purchase of a student loan by the depositor or the servicer.
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 notes. The rate of default also may
affect the ability of the guarantors to make guarantee payments.
Some of the terms of payment that a seller offers to borrowers may extend
principal payments on the notes. The sellers may offer some borrowers loan
payment terms which provide for an interest only period, when no principal
payments are required, or graduated, phased-in amortization of the principal, in
which case a greater portion of the principal amortization of the loan occurs in
the later stages of the loan than if amortization were on a level payment basis.
The sellers may also offer income-sensitive repayment plans, under which
repayments are based on the borrower's income. Under these plans, ultimate
repayment may be delayed up to five years. If trust student loans have these
payment terms, principal payments on the related notes could be affected. If
provided in the related prospectus supplement, a trust may elect to offer
consolidation loans to borrowers with trust student loans and other student
loans. The making of consolidation loans by a trust could increase the average
lives of the notes and reduce the effective yield on student loans included in
the trust.
The servicing agreements will provide that the servicer may offer, at the
request of the applicable seller or the administrator, incentive payment
programs or repayment programs currently or in the future made available by that
seller or the administrator. 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. We cannot predict how many borrowers will
participate in these programs.
In light of the above considerations, we cannot guarantee that principal
payments will be made on the notes 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.
54
Pool Factors
The pool factor for each class of notes 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 notes will be the product of:
o the original denomination of your note; and
o the applicable pool factor.
Noteholders 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
Notes--Reports to Noteholders" in this prospectus.
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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 or, if so
provided in the related prospectus supplement, a nominee selected by the common
depository for Clearstream Banking, societe anonyme (known as Clearstream),
formerly known as Cedel Bank, societe anonyme, and the Euroclear System in
Europe. 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 U.S. Dollar denominated 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,
Clearstream or Euroclear, as the case may be, 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, Clearstream
or Euroclear 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 Notes--Fixed Rate Notes" and
"--Floating Rate Notes" in this prospectus. 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 Notes--Distributions" and "--Credit and Liquidity or other
Enhancement or Derivative Arrangements" in this prospectus.
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.
Call Option on the Notes
If specified in the related prospectus supplement, the servicer or one of
its affiliates specified in that prospectus supplement may exercise its option
to call, in full, one or more classes of notes. If a class of notes has been
called, it will either remain outstanding and be entitled to all interest and
principal payments on that class of notes under the related indenture, or the
servicer or its specified affiliate will deposit an amount into the collection
account sufficient to redeem the specified class of notes, subject to
satisfaction of the rating agency condition. Each class of reset rate notes will
be subject to the call option described under "Certain Information Regarding the
Notes--The Reset Rate Notes--Call Option."
56
Collateral Call
If specified in the related prospectus supplement, the servicer or one of
its affiliates will have the right to purchase certain of the trust student
loans in an amount sufficient to redeem one or more classes of notes, subject to
satisfaction of the rating agency condition. The related prospectus supplement
will identify which class or classes of notes will be subject to the collateral
call.
The Indenture
General. The notes will be issued under and secured by an indenture entered
into by the issuing entity, the indenture administrator, the indenture trustee,
and, if any portion of the trust student loans are FFELP student loans, the
eligible lender trustee. If specified in the related prospectus supplement, the
voting rights of noteholders may be limited only to the holders of the most
senior class or classes of outstanding notes (except with respect to those
matters requiring consent of 100% of all noteholders); and if not so specified,
all noteholders will have voting rights regarding any actions requiring the
consent of noteholders as set forth below.
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 or the issuing entity, as applicable, 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 that action will not, in the
opinion of counsel satisfactory to the indenture trustee, adversely affect in
any material respect the interest of any noteholder.
57
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 that 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.
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 or issuing entity, as
applicable, maintain ownership of the trust student loans that are FFELP
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?% of the outstanding notes.
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.
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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.
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, each seller, the depositor, the administrator, the
servicer, the indenture administrator, the eligible lender trustee or the
issuing entity, as applicable, in its individual capacity, the noteholders 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 issuing entity has been advised that the ratings of the notes would
not be reduced or withdrawn as a result of the merger or consolidation,
and
o the issuing entity has received opinions of federal and Delaware tax
counsel that the consolidation or merger would have no material adverse
U.S. federal or Delaware state tax consequences to the trust or to any
holder of the notes.
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
59
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.
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 will act on behalf of the
noteholders and represent their interests in the exercise of their rights under
the related indenture. The indenture trustee may resign at any time, in which
event the trust must appoint a successor. Holders of a majority of the
outstanding notes may also remove an indenture trustee by notifying the
indenture trustee and each applicable rating agency, and appoint 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 Depositor
will be responsible for the payment of expenses incurred in connection with the
replacement of an indenture trustee.
The indenture trustee will not be personally liable for any actions or
omissions that were not the result of its own bad faith, fraud, willful
misconduct or negligence. The indenture trustee will be entitled to be
indemnified by the administrator for any loss, liability or expense (including
reasonable attorneys' fees) incurred by it in connection with the performance of
its duties under the indenture and the other transaction agreements.
Upon the occurrence of an event of default, and in the event the
administrator fails to reimburse the indenture trustee, the indenture trustee
will be entitled to receive all such amounts owed from cashflow on the trust
student loans prior to any amounts being distributed to the noteholders.
The prospectus supplement will specify the principal office of each
indenture trustee.
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.
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CERTAIN INFORMATION REGARDING THE NOTES
Each class of notes may be fixed rate notes that bear interest at a fixed
annual rate or floating rate notes that bear interest at a variable or
adjustable annual rate, as more fully described below and in the applicable
prospectus supplement.
Fixed Rate Notes
Each class of fixed rate notes will bear interest or return at the annual
rate specified in the applicable prospectus supplement. Unless otherwise
specified in the related prospectus supplement interest on each class of fixed
rate notes will be computed on the basis of a 360-day year of twelve 30-day
months. See "Description of the Notes--Principal and Interest on the Notes" in
this prospectus.
Floating Rate Notes
Each class of floating rate notes 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 note. 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 that is an interest
rate for debt instruments. See "-Determination of Indices" below for a more
detailed description of potential indices and how they are calculated.
Floating rate notes 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 notes will in no event be higher than
any maximum rate permitted by law.
Each trust that issues a class of floating rate notes 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, if applicable, 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
notes. All percentages resulting from any calculation of the rate of interest on
a floating rate note 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.
The Auction Rate Notes
Each class of auction rate notes will have a stated maturity set forth in
the applicable prospectus supplement and will bear the interest of the rate per
annum specified in the prospectus supplement through the first auction date. The
interest period for auction rate notes will initially consist of the number of
days set forth in the applicable prospectus supplement. The interest rate for
the auction rate notes 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, but the rate will not exceed the maximum rate per annum
set forth in the applicable prospectus supplement. Interest on the auction rate
notes 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 as otherwise specified
in the related prospectus supplement. Interest and, if applicable, principal on
the auction rate notes will be payable on the first business day following the
expiration of each interest period for the auction rate notes.
Determination of Note Interest Rates. The procedures that will be used in
determining the interest rates on the auction rate notes are summarized in the
following paragraphs and in the related prospectus supplement.
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The interest rate on each class of auction rate notes will be determined
periodically by means of a "Dutch Auction." In the Dutch Auction, investors and
potential investors submit orders through one or more registered broker-dealers,
which have been engaged to perform this function for the related issuing entity,
as to the principal amount of auction rate notes 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 notes. Auction rate
notes will be purchased and sold between investors and potential investors at a
price equal to their then-outstanding principal balance plus any accrued
interest. For each series of notes, the related prospectus supplement will
specify the auction agent and the broker-dealer(s), unless otherwise specified
in the related prospectus supplement. The related prospectus supplement will
also set forth the fees of the auction agent and the broker dealers.
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
notes for the upcoming interest period;
o "sell orders"--an order by a current investor to sell a specified
principal amount of auction rate notes, 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 notes, is willing to accept in order to buy a specified
principal amount of auction rate notes.
If an existing investor does not submit orders with respect to all its
auction rate notes, the investor will be deemed to have submitted a hold order
at the new interest rate for that portion of the auction rate notes for which no
order was received. See the related prospectus supplement for future information
on how the auction procedures are used in determining the interest rate on the
auction rate notes.
Regardless of the results of an auction, the interest rate will not exceed
the maximum auction rate specified in the applicable prospectus supplement. If
an auction is not completely successful, there may be insufficient potential bid
orders to purchase all the auction rate notes offered for sale. In these
circumstances, the interest rate for the upcoming interest period will equal the
maximum auction rate. Also, if all the auction rate notes are subject to hold
orders (i.e., each holder of auction rate notes wishes to continue holding its
auction rate notes, 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 on the notes has occurred (which is a failure to pay
interest or principal when due and owing), the rate will be the non-payment rate
that will be set forth in the related prospectus supplement.
Maximum Auction Rate And Interest Carryovers. If the auction rate for a
class of auction rate notes is greater than the maximum auction rate, then the
interest rate applicable to those auction rate notes will be the maximum auction
rate.
In such event, if the interest rate for a class of auction rate notes is set
at the student loan rate (which is the weighted average interest rate of the
trust student loans minus the rate of administrative expenses), the excess of
(a) the lower of (1) the auction rate and (2) the maximum auction rate which
would have been applied if the student loan rate were not a component of the
maximum auction rate, over (b) the student loan rate will, be carried over for
that class of auction rate notes. If there are insufficient bid orders to
purchase all the auction rate notes of a class of auction rate notes offered for
sale in an auction and the interest rate for that class of auction rate notes is
set at the student loan rate, the excess of the maximum auction rate which would
have been applied if the student loan rate was not a component of the maximum
auction rate over the student loan rate will be carried over for that class of
auction rate notes. The carryover amount will bear interest calculated at the
one-month LIBOR rate, or as otherwise specified in the related prospectus
supplement. The ratings of the notes do not address the payment of carryover
amounts or interest accrued on carryover amounts.
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The carryover amount, and interest accrued thereon, for any class of auction
rate notes will be paid on an interest payment date if there are sufficient
amounts 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 plus any interest accrued thereon. 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 amounts 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 note is
redeemed.
The carryover amount for any class of auction rate notes plus any interest
accrued thereon will be allocated to the auction rate notes on a distribution
date to the extent funds are available as described in the prospectus supplement
on that distribution date. Any carryover amount and interest accrued on the
carryover amount so allocated will be paid to the registered owner on the record
date with respect to which the carryover amount accrued on the immediately
succeeding auction rate distribution date.
Changes in the Auction Period. The broker-dealers may, from time to time,
change the length of the auction period for a class of auction rate notes 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 notes. The broker-dealers will initiate the auction period
adjustment by giving written notice to the indenture administrator, the auction
agent, each applicable rating agency and the registered owners of the notes as
described in the prospectus supplement. Any adjusted auction period, unless
otherwise set forth in the prospectus supplement, will be at least 7 days but
not more than 270 days. The auction period adjustment will take effect only if
approved by the broker-dealers 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 auction 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 notes in order to conform with then
current market practice with respect to similar securities 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 notes. 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 applicable rating agency and
the registered owner.
The Reset Rate Notes
General. The applicable currency and interest rate for a class of reset rate
notes will be reset from time to time in a currency and at an interest rate
determined using the procedures described below.
Interest. Interest will be payable on the reset rate notes on each
applicable distribution date as set forth in the related prospectus supplement.
Unless otherwise specified in the prospectus supplement, interest on a class of
reset rate notes during any reset period when they bear a fixed rate of interest
will accrue daily and will be computed based on:
o if a class of reset rate notes is denominated in U.S. Dollars, a 360-day
year consisting of twelve 30-day months; or
o if a class of reset rate notes is denominated in a currency other than
U.S. Dollars, generally, the Actual/Actual (ISMA) accrual method as
described in "--Determination of Indices" below or such other day-count
convention as will be set forth in the related remarketing terms
determination date notice and in the related prospectus supplement. See,
"--Determination of Indices; Day-Count Basis; Interest Rate Change
Dates; Interest Rate Determination Dates" below for a description of
potential day-count conventions including Actual/Actual (ISMA).
Interest on a class of reset rate notes during any reset period when they
bear a floating rate of interest based on three-month LIBOR will accrue daily
and will be computed based on the actual number of days elapsed and a 360-day
year.
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Interest on a class of reset rate notes during any reset period when they
bear a floating rate of interest based on LIBOR, GBP-LIBOR, EURIBOR or another
index, may be computed on a different basis and use a different interval between
interest rate determination dates as described below under "--Determination of
Indices; Day Count Basis; Interest Rate Change Dates; Interest Rate
Determination Dates" below.
Interest on a class of reset rate notes during any reset period when they
bear interest determined pursuant to the auction procedures will be computed as
described under "Certain Information Regarding the Notes--Auction Rate Notes."
Except for the initial accrual period, an accrual period during any reset
period when any class of reset rate notes bears interest at a floating rate of
interest, including both U.S. Dollar and non-U.S. Dollar denominated notes, will
begin on the last applicable distribution date and end on the day before the
next applicable distribution date. Accrual periods when a class of reset rate
notes is denominated in U.S. Dollars and bears interest at a fixed rate will
begin generally on the 25th day of the month of the immediately preceding
distribution date and end on the 24th day of the month of the then-current
distribution date, or as otherwise specified in the related prospectus
supplement. Accrual periods and distribution dates for payments of interest
during any reset period when a class of reset rate notes bears a fixed rate of
interest and is denominated in a currency other than U.S. Dollars, may be
monthly, quarterly, semi-annual or annual, as specified in the related
prospectus supplement and, with respect to a remarketing, in the related
remarketing terms determination date notice as described under "--Reset Periods"
below.
Principal. In general, payments of principal will be made or allocated to
any class of reset rate notes on each distribution date in the amount and
payment priorities as set forth in the related prospectus supplement. During any
reset period a class of reset rate notes may be structured not to receive a
payment of principal until the end of the reset period. If a class of reset rate
notes is structured in this manner, amounts that otherwise would have been paid
to the reset rate noteholders of that class as principal will instead be
deposited into an accumulation account established for that class. In that case,
those funds will remain in the accumulation account until the next reset date
(unless there occurs, prior to that reset date, an optional purchase of the
remaining trust student loans by the related servicer or a successful auction of
the remaining trust student loans by the indenture administrator) as described
in the related prospectus supplement. If structured in this manner, on each
reset date, the trust will pay as a distribution of principal all amounts, less
any investment earnings, on deposit in an accumulation account, including any
amounts deposited on that reset date, to the reset rate noteholders of that
class, or to the related swap counterparty for payment to the reset rate
noteholders of that class, if the reset rate notes are then denominated in a
currency other than U.S. Dollars.
Reset Periods. During the initial reset period for each class of reset rate
notes, interest will be payable on each distribution date at the interest rates
shown in the applicable prospectus supplement. We refer to each initial reset
date, together with each date thereafter on which a class of reset rate notes
may be reset with respect to the currency and/or interest rate mode, as a "reset
date" and each period in between the reset dates as a "reset period". All reset
dates will occur on a distribution date, and each reset period will end on the
day before a distribution date. However, no reset period may end after the day
before the related maturity date for the applicable class of reset rate notes.
The applicable currency and interest rate on each class of reset rate notes
will be reset as of each reset date as determined by:
o the remarketing agents, in consultation with the administrator, with
respect to the length of the reset period, the currency, i.e. U.S.
Dollars, Pounds Sterling, Euros or another currency, whether the
interest rate is fixed or floating and, if floating, the applicable
interest rate index, the day-count convention, the interest rate
determination dates, the interval between interest rate change dates
during each accrual period, and the related all-hold rate, if
applicable; and
o the remarketing agents with respect to the determination of the fixed
rate of interest or spread to the chosen interest rate index, as
applicable.
In the event that a class of reset rate notes is reset to pay (or continues
to pay) in a currency other than U.S. Dollars, the reset rate notes are said to
be in foreign exchange mode. In such case, the administrator will be responsible
for arranging, on behalf of the trust, the required currency swaps to hedge, in
whole or in part, against
64
the currency exchange risks that result from the required payment to the reset
rate noteholders in a currency other than U.S. Dollars and, together with the
remarketing agents, for selecting one or more eligible swap counterparties. In
the event that a class of reset rate notes is reset to bear or continues to bear
a fixed rate of interest, the administrator will be responsible for arranging,
on behalf of the trust, the required interest rate swaps to hedge the basis risk
that results from the payment of a fixed rate of interest on the reset rate
notes and, together with the remarketing agents, for selecting one or more
eligible swap counterparties. See "--Fixed Rate Mode" below. The spread for each
reset period will be determined in the manner described under "--Spread
Determination Date" below.
Each reset period will be no less than three months and will always end on
the day before a distribution date. The applicable distribution dates when
holders will receive interest and/or principal payments will be determined by
the remarketing agents, in consultation with the administrator, on the
applicable remarketing terms determination date in connection with the
establishment of each reset period.
Absent a failed remarketing, holders that wish to be repaid on a reset
date will be able to obtain a 100% repayment of principal by tendering their
reset rate notes pursuant to the remarketing process, provided that tender is
deemed mandatory when a class of reset rate notes is denominated in a currency
other than U.S. Dollars during either the then-current or the immediately
following reset period, as more fully discussed below.
Interest on each class of reset rate notes during each reset period after
the initial reset period will accrue and be payable either:
o at a floating interest rate, in which case those reset rate notes are
said to be in floating rate mode, or
o at a fixed interest rate, in which case those reset rate notes are said
to be in fixed rate mode, in each case as determined by the remarketing
agents, in consultation with the administrator and in accordance with
the remarketing agreement and the applicable remarketing agency
agreement.
Remarketing Terms Determination Date. The initial reset dates for each class
of reset rate notes will be as set forth in the related prospectus supplement.
On a date that is at least eight business days prior to each reset date, which
notice date we refer to as the "remarketing terms determination date," unless
notice of the exercise of the call option described below has already been
given, the remarketing agents will notify the related reset rate noteholders
whether tender is deemed mandatory or optional as described under "--Tender of
Reset Rate Notes; Remarketing Procedures" below. In consultation with the
administrator, the remarketing agents will also establish certain terms for the
reset rate notes on or prior to the remarketing terms determination date, which
terms will be set forth in the related prospectus supplement:
If a class of reset rate notes is denominated in U.S. Dollars during the
then-current reset period and will continue to be denominated in U.S. Dollars
during the immediately following reset period, on each remarketing terms
determination date, the remarketing agents, in consultation with the
administrator, will establish the related all-hold rate, as described below. In
this event, the reset rate noteholders of that class will be given not less than
two business days to choose whether to hold their reset rate notes by delivering
a hold notice to the remarketing agents, in the absence of which their reset
rate notes will be deemed to have been tendered. See "--Tender of Reset Rate
Notes; Remarketing Procedures" below. If a class of reset rate notes is in
foreign exchange mode either during the then-current reset period or will be
reset into foreign exchange mode on the immediately following reset date, the
related noteholders will be deemed to have tendered their reset rate notes on
the related reset date, regardless of any desire by those holders to retain
their ownership thereof, and no all-hold rate will be applicable.
If the remarketing agents, in consultation with the administrator, are
unable to determine the terms set forth above that are required to be
established on the applicable remarketing terms determination date, then, unless
the holder of the call option chooses to exercise its call option, a failed
remarketing will be declared on the related spread determination date, all
holders will retain their notes, the failed remarketing rate as previously
determined in the related prospectus supplement will apply, and a reset period
of three months will be established as described under "--Failed Remarketing"
below.
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In addition, unless notice of the exercise of the related call option has
already been given, the administrator, not less than fifteen nor more than
thirty calendar days prior to any remarketing terms determination date, will
provide the required notices as described under "--Tender of Reset Rate Notes;
Remarketing Procedures" below.
If a failed remarketing has been declared, all applicable reset rate notes
will be deemed to have been held by the applicable holders on the related reset
date at the failed remarketing rate regardless of any desire to tender their
notes or any mandatory tender of their notes. With respect to any failed
remarketing, the next reset period will be established as a three-month period.
Call Option. Each class of reset rate notes will be subject, as of each
reset date, to a call option, held by SLC or one of its subsidiaries, for 100%
of that class of reset rate notes, exercisable at a price equal to 100% of the
principal balance of that class of reset rate notes, less all amounts
distributed to the related noteholders as a payment of principal, plus any
accrued and unpaid interest not paid by the trust through the applicable reset
date. The call option may be exercised by SLC or one of its subsidiaries by
giving notice to the administrator of its exercise of the option. This notice
may be given at any time during the period beginning on the first day following
the distribution date immediately preceding the next applicable reset date until
the determination of the related spread or fixed rate of interest on the related
spread determination date or upon the declaration of a failed remarketing if
declared prior to that date. If exercised, the purchase under the call option
will be made effective as of the related reset date. Once notice is given, the
holder of the call option may not rescind its exercise of that call option.
If a call option is exercised, the interest rate for the related class of
reset rate notes following the reset date of the purchase under the call option
will be:
o if no swap agreement was in effect for that class during the previous
reset period, the floating rate applicable for the most recent reset
period during which the failed remarketing rate was not in effect; or
o if one or more swap agreements were in effect for that class during the
previous reset period, a three-month LIBOR-based rate equal to the
weighted average of the floating rates of interest that the trust paid
to the related swap counterparties hedging currency and/or basis risk
for that class during the preceding reset period; and
o a reset period of three months will be established, at the end of which
the purchaser under the call option may either remarket that class
pursuant to the remarketing procedures set forth below or retain that
class for one or more successive three-month reset periods at the
existing call rate.
The interest rate will continue to apply for each reset period while the
holder of an exercised call option retains the related reset rate notes.
In addition, for reset rate notes listed on the Irish Stock Exchange, the
administrator will notify the Irish Stock Exchange of the exercise of a call
option.
Spread Determination Date. Three business days prior to the related reset
date, which we refer to as the "spread determination date", the remarketing
agents will set the applicable spread above or below the applicable index, with
respect to reset rate notes that will be in floating rate mode during the next
reset period, or applicable fixed rate of interest, with respect to reset rate
notes that will be in fixed rate mode during the next reset period, in either
case, at a rate that, in the reasonable opinion of the remarketing agents, will
enable all of the tendered reset rate notes to be remarketed by the remarketing
agents at 100% of the principal balance of that class of reset rate notes. Also,
if applicable, the administrator and the remarketing agents will select from the
bids received from the eligible swap counterparty or counterparties, with which
the trust will enter into swap agreements to hedge basis and/or currency risks
for the next related reset period. If a class of reset rate notes is to be reset
to foreign exchange mode, the exchange rate for the applicable currency to be
issued on the next reset date, the related extension rate and related failed
remarketing rate for the upcoming reset period will be determined pursuant to
the terms of the related currency swap agreement. If required for the
immediately following reset period, on or before the related spread
determination date the administrator will arrange for new or additional
securities identification codes to be obtained as described under "--Reset Rate
Notes--Identification Numbers" below.
Failed Remarketing. There will be a failed remarketing if:
66
o the remarketing agents cannot determine the applicable required reset
terms (other than the related spread or fixed rate) on the related
remarketing terms determination date;
o the remarketing agents cannot establish the required spread or fixed
rate on the related spread determination date;
o either sufficient committed purchasers cannot be obtained for all
tendered reset rate notes at the spread or fixed rate set by the
remarketing agents, or any committed purchasers default on their
purchase obligations (and the remarketing agents choose not to purchase
those reset rate notes themselves);
o one or more interest rate and/or currency swap agreements satisfying all
required criteria cannot be obtained, if applicable as described under
"--Foreign Exchange Mode" "--Floating Rate Mode" and "--Fixed Rate Mode"
below;
o the trust is unable to obtain a favorable tax opinion with respect to
certain tax related matters;
o certain conditions specified in the related remarketing agreement are
not satisfied; or
o any rating agency then rating the notes has not confirmed or upgraded
its then-current ratings of any class of notes, if that confirmation is
required.
In the event a failed remarketing is declared with respect to a class of
reset rate notes at a time when those notes are denominated in U.S. Dollars:
o all holders of that class will retain their reset rate notes (including
in all deemed mandatory tender situations);
o the related interest rate will be reset to a failed remarketing rate of
three-month LIBOR plus the related spread;
o the related reset period will be three months; and
o any existing interest rate swap agreement will be terminated in
accordance with its terms.
In the event a failed remarketing is declared with respect to any class of
reset rate notes at a time when those notes are denominated in a currency other
than U.S. Dollars:
o all holders of that class will retain their reset rate notes;
o that class will remain denominated in the then-current non-U.S. Dollar
currency;
o each existing currency swap agreement will remain in effect and each
currency swap counterparty will be entitled to receive quarterly
interest payments from the trust at an increased LIBOR-based rate, which
we refer to in this prospectus as the "extension rate";
o the trust will be entitled to receive from each currency swap
counterparty, for payment to the applicable reset rate noteholders,
quarterly floating rate interest payments at the specified failed
remarketing rate; and
o the related reset period will be three months.
If there is a failed remarketing of a class of reset rate notes, however,
the related holders of that class will not be permitted to exercise any remedies
as a result of the failure of their class of reset rate notes to be remarketed
on the related reset date.
Foreign Exchange Mode. A class of reset rate noteholders will always receive
payments during the related reset period in the currency in which the related
class was originally denominated on the closing date with respect to the initial
reset period and on the related reset date with respect to subsequent reset
periods. As of the closing date with
67
respect to the initial reset period, and as of the related reset date, if a
class of reset rate notes are to be reset in foreign exchange mode on that reset
date, the administrator, on behalf of the trust, will enter into one or more
currency swap agreements with one or more eligible swap counterparties:
o to hedge the currency exchange risk that results from the required
payment of principal and interest by the trust in the applicable
currency during the upcoming reset period;
o to pay additional interest accrued between the reset date and the
special reset payment date as described below, at the applicable
interest rate and in the applicable currency for a class of reset rate
notes from and including the related reset date to, but excluding the
second business day following the related reset date; and
o to facilitate the exchange to the applicable currency of all secondary
market trade proceeds from a successful remarketing, or proceeds from
the exercise of the call option, on the applicable reset date.
Under any currency swap agreement between the trust and one or more swap
counterparties, each related swap counterparty will be obligated to pay to the
trust or a paying agent on behalf of the trust, as applicable:
o on the effective date of that currency swap agreement for the related
reset date, the U.S. Dollar equivalent of all secondary market trade
proceeds received from purchasers of the related class of reset rate
notes using the exchange rate established on the effective date of that
currency swap agreement or, with respect to the initial currency swap
agreement, the U.S. Dollar equivalent of all proceeds received on the
closing date from the sale of the related class using the exchange rate
set forth in the initial currency swap agreement, as described in the
related prospectus supplement;
o on or before each distribution date, (1) the rate of interest on the
related class of reset rate notes multiplied by the outstanding
principal balance of the related class of reset rate notes denominated
in the applicable currency and (2) the currency equivalent of the U.S.
Dollars that swap counterparty concurrently receives from the trust as a
payment of principal allocated to the related class of reset rate notes,
including, on the maturity date for the related class of reset rate
notes, if a currency swap agreement is then in effect, the remaining
outstanding principal balance of the related class of reset rate notes,
but only to the extent that the required U.S. Dollar equivalent amount
is received from the trust on that date, using the exchange rate
established on the applicable effective date of the currency swap
agreement;
o with respect to a distribution date that is also a reset date, other
than for distribution dates during a reset period following a reset date
upon which a failed remarketing has occurred, up to and including the
reset date resulting in a successful remarketing or an exercise of the
call option, additional interest at the applicable interest rate and in
the applicable currency for the related class of reset rate notes from
and including the related reset date to, but excluding, the second
business day following the related reset date; and
o on the reset date corresponding to a successful remarketing or an
exercise of the call option of the related class of reset rate notes,
the currency equivalent of all U.S. Dollar secondary market trade
proceeds or proceeds from the exercise of the call option received as of
that reset date, as applicable, using the exchange rate established on
the effective date of the applicable currency swap agreement for that
reset date.
In return, each related swap counterparty will receive from the trust:
o on the effective date of that currency swap agreement for the related
reset date, all secondary market trade proceeds received from purchasers
of the related class of reset rate notes in the applicable currency;
o on or before each distribution date, (1) an interest rate of three-month
LIBOR plus or minus a spread, as determined from the bidding process
described below, multiplied by that swap counterparty's pro rata share,
as applicable, of the U.S. Dollar equivalent of the outstanding
principal balance of the related class of reset rate notes, and (2) that
swap counterparty's pro rata share of all payments of principal in U.S.
Dollars that are allocated to the related class of reset rate notes;
provided that if so provided in the related
68
prospectus supplement, all principal payments allocated to those notes
on any distribution date will be deposited into the related accumulation
account and paid to each related swap counterparty on or about the next
reset date (including all amounts required to be deposited in the
related accumulation account on the related reset date), but excluding
all investment earnings thereon; and
o on the reset date corresponding to a successful remarketing or an
exercise of the call option of the related class of reset rate notes,
all U.S. Dollar secondary market trade proceeds or proceeds from the
exercise of the call option, as applicable, received (1) from the
remarketing agents that the remarketing agents either received directly
from the purchasers of the related class of reset rate notes being
remarketed, if in U.S. Dollars; (2) from the new swap counterparty or
counterparties pursuant to the related currency swap agreements for the
upcoming reset period, if in a currency other than U.S. Dollars; or (3)
from the holder of the call option, as applicable.
All such currency swap agreements will terminate, generally, on the earliest
to occur of:
o the next succeeding related reset date resulting in a successful
remarketing;
o the purchase of all outstanding notes on a reset date, following the
exercise of a call option;
o the distribution date on which the outstanding principal balance of the
related class of reset rate notes is reduced to zero, excluding for such
purpose all amounts on deposit in the related accumulation account; or
o the maturity date of the related class of reset rate notes.
Any applicable currency swap agreement may also terminate as a result of the
optional purchase of the trust student loans by the related servicer or an
auction of the trust student loans by the related indenture administrator. No
currency swap agreement will terminate solely due to the declaration of a failed
remarketing.
The remarketing agents, in consultation with the administrator, in
determining the counterparty or counterparties to the required currency swap
agreements, will solicit bids regarding the LIBOR-based interest rate, extension
rate and other terms from at least three eligible swap counterparties and will
select the lowest of these bids to provide the currency swap agreements. If the
lowest bidder specifies a notional amount that is less than the outstanding
principal balance of the related class of reset rate notes, the remarketing
agents, in consultation with the administrator, may select more than one
eligible swap counterparty, but only to the extent that such additional eligible
swap counterparties have provided the next lowest received bid or bids, and
enter into more than one currency swap agreement to fully hedge the then
outstanding principal balance of the related class of reset rate notes. On or
before the spread determination date, the remarketing agents, in consultation
with the administrator, will select the swap counterparty or counterparties.
The terms of all currency swap agreements must satisfy the rating agency
condition. The inability to obtain any required currency swap agreement, either
as a result of the failure to satisfy the rating agency condition or otherwise,
will, in the absence of an exercise of the call option, result in the
declaration of a failed remarketing on the related reset date; provided that, if
the remarketing agents, in consultation with the administrator, on or before the
remarketing terms determination date, determine that it is unlikely that
currency swap agreements satisfying the above criteria will be obtainable on the
related reset date, the related class of reset rate notes must be reset to U.S.
Dollars on the related reset date. No new currency swap agreements will be
entered into by the trust for the applicable reset period following an exercise
of the call option.
If the related class of reset rate notes either is currently in foreign
exchange mode or is to be reset into foreign exchange mode, they will be deemed
tendered mandatorily by the holders thereof on the related reset dates. Affected
reset rate noteholders desiring to retain some or all of their reset rate notes
will be required to repurchase such reset rate notes through the remarketing
agents. Such reset rate noteholders may not be allocated their desired amount of
notes as part of the remarketing process. In addition, with respect to reset
dates where the related class of reset rate notes is to be reset into the same
non-U.S. Dollar currency as during the previous period, the aggregate principal
balance of the related class of reset rate notes following a successful
remarketing probably will be higher or lower than it was during the previous
reset period. This will occur as a result of fluctuations in the related U.S.
69
Dollar/applicable non-U.S. Dollar currency exchange rates between the rate in
effect on the previous reset date and the new exchange rate that will be in
effect for the required replacement currency swap agreements.
If a distribution date for that class of reset rate notes denominated in a
foreign currency coincides with a reset date, due to time zone differences and
for purposes of making payments through Euroclear and Clearstream, all principal
payments and any remaining interest payments due from the trust will be made to
the related reset rate noteholders on or before the second business day
following such distribution date. We sometimes refer to such date as the special
reset payment date. Under the currency swap agreement for such reset period, the
reset rate noteholders will be entitled to receive such amounts plus
approximately two additional business days of interest at the interest rate for
the prior reset period in the applicable non-U.S. Dollar currency calculated
from the period including the related reset date to, but excluding, the second
business day following such reset date. However, if a currency swap agreement is
terminated, the trust will not pay to the related noteholders interest for those
additional days. In addition, for any reset period following a reset date upon
which a failed remarketing has occurred, up to and including the reset date
resulting in a successful remarketing or an exercise of the call option for that
class of reset rate notes as described below, payments of interest and principal
to the related reset rate noteholders will be made on the special reset payment
date without the payment of any additional interest.
In such event, the trust, in consultation with the administrator, will
attempt to enter into a substitute currency swap agreement with similar currency
exchange terms in order to obtain sufficient funds to provide for an open market
purchase of the amount of the applicable currency needed to make the required
payments.
In the event no currency swap agreement is in effect on any applicable
distribution date or related reset date when payments are required to be made,
the trust will be obligated to engage in a spot currency transaction to exchange
U.S. Dollars at the current exchange rate for the applicable currency in order
to make payments of interest and principal on the applicable class of reset rate
notes in that currency.
In addition, the indenture will require that, on each reset date that
involves a mandatory tender, the trust obtains a favorable opinion of counsel
with respect to certain tax related matters; however, prospective purchasers are
strongly encouraged to consult with their tax advisors as to the tax
consequences to them of purchasing, owning or disposing of a class of reset rate
notes.
Floating Rate Mode. If a class of reset rate notes is to be reset in U.S.
Dollars and to bear a floating rate of interest, then, during the corresponding
reset period, it will bear interest at a per annum rate equal to the applicable
interest rate index, plus or minus the applicable spread, as determined on the
relevant spread determination date.
In addition, if the remarketing agents, in consultation with the
administrator, determine that it would be in the best interest of the trust
based on then-current market conditions during any reset period when a class of
reset rate notes bears a floating rate of interest, or if otherwise required to
satisfy the rating agency condition, the trust will enter into one or more swap
agreements with eligible swap counterparties for the next reset period to hedge
some or all of the basis risk. In exchange for providing payments to the trust
at the applicable interest rate index plus the related spread, each swap
counterparty will be entitled to receive on each distribution date a payment
from the trust equal to three-month LIBOR plus or minus a spread, which must
satisfy the rating agency condition. The remarketing agents, in consultation
with the administrator, generally will use the procedures set forth above under
"--Foreign Exchange Mode" in the selection of the related swap counterparties
and the establishment of the applicable spread to three-month LIBOR.
Principal payments on a class of reset rate notes in floating rate mode
generally will be made on each applicable distribution date. However, if so
provided in the related prospectus supplement, principal payments may be
allocated to a related accumulation account in the manner described under
"--Fixed Rate Mode" below.
Fixed Rate Mode. If a class of reset rate notes is to be reset in U.S.
Dollars and to bear a fixed rate of interest, then the applicable fixed rate of
interest for the corresponding reset period will be determined on the spread
determination date by adding:
o the applicable spread as determined by the remarketing agents on the
spread determination date; and
70
o the yield to maturity on the spread determination date of the applicable
fixed rate pricing benchmark, selected by the remarketing agents, as
having an expected weighted average life based on a scheduled maturity
at the next reset date, which would be used in accordance with customary
financial practice in pricing new issues of asset-backed securities of
comparable average life, provided, that the remarketing agents shall
establish such fixed rate equal to the rate that, in the reasonable
opinion of the remarketing agents, will enable all of the tendered reset
rate notes to be remarketed by the remarketing agents at 100% of their
outstanding principal balance. However, such fixed rate of interest will
in no event be lower than the related all-hold rate, if applicable.
Interest on a class of reset rate notes during any reset period when the
class bears a fixed rate of interest and is denominated in U.S. Dollars will be
computed on the basis of a 360-day year of twelve 30-day months unless the
related prospectus supplement states otherwise. Interest on the related class of
reset rate notes during any reset period when the class bears a fixed rate of
interest and is denominated in a currency other than U.S. Dollars generally will
be calculated based on the Actual/Actual (ISMA) accrual method as described
under "--Determination of Indices" below, or such other day-count convention as
is established on the related remarketing terms determination date or in the
related prospectus supplement. Such interest will be payable on each
distribution date at the applicable fixed rate of interest, as determined on the
spread determination date, during the relevant reset period.
Principal on a class of reset rate notes during any reset period when the
class bears a fixed rate of interest, both when the class is denominated in U.S.
Dollars and when in foreign exchange mode, generally is not payable on
distribution dates. Instead, principal that would be payable on a distribution
date will be allocated to that class of reset rate notes and deposited into the
related accumulation account, where it will remain until the next reset date for
that class, unless there occurs prior to the related reset date (but not earlier
than the initial reset date), an optional termination of the trust, an optional
purchase of the remaining trust student loans by the related servicer or a
successful auction of the remaining trust student loans by the related indenture
administrator. When the class is denominated in U.S. Dollars, all amounts then
on deposit in the related accumulation account, less any investment earnings,
including any allocation of principal made on the same distribution date, will
be distributed as a payment in reduction of principal on that reset date to the
reset rate noteholders, as of the related record date. When a class is
denominated in foreign exchange mode, such amounts will be distributed on or
about such reset date to the related swap counterparty, in exchange for the
equivalent amount of the applicable non-U.S. Dollar currency to be paid to the
related holders on that reset date, subject to any delay in payments through the
applicable European clearing agencies.
However, in the event that on any distribution date the amount, less any
investment earnings, on deposit in the related accumulation account would equal
the outstanding principal balance, or if in foreign exchange mode, the U.S.
Dollar equivalent thereof, of the related class of reset rate notes, then no
additional amounts will be deposited into the related accumulation account, and
all amounts therein, less any investment earnings, will be distributed on the
next related reset date to the related holders, or if in foreign exchange mode,
on or about such reset date to the related swap counterparty, in exchange for
the equivalent amount of the applicable non-U.S. Dollar currency to be paid to
related holders on or about that reset date. On such reset date the principal
balance of related class of reset rate notes will be reduced to zero. Amounts,
less any investment earnings, on deposit in the related accumulation account may
be used only to pay principal on related class of reset rate notes, or to make
payments to the related swap counterparty, but solely in exchange for the
equivalent amount of the applicable non-U.S. Dollar currency at the conversion
rate set forth in the related currency swap agreement, and for no other purpose.
All investment earnings on deposit in the related accumulation account will be
withdrawn on each distribution date and deposited into the collection account.
The related indenture administrator, subject to sufficient available funds
therefor and based solely upon the written instructions of the administrator,
will deposit into the supplemental interest account the related supplemental
interest account deposit amount as described in the related prospectus
supplement.
In addition, if a class of reset rate notes is to be remarketed to bear
interest at a fixed rate, the trust will enter into one or more interest rate
swap agreements with eligible swap counterparties on the related reset date, as
applicable, to facilitate the trust's ability to pay interest at a fixed rate,
and such interest rate swap will be made as
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part of any required currency swap agreement as described in "--Foreign Exchange
Mode" above. Each such interest rate swap agreement will terminate, generally,
on the earliest to occur of:
o the next succeeding reset date, if the related class of reset rate notes
is then denominated in U.S. Dollars, or the next succeeding reset date
resulting in a successful remarketing, if that class is then in foreign
exchange mode;
o the related reset date of an exercise of the call option;
o the distribution date on which the outstanding principal balance of the
related class of reset rate notes is reduced to zero, including as the
result of the optional purchase of the remaining trust student loans by
the related servicer or an auction of the trust student loans by the
related indenture administrator; or
o the maturity date of the related class of reset rate notes.
No interest rate swap agreement with respect to a class of reset rate notes
then in foreign exchange mode will terminate solely due to the declaration of a
failed remarketing. Each interest rate swap agreement must satisfy the rating
agency condition. No new interest rate swap agreement will be entered into by
the trust for any reset period where the call option has been exercised. The
remarketing agents, in consultation with the administrator, generally will use
procedures similar to those set forth above under "--Foreign Exchange Mode" in
the selection of the related swap counterparties and the establishment of the
applicable spread to three-month LIBOR.
In exchange for providing a payment equal to interest at the fixed rate due
to a class of reset rate notes, the related swap counterparty will be entitled
to receive on each distribution date a payment from the trust, as a trust swap
payment, in an amount based on three-month LIBOR, plus or minus a spread, as
determined from the bidding process described above.
Tender of Reset Rate Notes; Remarketing Procedures. On the date specified in
the prospectus supplement, the trust, the administrator and the remarketing
agents named therein will enter into a remarketing agreement for the remarketing
of the reset rate notes by the remarketing agents. The administrator, in its
sole discretion, may change the remarketing agents or designate a lead
remarketing agent for the reset rate notes for any reset period at any time on
or before the related remarketing terms determination date. In addition, the
administrator will appoint one or more additional remarketing agents, if
necessary, for a reset date when a class of reset rate notes will be remarketed
in a currency other than U.S. Dollars. Furthermore, a remarketing agent may
resign at any time provided that no resignation may become effective on a date
that is later than 15 business days prior to a remarketing terms determination
date.
Unless notice of the exercise of the related call option has already been
given, the administrator, not less than fifteen nor more than thirty calendar
days prior to any remarketing terms determination date, will:
o inform DTC, Euroclear and Clearstream, as applicable, of the identities
of the applicable remarketing agents and (1) if the applicable class of
reset rate notes is denominated in U.S. Dollars in both the then-current
and immediately following reset period, that such class of notes is
subject to automatic tender on the reset date unless a holder elects not
to tender its particular reset rate notes, or (2) if the applicable
class of reset rate notes is then in, or to be reset in, foreign
exchange mode, that such class of notes is subject to mandatory tender
by all of the holders thereof, and
o request that DTC, Euroclear and Clearstream, as applicable, notify its
participants of the contents of the notice given to DTC, Euroclear and
Clearstream, as applicable, the notices to be given on the remarketing
terms determination date and the spread determination date, and the
procedures that must be followed if any beneficial owner of a reset rate
note wishes to retain its notes or any procedures to be followed in
connection with a mandatory tender of such notes, each as described
below.
This will be the only required notice given to holders prior to a
remarketing terms determination date and with respect to the procedures for
electing not to tender or regarding a mandatory tender of a class of reset rate
notes. If DTC, Euroclear and Clearstream, as applicable, or its respective
nominee is no longer the holder of record of the
72
related class of reset rate notes, the administrator will establish procedures
for the delivery of any such notice to the related noteholders.
On each remarketing terms determination date, the trust, the administrator
and the remarketing agents will enter into a remarketing agency agreement that
will set forth certain terms of the remarketing described under "--Remarketing
Terms Determination Date" above, and on the related spread determination date,
unless a failed remarketing is declared, 100% of the related noteholders have
delivered a hold notice, or an exercise of the related call option has occurred,
such remarketing agency agreement will be supplemented to include the other
required terms of the related remarketing described under "--Spread
Determination Date" above.
On the reset date that commences each reset period, if the reset rate notes
are not subject to mandatory tender, each reset rate note will be automatically
tendered, or deemed tendered, to the relevant remarketing agent for remarketing
by such remarketing agent on the reset date at 100% of its outstanding principal
balance, unless the holder, by delivery of a hold notice, if applicable, elects
not to tender its reset rate note. If the related class of reset rate notes are
held in book-entry form, 100% of the outstanding principal balance of such class
will be paid in accordance with the standard procedures of DTC, which currently
provide for payments in same-day funds or procedures of Euroclear and
Clearstream which, due to time zone differences, will be required to provide for
payment of principal and interest due on the related distribution date
approximately two business days following the reset date, and, with respect to
each reset date, other than for any reset period following a reset date upon
which a failed remarketing has occurred, up to and including the reset date
resulting in a successful remarketing or an exercise of the call option,
additional interest at the applicable interest rate and in the applicable
non-U.S. Dollar currency from and including the related reset date to, but
excluding, the second business day following such reset date. Beneficial owners
that tender their reset rate notes through a broker, dealer, commercial bank,
trust company or other institution, other than the remarketing agent, may be
required to pay fees or commissions to such institution. If a beneficial owner
has an account at a remarketing agent and tenders its reset rate notes through
that account, the beneficial owner will not be required to pay any fee or
commission to the remarketing agent.
If applicable, the hold notice must be received by a remarketing agent
during the period commencing on the remarketing terms determination date and
ending on the notice date. To ensure that a hold notice is received on a
particular day, the beneficial owner must direct its broker or other designated
direct or indirect participant to give the hold notice before the broker's
cut-off time for accepting instructions for that day. Different firms may have
different cutoff times for accepting instructions from their customers.
Accordingly, beneficial owners should consult the brokers or other direct or
indirect participants through which they own their interests in the reset rate
notes for the cut-off times for those brokers or participants. A delivered hold
notice will be irrevocable, but will be subject to a mandatory tender of the
reset rate notes pursuant to any exercise of the call option. If a hold notice
is not timely received for any reason by a remarketing agent on the notice date,
the beneficial owner of a class of reset rate notes will be deemed to have
elected to tender such notes for remarketing by the relevant remarketing agent.
All of the reset rate notes of the applicable class, whether or not tendered,
will bear interest upon the same terms.
The remarketing agents will attempt, on a reasonable efforts basis, to
remarket the tendered reset rate notes at a price equal to 100% of the aggregate
principal balance so tendered. We cannot assure you that the remarketing agents
will be able to remarket the entire principal balance of the reset rate notes
tendered in a remarketing. The obligations of the remarketing agents will be
subject to conditions and termination events customary in transactions of this
type, including conditions that all of the notes subject to remarketing in fact
were not called, none of the notes have been downgraded or put under review by
the applicable rating agencies, no events of default with respect to the notes
have occurred, and no material adverse change in the trust's financial condition
has occurred between the remarketing terms determination date and the reset
date. If the call option is not timely exercised and the remarketing agents are
unable to remarket some or all of the tendered reset rate notes and, in their
sole discretion, elect not to purchase those reset rate notes, then the
remarketing agents will declare a failed remarketing, all holders will retain
their notes, the related reset period will be fixed at three months, and the
related interest rate will be set at the related failed remarketing rate.
No noteholder or beneficial owner of any reset rate note will have any
rights or claims against any remarketing agent as a result of the remarketing
agent's not purchasing that reset rate note. The remarketing agents will have
the option, but not the obligation, to purchase any reset rate notes tendered
that they are not able to remarket.
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Each of the remarketing agents, in its individual or any other capacity, may
buy, sell, hold and deal in the reset rate notes. Any remarketing agent may
exercise any vote or join in any action which any beneficial owner of the reset
rate notes may be entitled to exercise or take with like effect as if it did not
act in any capacity under the remarketing agency agreement. Any remarketing
agent, in its individual capacity, either as principal or agent, may also engage
in or have an interest in any financial or other transaction with the trust, the
depositor, the servicer or the administrator as freely as if it did not act in
any capacity under the remarketing agency agreement.
Each of the remarketing agents will be entitled to receive a fee from
amounts on deposit in the remarketing fee account in connection with their
services rendered for each reset date. The remarketing agents also will be
entitled to reimbursement from the trust, on a subordinated basis, or from the
administrator, if there are insufficient available funds on the related
distribution date, for certain expenses associated with each remarketing. The
fees associated with each successful remarketing and certain out-of-pocket
expenses with respect to each reset date will be payable generally from amounts
on deposit from time to time in the remarketing fee account. Unless otherwise
specified in a related prospectus supplement, on each distribution date that is
one year or less prior to a reset date, available funds will be deposited into
the remarketing fee account, prior to the payment of interest on any class of
notes, in an amount up to the quarterly funding amount as specified in the
related supplement. If the amount on deposit in the remarketing fee account,
after the payment of any remarketing fees there from, exceeds the reset period
target amount as specified in the related supplement or, such excess will be
withdrawn on the distribution date immediately following the related reset date,
deposited into the collection account and included in available funds for that
distribution date. In addition, all investments on deposit in the remarketing
fee account will be withdrawn on the next distribution date, deposited into the
collection account and included in available funds for that distribution date.
Also, if on any distribution date a senior security interest shortfall would
exist, or if on the maturity date for any class of senior notes, available funds
would not be sufficient to reduce the principal balance of such class to zero,
the amount of such senior security interest shortfall or principal deficiency,
as applicable, to the extent sums are on deposit in the remarketing fee account,
may be withdrawn from that account and used for payment of interest or principal
on the senior notes.
Determination of Indices; Day-Count Basis; Interest Rate Change Dates;
Interest Rate Determination Dates. For any class of notes that bears interest at
a LIBOR-based rate, interest due for any accrual period generally will be
determined on the basis of an Actual/ 360 day year. If a class of notes bears
interest at a fixed rate and is denominated in U.S. Dollars, interest due for
any accrual period generally will be determined on the basis of a 30/360 day
year. If a class of reset rate notes bears interest at a floating rate that is
not LIBOR-based and/or is denominated in a currency other than U.S. Dollars, the
remarketing agents, in consultation with the administrator, will set forth the
applicable day-count basis for the related reset period as specified in the
related prospectus supplement and in the written notice sent to the reset rate
noteholders on the related remarketing terms determination date. The applicable
day-count basis will be determined in accordance with prevailing market
conventions and existing market conditions, but generally will be limited to the
following accrual methods:
o "30/360" which means that interest is calculated on the basis of a
360-day year consisting of twelve 30-day months;
o "Actual/360" which means that interest or any other relevant factor is
calculated on the basis of the actual number of days elapsed in a year
of 360 days;
o "Actual/365 (fixed)" which means that interest is calculated on the
basis of the actual number of days elapsed in a year of 365 days,
regardless of whether accrual or payment occurs in a leap year;
o "Actual/Actual (accrual basis)" which means that interest is calculated
on the basis of the actual number of days elapsed in a year of 365 days,
or 366 days for every day in a leap year;
o "Actual/Actual (payment basis)" which means that interest is calculated
on the basis of the actual number of days elapsed in a year of 365 days
if the interest period ends in a non-leap year, or 366 days if the
interest period ends in a leap year, as the case may be; and
o "Actual/Actual (ISMA)" is a calculation in accordance with the
definition of "Actual/Actual" adopted by the International Securities
Market Association ("ISMA"), which means that interest is calculated on
the following basis:
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o where the number of days in the relevant accrual period is equal to
or shorter than the determination period during which such accrual
period ends, the number of days in such accrual period divided by
the product of (A) the number of days in such determination period
and (B) the number of distribution dates that would occur in one
calendar year; or
o where the accrual period is longer than the determination period
during which the accrual period ends, the sum of:
(1) the number of days in such accrual period falling in the
determination period in which the accrual period begins divided
by the product of (x) the number of days in such determination
period and (y) the number of distribution dates that would occur
in one calendar year; and
(2) the number of days in such accrual period falling in the next
determination period divided by the product of (x) the number of
days in such determination period and (y) the number of
distribution dates that would occur in one calendar year;
where "determination period" means the period from and including one
calculation date to but excluding the next calculation date and
"calculation date" means, in each year, each of those days in the
calendar year that are specified herein as being the scheduled
distribution dates.
For any class of notes that bears interest at a LIBOR-based rate, the
related interest rate determination dates will be LIBOR determination dates, as
described under "--LIBOR" below. If the reset rate notes bear interest at a
floating rate, the remarketing agents, in consultation with the administrator,
and in accordance with prevailing market conventions and existing market
conditions, will set forth the applicable dates, or intervals between dates, on
which the applicable rate of interest will be determined, and the related dates
on which such interest rates will be changed during each related accrual period
during a reset period, as part of the written notice sent to the reset rate
noteholders on the related remarketing terms determination date and as set forth
in the related prospectus supplement.
LIBOR. LIBOR, for any accrual period, will be the London interbank offered
rate for deposits in U.S. Dollars having the specified maturity commencing on
the first day of the accrual period, which appears on Money line Telerate Page
3750 as of 11:00 a.m. London time, on the related LIBOR determination date. If
an applicable rate does not appear on Money line Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. Dollars, having the specified maturity and in a principal amount of not
less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time,
on that LIBOR determination date, to prime banks in the London interbank market
by the Reference Banks. The administrator will request the principal London
office of each Reference Bank to provide a quotation of its rate. If the
Reference Banks provide at least two quotations, the rate for that day will be
the arithmetic mean of the quotations. If the Reference Banks provide fewer than
two quotations, the rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the administrator, at
approximately 11:00 a.m. New York time, on that LIBOR determination date, for
loans in U.S. Dollars to leading European banks having the specified maturity
and in a principal amount of not less than U.S. $1,000,000. If the banks
selected as described above are not providing quotations, LIBOR in effect for
the applicable accrual period will be LIBOR for the specified maturity in effect
for the previous accrual period.
For this purpose:
o "LIBOR determination date" means, for each accrual period, the second
business day before the beginning of that accrual period.
o "Money line Telerate Page 3750" means the display page so designated on
the Money line Telerate Service or any other page that may replace that
page on that service for the purpose of displaying comparable rates or
prices.
o "Reference Banks" means four major banks in the London interbank market
selected by the administrator.
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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. For the LIBOR-based notes, 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.
GBP-LIBOR. GBP-LIBOR, for any accrual period, will be the London interbank
offered rate for deposits in Pounds Sterling having the specified maturity
commencing on the first day of the accrual period, which appears on Telerate
Page 3750 as of 11:00 a.m. London time, on the related GBP-LIBOR determination
date. If an applicable rate does not appear on Telerate Page 3750, the rate for
that day will be determined on the basis of the rates at which deposits in
Pounds Sterling, having the specified maturity and in a principal amount of not
less than lb. 1,000,000 are offered at approximately 11:00 a.m., London time, on
that GBP-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 prime banks in London, selected by the administrator, at approximately
11:00 a.m. London time, on that GBP-LIBOR determination date, for loans in
Pounds Sterling to leading European banks having the specified maturity and in a
principal amount of not less than lb. 1,000,000. If the banks selected as
described above are not providing quotations, GBP-LIBOR in effect for the
applicable accrual period will be GBP-LIBOR for the specified maturity in effect
for the previous accrual period. For any GBP-LIBOR-based notes, interest due for
any accrual period will always be determined based on the actual number of days
elapsed in the accrual period over a 365-day year.
EURIBOR. Three-month EURIBOR, for any accrual period, is the Euro interbank
offered rate for deposits in Euros having a maturity of three months, commencing
on the first day of the accrual period, which appears on Telerate Page 248 as of
11:00 a.m. Brussels time, on the related EURIBOR determination date. If an
applicable rate does not appear on Telerate Page 248, the rate for that day will
be determined on the basis of the rates at which deposits in Euros, having the
applicable maturity and in a principal amount of not less than EUR1,000,000, are
offered at approximately 11:00 a.m., Brussels time, on that EURIBOR
determination date, to prime banks in the Euro-zone interbank market by the
Reference Banks. The administrator will request the principal Euro-zone 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 the Euro-zone, selected by the administrator, at
approximately 11:00 a.m. Brussels time, on that EURIBOR determination date, for
loans in Euros to leading European banks having the applicable maturity and in a
principal amount of not less than EUR1,000,000. If the banks selected as
described above are not providing quotations, three-month EURIBOR in effect for
the applicable accrual period will be three-month EURIBOR in effect for the
previous accrual period.
For this purpose:
o "EURIBOR determination date" means, for each accrual period, the day
that is two Settlement Days before the beginning of that accrual period.
o "Settlement Day" means any day on which TARGET (the Trans-European
Automated Real-time Gross Settlement Express Transfer System) is open
which is also a day on which banks in New York City are open for
business.
o "Telerate Page 248" means the display page so designated on the Money
line Telerate Service or any other page that may replace that page on
that service for the purpose of displaying comparable rates or prices.
o "Reference Banks" means four major banks in the Euro-zone interbank
market selected by the administrator.
For any EURIBOR-based reset rate notes, 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.
Commercial Paper Rate. If the reset rate notes bear interest based on the
commercial paper rate (the "Commercial Paper Rate"), the Commercial Paper Rate
for any relevant interest determination date will be the Bond
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Equivalent Yield shown below of the rate for 90-day commercial paper, as
published in H.15(519) prior to 3:00 p.m., New York City time, on that interest
determination date under the heading "Commercial Paper--Financial".
The administrator will observe the following procedures if the commercial
paper rate cannot be determined as described above:
o If the rate described above is not published in H.15(519) by 3:00 p.m.,
New York City time, on that interest determination date, unless the
calculation is made earlier and the rate was available from that source
at that time, then the commercial paper rate will be the bond equivalent
yield of the rate on the relevant interest determination date, for
commercial paper having the index maturity specified on the Remarketing
Terms Determination Date, as published in H.15 Daily Update or any other
recognized electronic source used for displaying that rate under the
heading "Commercial Paper--Financial".
The "Bond Equivalent Yield" will be calculated as follows:
Bond Equivalent Yield = N x D x 100
360 (D x 90)
where "D" refers to the per annum rate determined as set forth above,
quoted on a bank discount basis and expressed as a decimal and "N"
refers to 365 or 366, as the case may be.
o If the rate described in the prior paragraph cannot be determined, the
Commercial Paper Rate will remain the commercial paper rate then in
effect on that interest determination date.
o The Commercial Paper Rate will be subject to a lock-in period of six New
York City business days.
CMT Rate. If the reset rate notes bear interest based on the Treasury
constant maturity rate (the "CMT Rate"), the CMT Rate for any relevant interest
determination date will be the rate displayed on the applicable Designated CMT
Money line Telerate Page shown below by 3:00 p.m., New York City time, on that
interest determination date under the caption "Treasury Constant Maturities
Federal Reserve Board Release H.15...Mondays Approximately 3:45 p.m.," under the
column for:
o If the Designated CMT Money line Telerate Page is 7051, the rate on that
interest determination date; or
o If the Designated CMT Money line Telerate Page is 7052, the average for
the week, or the month, as specified on the related remarketing terms
determination date, ended immediately before the week in which the
related interest determination date occurs.
The following procedures will apply if the CMT Rate cannot be determined as
described above:
o If the rate described above is not displayed on the relevant page by
3:00 p.m., New York City time on that interest determination date,
unless the calculation is made earlier and the rate is available from
that source at that time on that interest determination date, then the
CMT Rate will be the Treasury constant maturity rate having the
designated index maturity, as published in (519) or another recognized
electronic source for displaying the rate.
o If the applicable rate described above is not published in H.15(519) or
another recognized electronic source for displaying such rate by 3:00
p.m., New York City time on that interest determination date, unless the
calculation is made earlier and the rate is available from one of those
sources at that time, then the CMT Rate will be the Treasury constant
maturity rate, or other United States Treasury rate, for the index
maturity and with reference to the relevant interest determination date,
that is published by either the Board of Governors of the Federal
Reserve System or the United States Department of the Treasury and that
the administrator determines to be comparable to the rate formerly
displayed on the Designated CMT Money line Telerate Page shown above and
published in H.15(519).
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o If the rate described in the prior paragraph cannot be determined, then
the administrator will determine the CMT Rate to be a yield to maturity
based on the average of the secondary market closing offered rates as of
approximately 3:30 p.m., New York City time, on the relevant interest
determination date reported, according to their written records, by
leading primary United States government securities dealers in New York
City. The administrator will select five such securities dealers and
will eliminate the highest and lowest quotations or, in the event of
equality, one of the highest and lowest quotations, for the most
recently issued direct nonmalleable fixed rate obligations of the U.S.
Treasury ("Treasury Notes") with an original maturity of approximately
the designated index maturity and a remaining term to maturity of not
less than the designated index maturity minus one year in a
representative amount.
o If the administrator cannot obtain three Treasury Note quotations of the
kind described in the prior paragraph, the administrator will determine
the CMT Rate to be the yield to maturity based on the average of the
secondary market bid rates for Treasury Notes with an original maturity
longer than the designated CMT index maturity which have a remaining
term to maturity closest to the designated CMT index maturity and in a
representative amount, as of approximately 3:30 p.m., New York City
time, on the relevant interest determination date of leading primary
U.S. government securities dealers in New York City. In selecting these
offered rates, the administrator will request quotations from at least
five such securities dealers and will disregard the highest quotation
(or if there is equality, one of the highest) and the lowest quotation
(or if there is equality, one of the lowest). If two Treasury Notes with
an original maturity longer than the designated CMT index maturity have
remaining terms to maturity that are equally close to the designated CMT
index maturity, the administrator will obtain quotations for the
Treasury Note with the shorter remaining term to maturity.
o If three or four but not five leading primary U.S. government securities
dealers are quoting as described in the prior paragraph, then the CMT
Rate for the relevant interest determination date will be based on the
average of the bid rates obtained and neither the highest nor the lowest
of those quotations will be eliminated.
o If fewer than three leading primary U.S. government securities dealers
selected by the administrator are quoting as described above, the CMT
Rate will remain the CMT Rate then in effect on that interest
determination date.
Federal Funds Rate. If any class of notes bears interest based on the
federal funds rate (the "Federal Funds Rate"), the Federal Funds Rate for any
relevant interest determination date will be the rate for U.S. dollar Federal
funds, as published in H.15(519) for that day opposite the caption "Federal
Funds (Effective)" as that rate is displayed on that interest determination date
on Money line Telerate Page 120 under the heading "Federal Funds Rate".
The administrator will observe the following procedures if the Federal Funds
Rate cannot be determined as described above:
o If the rate described above does not appear on Money line Telerate Page
120 or is not yet published in H.15(519) by 3:00 p.m., New York City
time, on that interest determination date, unless the calculation is
made earlier and the rate was available from that source at that time,
then the Federal funds rate for the relevant interest determination date
will be the rate described above in H.15 Daily Update, or any other
recognized electronic source used for the purpose of displaying such
rate, opposite the heading "Federal Funds (Effective)".
o If the rate described above does not appear on Money line Telerate Page
120 or is not yet published in H.15(519), H.15 Daily Update or another
recognized electronic source for displaying such rate by 3:00 p.m., New
York City time, on that interest determination date, the Federal Funds
Rate for that interest determination date will be the arithmetic mean of
the rates for the last transaction in overnight U.S. Dollar Federal
funds arranged by three leading brokers of Federal Funds transactions in
New York City, selected by the administrator, on that interest
determination date.
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o If fewer than three brokers selected by the administrator are quoting as
described above, the Federal Funds Rate will remain the Federal Funds
Rate then in effect on the relevant interest determination date.
91-day Treasury Bill Rate. If any class of notes bears interest at the
91-day Treasury Bill Rate (the "91-day Treasury Bill Rate"), the 91-day Treasury
Bill Rate for any relevant interest determination date will be the rate equal to
the weighted average per annum discount rate (expressed as a bond equivalent
yield and applied on a daily basis) for direct obligations of the United States
with a maturity of thirteen weeks ("91-day Treasury Bills") sold at the
applicable 91-day Treasury Bill auction, as published in H.15(519) or otherwise
or as reported by the U.S. Department of the Treasury.
In the event that the results of the auctions of 91-day Treasury Bills cease
to be published or reported as provided above, or that no 91-day Treasury Bill
auction is held in a particular week, then the 91-day Treasury Bill Rate in
effect as a result of the last such publication or report will remain in effect
until such time, if any, as the results of auctions of 91-day Treasury Bills
will again be so published or reported or such auction is held, as the case may
be.
The 91-day Treasury Bill Rate will be subject to a lock-in period of six New
York City business days.
Prime Rate. If any class of notes bears interest based on the prime rate
(the "Prime Rate"), the Prime Rate for any relevant interest determination date
is the prime rate or base lending rate on that date, as published in H.15(519),
prior to 3:00 p.m., New York City time, on that interest determination date
under the heading "Bank Prime Loan."
The administrator will observe the following procedures if the Prime Rate
cannot be determined as described above:
o If the rate described above is not published in H.15(519) prior to 3:00
p.m., New York City time, on the relevant interest determination date,
unless the calculation is made earlier and the rate was available from
that source at that time, then the Prime Rate will be the rate for that
interest determination date, as published in H.15 Daily Update or
another recognized electronic source for displaying such rate opposite
the caption "Bank Prime Loan."
o If the above rate is not published in either H.15(519), H.15 Daily
Update or another recognized electronic source for displaying such rate
by 3:00 p.m., New York City time, on the relevant interest determination
date, then the administrator will determine the Prime Rate to be the
average of the rates of interest publicly announced by each bank that
appears on the Reuters Screen designated as "USPRIME1" as that bank's
prime rate or base lending rate as in effect on that interest
determination date.
o If fewer than four rates appear on the Reuters Screen USPRIME1 page on
the relevant interest determination date, then the Prime Rate will be
the average of the prime rates or base lending rates quoted, on the
basis of the actual number of days in the year divided by a 360-day
year, as of the close of business on that interest determination date by
three major banks in New York City selected by the administrator.
o If the banks selected by the administrator are not quoting as mentioned
above, the Prime Rate will remain the prime rate then in effect on that
interest determination date.
Auction Rate. If any class of notes bears interest based on an auction rate,
the auction rate will be determined as described in "Certain Information
Regarding the Notes--Auction Rate Notes."
Other Indices. If the reset rate notes are reset on a reset date to pay in
floating rate mode based on a non-U.S. Dollar currency other than Pounds
Sterling or Euros, the administrator, in consultation with the remarketing
agents, shall select an appropriate alternative interest rate index that
satisfies the rating agency condition. In addition, each related prospectus
supplement may also set forth additional interest rate indices and accrual
methods that may be applicable for any class of reset rate notes.
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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 notes.
To the extent specified in the related prospectus supplement, one or more
classes of notes of the trust may have targeted scheduled distribution dates on
which the notes will be paid in full or in part to the extent the trust is able
to issue in sufficient amount additional notes in order to pay in full or in
part the original notes issued by the trust. The proceeds of such additional
notes, which may be issued publicly or privately, will be applied to pay the
specified class of original notes in the manner set forth in the related
prospectus supplement, and the additional notes will receive principal payments
in the amounts and with the priority specified in the related prospectus
supplement.
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Credit and Liquidity or other Enhancement or Derivative Arrangements
General. The related prospectus supplement will describe the amounts and
types of credit or liquidity enhancement arrangements for each series. If
provided in the related prospectus supplement, credit or liquidity enhancement
may take the form of:
o subordination of one or more classes of notes,
o reserve accounts,
o capitalized interest accounts,
o supplemental interest accounts,
o investment premium purchase accounts,
o investment reserve accounts,
o overcollateralization,
o letters of credit, credit or liquidity facilities,
o cash capitalization or cash collateral accounts,
o pool insurance policies,
o financial insurance,
o surety bonds,
o repurchase bonds,
o derivative products including interest rate and currency swaps and cap
agreements,
o interest rate 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 noteholders
of the full amount of distributions when due and to decrease the likelihood that
the noteholders 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, noteholders will bear their allocable share of deficiencies,
as described in the related prospectus supplement.
Subordination of Notes. If specified in the related prospectus supplement
one or more classes of notes of a series may be subordinate notes. The rights of
the holders of subordinate notes to receive distributions of principal and
interest from the collection account on any distribution date will be
subordinated, to the extent provided in the related prospectus supplement, to
those rights of the holders of senior notes. The prospectus supplement will set
forth information concerning the amount of subordination of a class or classes
of subordinate notes in a series, the circumstances in which that subordination
will be applicable and the manner, if any, in which the amount of subordination
will be effected.
Reserve Account. If so provided in the related prospectus supplement, the
indenture administrator will establish and maintain a reserve account for one or
more series of notes issued by the trust. It may 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 some
or all of the amount of collections on the related trust student loans remaining
on each distribution date after all other required payments. The related
prospectus supplement will describe how amounts in any reserve account
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will be available to cover shortfalls in payments due on the notes. The related
prospectus supplement will describe the circumstances and manner in which
distributions may be made out of the reserve account.
Capitalized Interest Account. If so provided in the related prospectus
supplement, the indenture administrator will establish and maintain a
capitalized interest account for each series of notes. It will be funded by an
initial deposit by the trust. Capitalized interest accounts will be available
for a specified period of time to provide liquidity requirements resulting from
a portion of a trust's assets earning interest below the rate of interest borne
by the related notes issued by the trust and transaction costs. The related
prospectus supplement will describe the circumstances and manner in which
distributions may be made out of the capitalized interest account.
Supplemental Interest Account. If specified in the related prospectus
supplement and with respect to one or more classes of reset rate notes, on each
applicable distribution date, the indenture administrator, subject to sufficient
available funds therefor and based solely upon the written instructions of the
administrator, will deposit into one or more supplemental interest accounts the
related supplemental interest account deposit amount for the purpose of
providing additional available funds to pay interest on the notes. Amounts in
the supplemental interest account will be remitted as specified in the related
prospectus supplement.
Investment Premium Purchase Account. If specified in the related prospectus
supplement and with respect to one or more classes of reset notes, on each
applicable payment date, the indenture administrator, subject to sufficient
available funds therefor and based solely upon the written instructions of the
administrator, will deposit amounts into the investment premium purchase account
which may be utilized to purchase eligible investments at a price greater than
par. Amounts in the investment premium purchase account will be remitted as
specified in the related prospectus supplement.
Investment Reserve Account. If specified in the related prospectus
supplement and with respect to one or more classes of reset rate notes, amounts
may be required to be deposited into an investment reserve account to offset the
effect of a downgrade of eligible investments in a related accumulation account.
Such amounts will be funded on each applicable distribution date, to the level
necessary to satisfy the rating agency condition, subject to a maximum amount,
prior to any distributions of principal to classes of subordinated notes. If
there are insufficient available funds following any such deposit, principal
payments to subordinated notes may be delayed.
Overcollateralization. If specified in the prospectus supplement, on the
closing date for a trust its assets may exceed the principal amount of notes
issued by the trust. Also, excess interest collected on the related trust
student loans may be applied to pay principal of one or more classes of notes.
This acceleration feature creates overcollateralization, which is the excess of
the total assets of the related trust estate over the principal balance of the
related class or classes of notes. This acceleration may continue for the life
of the related trust, or may be limited. In the case of limited acceleration,
once the required level of overcollateralization is reached, and subject to the
provisions specified in the prospectus supplement, the limited acceleration
feature may cease, unless necessary to maintain the required level of
overcollateralization.
Letters of Credit, Credit or Liquidity Facilities. If so specified in the
related prospectus supplement, deficiencies in amounts otherwise payable on the
notes or certain series of notes will be covered by one or more letters of
credit or by a credit or liquidity facility. The bank or financial institution
issuing the letter of credit or party to the credit or liquidity facility will
be identified in the related prospectus supplement. Under a letter of credit,
credit or liquidity facility the issuer will be obligated to honor draws in an
aggregate fixed dollar amount generally equal to a percentage specified in the
related prospectus supplement of the principal balance of the student loans on a
specified date or of the initial aggregate principal balance of one or more
classes of notes. If so specified in the related prospectus supplement, the
letter of credit, credit or liquidity facility may permit draws only in the
event of certain types of losses and shortfalls. The amount available under the
letter of credit, credit or liquidity facility will, in all cases, be reduced to
the extent of the unreimbursed payments under the letter of credit, credit or
liquidity facility and may otherwise be reduced as described in the related
prospectus supplement. The obligations of the issuer of the letter of credit,
credit or liquidity facility will expire at the earlier of the date specified in
the related prospectus supplement or the termination of the trust estate.
Cash Capitalization or Cash Collateral Account. If so specified in the
related prospectus supplement, the indenture administrator will establish and
maintain a cash capitalization or cash collateral account for one or more series
of notes issued by the trust. The purpose of the cash capitalization and cash
collateral account is to assure the
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availability of funds to pay interest on the notes. The cash capitalization
account or the cash collateral account may (i) be funded initially with cash or
(ii) may be used to retain some or all of the collections on the collateral
until such funds can be invested in other eligible student loans or paid to
investors. The related prospectus supplement will describe the circumstances and
manner in which distributions may be made out of the cash capitalization account
or cash collateral account.
Pool Insurance Policies. If specified in the related prospectus supplement,
a pool insurance policy for the trust student loans may be obtained. The pool
insurance policy will cover any loss (subject to the limitations described in
the prospectus supplement) by reason of default to the extent a related trust
student loan is not covered by any guarantee agency or guarantor. The amount and
principal terms of any pool insurance coverage will be set forth in the
prospectus supplement. All required disclosure regarding the provider of such
policy will be presented in the related prospectus supplement.
Financial Insurance and Surety Bonds. If so specified in the related
prospectus supplement, deficiencies in amounts otherwise payable on one or more
series of notes issued by the trust will be covered by insurance policies or
surety bonds provided by one or more insurance companies or sureties. The
insurance policies or surety bonds may cover timely distributions of interest
and full distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the related
prospectus supplement.
Repurchase Bonds. If specified in the prospectus supplement, the depositor
or servicer will be obligated to repurchase any trust student loan (up to an
aggregate dollar amount specified in the prospectus supplement) for which
insurance coverage is denied due to dishonesty, misrepresentation or fraud in
connection with the origination or sale of the trust student loan. This
obligation may be secured by a surety bond guaranteeing payment of the amount to
be paid by the depositor or the servicer.
Derivative Products. If so provided in the related prospectus supplement, a
trust may enter into interest rate swap agreements consisting of interest rate
swaps, rate caps and rate ceilings to help minimize the risk of adverse changes
in interest rates, and other yield supplement agreements or similar yield
maintenance arrangements. If a trust issues notes denominated in one currency
which are backed by assets denominated in one or more other currencies, it may
enter into currency swaps, currency forwards and currency options to help
minimize the risk of adverse changes in the relevant exchange rates.
A derivative product constituting an interest rate swap is an agreement
between two parties to exchange a stream of payments on an agreed upon actual or
hypothetical "notional" principal amount. No principal amount is exchanged
between the parties to an interest rate swap. Typically, one party agrees to
make payments based on a fixed interest rate and an actual or notional principal
amount, while the other party agrees to make payments based on a floating
interest rate and the same actual or notional principal amount. The floating
rate is based on one or more reference interest rates, including the London
Interbank Offered Rate, or LIBOR, a specified bank's prime rate or U.S. Treasury
Bill rates. Interest rate swaps also permit two parties to exchange a floating
rate obligation based on one reference interest rate - such as LIBOR - for a
floating rate obligation based on another referenced interest rate - such as
U.S. Treasury Bill rates. Generally, the parties to an interest rate swap net
out their payment obligations so that on any given payment date only one party
is making a payment.
Derivative products constituting interest rate caps, yield supplement
agreements and yield maintenance arrangements typically involve a trust making
an initial payment to a party, which party agrees to make future payments to the
trust if interest rates exceed a specified amount or other events occur that are
specified in a prospectus supplement. A trust also may sell an interest rate cap
to a party from which the trust has simultaneously purchased an interest rate
cap. The interest rate cap sold by the trust will require the trust to make
payments to the other party if interest rates exceed a specified amount that is
higher than the amount specified in the rate cap purchased by the trust. Since
the payment obligations under the two caps would be netted, the effect of the
caps is to limit the other party's exposure to the interest rate differential
between the amounts specified in the caps. Interest rate ceilings may be entered
into in connection with an interest rate swap, and would result in one party to
the swap limiting the maximum interest rate it would be required to pay, either
over the life of the swap or for a specified period of time. In exchange for
limiting its exposure, the relevant party may be required to make an initial
cash payment to the other party.
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Currency swaps are similar to interest rate swaps, but the payments owed by
the parties are referenced to the exchange rate between designated currencies
rather than interest rates. In a currency forward contract, the trust typically
would agree to deliver a specified amount of one currency to a party on a future
date in exchange for delivery by such party of a specified amount of a second
currency. In a typical currency option, if the exchange rate between two
designated currencies reaches a specified level by a certain date, the trust
will have the right, but not the obligation, to require the other party to
deliver a specified quantity of one of the designated currencies on such date in
exchange for a specified quantity of the other designated currency. The trust
would make an initial payment to the other party for this right.
A trust's obligation to make payments under a derivative product may be
secured by a pledge of and lien on the trust estate. A trust will not enter into
a derivative product after the closing date unless the indenture trustee and the
indenture administrator have received a confirmation from each rating agency
providing a rating for the trust's notes that the derivative product will not
adversely affect the rating on any of the notes. The related prospectus
supplement will describe the terms of any derivatives to be entered into by the
trust.
Interest Rate Protection Agreements. If so provided in the related
prospectus supplement, a trust may enter into interest rate protection
agreements which, similar to swaps, are designed to help minimize the risk of
adverse changes in interest rates on the performance of the trust assets. An
interest rate protection agreement is a privately negotiated contract in a form
other than the traditional forms used for swaps. The terms and conditions of any
interest rate protection agreement will be described in the related prospectus
supplement.
Book-Entry Registration
Investors in notes in book-entry form may, directly or indirectly, hold
their notes through DTC in the U.S. or, if so provided in the related prospectus
supplement, through Clearstream Banking, societe anonyme (known as Clearstream),
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. 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 notes, and for information on tax documentation
procedures relating to the notes, 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
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"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.
Noteholders 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. Noteholders will receive all distributions of principal and
interest from the indenture trustee, the indenture administrator or the eligible
lender trustee, as applicable, through participants and indirect participants.
Under a book-entry format, noteholders 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 noteholders. Noteholders will not be recognized
by the applicable trustee as noteholders under the indenture or trust agreement,
as applicable, and noteholders will be permitted to exercise the rights of
noteholders 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 noteholders have accounts with
respect to the notes are likewise required to make book-entry transfers and
receive and transmit payments of principal and interest on the notes on behalf
of their customers. Accordingly, although noteholders will not possess notes,
the DTC rules provide a mechanism by which participants will receive payments
and will be able to transfer their interests.
Because DTC can only act on behalf of participants, which in turn act on
behalf of indirect participants, the ability of a noteholder to pledge notes to
persons or entities that do not participate in the DTC system, or to otherwise
act with respect to the notes, may be limited since noteholders will not possess
physical certificates for their notes.
DTC has advised us that it will take any action that a noteholder is
permitted to take under the indenture or trust agreement, only at the direction
of one or more Participants to whose DTC accounts the notes 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 notes 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
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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 notes 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 "Certain U.S. Federal Income Tax Considerations" in this
prospectus. Clearstream or the Euroclear operator, as the case may be, will take
any other action permitted to be taken by a noteholder under the agreement on
behalf of a Clearstream participant or Euroclear participant only in accordance
with its relevant rules and procedures and subject to its depositary's ability
to effect these actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to these procedures to
facilitate transfers of notes 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.
Reset Rate Notes
Form and Denomination. Interests in the reset rate notes will be represented
by one or more of the following types of global notes:
o for reset rate notes denominated in U.S. Dollars, a global note
certificate held through DTC (each, a "U.S. global note certificate");
or
o for reset rate notes denominated in a non-U.S. Dollar currency, a global
note certificate held through a European clearing system (each, a
"non-U.S. global note certificate").
On or about the closing date for the issuance of any class of reset rate
notes, the administrator on behalf of the trust will deposit:
o a U.S. global note certificate for each class of reset rate notes with
the applicable DTC custodian, registered in the name of Cede & Co., as
nominee of DTC; and
o one or more corresponding non-U.S. global note certificates with respect
to each class of reset rate notes with the applicable foreign custodian,
as common depositary for Euroclear and Clearstream, registered in the
name of a nominee selected by the common depositary for Euroclear and
Clearstream.
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On each reset date, the aggregate outstanding principal balance of that
class of reset rate notes will be allocated to one of the three global note
certificates, either of which may, as of that reset date, be reduced to zero or
represent 100% of the aggregate outstanding principal balance of that class of
reset rate notes, depending on whether that class of reset rate notes is in U.S.
Dollars (in which case a U.S. global note certificate is used) or in a currency
other than U.S. Dollars (in which case a non-U.S. global note certificate is
used).
At all times the global note certificates will represent the outstanding
principal balance, in the aggregate, of the related class of reset rate notes.
At all times, with respect to each class of reset rate notes, there will be only
one U.S. and one non-U.S. global note certificate for such reset rate notes.
Investors may hold their interests in a class of reset rate notes
represented by a U.S. global note certificate only (1) directly through DTC
participants, or (2) indirectly through organizations which are participants in
the European clearing systems which themselves hold positions in such U.S.
global note certificate through DTC. DTC will record electronically the
outstanding principal balance of each class of reset rate notes represented by a
U.S. global note certificate held within its system. DTC will hold interests in
a U.S. global note certificate on behalf of its account holders through
customers' securities accounts in DTC's name on the books of its depositary.
Investors may hold their interests in a class of reset rate notes
represented by a non-U.S. global note certificate only (1) directly through the
European clearing systems, or (2) indirectly through organizations which
themselves are participants in the European clearing systems. The European
clearing systems will record electronically the outstanding principal balance of
each class of reset rate notes represented by a non-U.S. global note certificate
held within their respective systems. The European clearing systems will hold
interests in the non-U.S. global note certificate on behalf of their account
holders through customers' securities accounts in the European clearing systems'
respective names on the books of their respective depositaries.
Interests in the global note certificates will be shown on, and transfers
thereof will be effected only through, records maintained by DTC, Euroclear and
Clearstream as applicable, and their respective direct and indirect
participants.
Because of time zone differences, payments to reset rate noteholders that
hold their positions through a European clearing system will be made on the
business day following the applicable distribution date, or for notes
denominated in a currency other than U.S. Dollars, on the special reset payment
date as described in this prospectus, as the case may be, in accordance with
customary practices of the European clearing systems. No payment delay to reset
rate noteholders holding U.S. Dollar denominated reset rate notes clearing
through DTC will occur on any distribution date or on any reset date, unless, as
set forth above, those noteholders' interests are held indirectly through
participants in European clearing systems.
The reset rate notes will be issued in minimum denominations and additional
increments set forth in the related prospectus supplement, and may be held and
transferred, and will be offered and sold, in principal balances of not less
than their applicable minimum denomination set forth in the related prospectus
supplement. The applicable minimum denominations and additional increments can
be reset only in circumstances where all holders are deemed to have tendered or
have mandatorily tendered their notes. With respect to reset rate notes
denominated in a non-U.S. Dollar currency, the administrator will notify the
Irish Stock Exchange of the applicable exchange rate and denominations for each
class of reset rate notes.
On each related reset date, a schedule setting forth the required terms of
the related class of reset rate notes for the immediately following reset period
will be deposited with the DTC custodian for any U.S. global note certificate
and with the foreign custodian for any non-U.S. global note certificate.
Identification Numbers. Each related trust will apply to DTC for acceptance
in its book-entry settlement systems of each class of reset rate notes
denominated in U.S. Dollars and/ or will apply to Euroclear and Clearstream for
acceptance in their respective book-entry settlement systems of each class or
reset rate notes denominated in a currency other than U.S. Dollars. Each class
of reset rate notes will have the CUSIP numbers, ISINs and European Common
Codes, as applicable, set forth in the related prospectus supplement.
On or following each reset date (other than a reset date on which the
then-current holders of U.S. Dollar denominated reset rate notes had the option
to retain their reset rate notes, but less than 100% of such noteholders
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delivered hold notices), on which either a successful remarketing has occurred
or the related call option has been exercised (and not previously exercised on
the immediately preceding related reset date), each clearing system will cancel
the then-current identification numbers and assign new identification numbers,
which the administrator will obtain for each class of reset rate notes. In
addition, each global note certificate will be issued with a schedule attached
setting forth the terms of the applicable class of reset rate notes for its
initial reset period, which will be replaced on the related reset date to set
forth the required terms for the immediately following reset period.
Payments of principal, interest and any other amounts payable under each
global note certificate will be made to or to the order of the relevant clearing
system's nominee as the registered holder of such global note certificate.
Due to time zone differences and to ensure that a failed remarketing has not
occurred, during any reset period when a class of reset rate notes is
denominated in a currency other than U.S. Dollars payments required to be made
to tendering noteholders on a related reset date for which there has been a
successful remarketing (or exercise of the related call option), in the amount
of the aggregate outstanding principal balance of the applicable class of reset
rate notes (together with all amounts due from the trust as payments of interest
and principal, if any, on the related distribution date), will be made through
the European clearing systems on the second business day following the related
reset date, together with additional interest at the applicable interest rate
and in the applicable non-U.S. Dollar currency from and including the related
reset date to, but excluding, the second business day following such reset date
(but only to the extent such interest payments are actually received from the
related swap counterparties). Purchasers of such reset rate notes will be
credited with their positions on the applicable reset date with respect to
positions held through DTC or on the second business day with respect to
positions held through the European clearing systems.
Except with respect to a related reset date, the trust expects that the
nominees, upon receipt of any such payment, will immediately credit the relevant
clearing system's participants' accounts with payments in amounts proportionate
to their respective interests in the principal balance of the relevant global
note certificates as shown on the records of such nominee. The trust also
expects that payments by clearing system participants to owners of interests in
such global note certificates held through such clearing system participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
clearing system participants and none of the trust, the administrator, any
registrar, the indenture trustee, the indenture administrator, any remarketing
agent, any transfer agent or any paying agent will have any responsibility or
liability for any delay in such payments from participants, except as shown
above with respect to reset date payment delays. None of the trust, the
administrator, any registrar, the indenture trustee, the indenture
administrator, any remarketing agent, any transfer agent or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of ownership interests in the global note
certificates or for maintaining, supervising or reviewing any records relating
to such ownership interests.
Non-U.S. Dollar Denominated Notes
We expect to deliver notes denominated in non-U.S. Dollar currencies in
book-entry form through the facilities of Clearstream and Euroclear against
payment in immediately available funds in the applicable foreign currency. We
will issue the non-U.S. Dollar denominated notes as one or more global notes
registered in the name of a common depositary for Clearstream, and Euroclear
Bank S.A./N.V., as the operator of Euroclear. Investors may hold book-entry
interests in these global notes through organizations that participate, directly
or indirectly, in Clearstream and/or Euroclear. Book-entry interests in non-U.S.
Dollar denominated notes and all transfers relating to such non-U.S. Dollar
denominated notes will be reflected in the book-entry records of Clearstream and
Euroclear.
The distribution of non-U.S. Dollar denominated notes will be cleared
through Clearstream and Euroclear. Any secondary market trading of book-entry
interests in the non-U.S. Dollar denominated notes will take place through
participants in Clearstream and Euroclear and will settle in same-day funds.
Owners of book-entry interests in non-U.S. Dollar denominated notes will
receive payments relating to their notes in the related non-U.S. Dollar
currency. Clearstream and Euroclear have established electronic securities and
payment transfer, processing, depositary and custodial links among themselves
and others, either directly or through custodians and depositaries. These links
allow securities to be issued, held and transferred among the clearing
88
systems without the physical transfer of certificates. Special procedures to
facilitate clearance and settlement have been established among these clearing
systems to trade securities across borders in the secondary market.
The policies of Clearstream and Euroclear will govern payments, transfers,
exchange and other matters relating to the investor's interest in securities
held by them. Neither we nor the underwriters have any responsibility for any
aspect of the records kept by Clearstream or Euroclear or any of their direct or
indirect participants. We do not supervise these systems in any way.
Clearstream and Euroclear and their participants perform these clearance and
settlement functions under agreements they have made with one another or with
their customers. You should be aware that they are not obligated to perform or
continue to perform these procedures and may modify them or discontinue them at
any time.
Except as provided below, owners of beneficial interests in non-U.S. Dollar
denominated notes will not be entitled to have the notes registered in their
names, will not receive or be entitled to receive physical delivery of the notes
in definitive form and will not be considered the owners or holders of the notes
under the indenture governing the notes, including for purposes of receiving any
reports delivered by us or the administrator pursuant to the indenture.
Accordingly, each person owning a beneficial interest in a non-U.S. Dollar
denominated note must rely on the procedures of the relevant clearing system
and, if that person is not a participant, on the procedures of the participant
through which that person owns its interest, in order to exercise any rights of
a holder of securities.
We understand that investors that hold their non-U.S. Dollar denominated
notes through Clearstream or Euroclear accounts will follow the settlement
procedures that are applicable to eurobonds in registered form. Non-U.S. Dollar
denominated notes will be credited to the securities custody accounts of
Clearstream and Euroclear participants on the business day following the
settlement date for value on the settlement date. They will be credited either
free of payment or against payment for value on the settlement date.
We understand that secondary market trading between Clearstream and/or
Euroclear participants will occur in the ordinary way following the applicable
rules and operating procedures of Clearstream and Euroclear. Secondary market
trading will be settled using procedures applicable to eurobonds in registered
form.
You should be aware that investors will only be able to make and receive
deliveries, payments and other communications involving non-U.S. Dollar
denominated notes through Clearstream and Euroclear on business days in
Luxembourg or Brussels, depending on whether Clearstream or Euroclear is used.
Those systems may not be open for business on days when banks, brokers and other
institutions are open for business in the United States.
Clearstream and Euroclear will credit payments to the cash accounts of their
respective participants in accordance with the relevant system's rules and
procedures, to the extent received by the common depositary. Clearstream or the
Euroclear operator, as the case may be, will take any other action permitted to
be taken by a holder under the indenture on behalf of a Clearstream or Euroclear
participant only in accordance with its relevant rules and procedures.
Clearstream and Euroclear have agreed to the foregoing procedures in order
to facilitate transfers of non-U.S. Dollar denominated notes among participants
of Clearstream and Euroclear. However, they are under no obligation to perform
or continue to perform those procedures, and they may discontinue those
procedures at any time.
Definitive Notes
The notes of a given series will be issued in fully registered, certificated
form to noteholders 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 notes 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, advise the trustee through DTC in writing
that
89
the continuation of a book-entry system through DTC or a successor is no
longer in the best interest of the holders of these notes.
Upon the occurrence of any event described in the bullets above, the
applicable trustee will be required to notify all applicable noteholders,
through DTC participants, of the availability of definitive notes. When DTC
surrenders the definitive notes, the applicable trustee will reissue to the
noteholders the corresponding notes as definitive notes upon receipt of
instructions for re-registration. From then on, payments of principal and
interest on the definitive notes 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 notes in whose names the
definitive notes 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 note will be made only upon
presentation and surrender of that definitive note at the office or agency
specified in the notice of final distribution.
Definitive notes 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 notes. 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 Noteholders
Three or more noteholders of any series or one or more holders of notes of
that series evidencing no less than 25% of the outstanding balance of notes may,
by written request to the indenture trustee obtain access to the list of all
noteholders for the purpose of communicating with other noteholders regarding
their rights under the indenture or under the notes.
Reports to Noteholders
On each distribution date, the administrator will provide to noteholders 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, the indenture administrator and the trust described under
"Servicing and Administration--Statements to Indenture Trustee, Indenture
Administrator and Issuing Entity" in this prospectus. These statements and
reports will be included with filings to be made with the SEC in accordance with
the Securities Exchange Act and the rules promulgated thereunder. The statements
provided to noteholders 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 noteholder and who received a payment from that
trust, a statement containing certain information to enable it to prepare its
federal income tax return. See "Certain U.S. Federal Income Tax Considerations"
in this prospectus.
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CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
Transfer of Student Loans
Each seller 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 or
issuing entity, as applicable, 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 a seller to the depositor, or the transfer of those loans by us
to the eligible lender trustee or issuing entity, as applicable, is deemed to be
an assignment of collateral as security, then a security interest in those
student loans may be perfected under the provisions of the Higher Education Act,
by either taking possession of the promissory note or a copy of the master
promissory note evidencing the loan or 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
each seller, as debtor, will be filed under the UCC to protect the
interest of the depositor in the event that the transfer by that seller
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 trust or the eligible lender trustee, as
applicable 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
trustee's or eligible lender trustee's, as the case may be, interest. A tax or
other government lien on property of the seller 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 issuing entity or the eligible lender trustee,
as applicable, in the student loan. Under the purchase agreement and sale
agreement, however, each seller or the depositor, as applicable, will warrant
that it has transferred the student loans to the depositor or the issuing entity
or the eligible lender trustee, as applicable, free and clear of the lien of any
third party. In addition, each seller 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
issuing entity or the eligible lender trustee, as applicable. The administrator
will be required to maintain the perfected security interest status by filing
all requisite continuation statements.
Under the servicing agreement, the servicer as custodian will have custody
of the promissory notes evidencing the student loans. Although the records of
each seller, the depositor and the servicer will be marked to indicate the sale
and although, each seller 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 issuing entity or the eligible
lender trustee, as applicable. 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 or issuing entity's interest, as
the case may be,
then that purchaser might acquire an interest in the FFELP student loans
superior to the interest of the depositor and the issuing entity or the eligible
lender trustee, if applicable.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, some state laws impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose specific
statutory liabilities upon lenders who fail to comply with their provisions. The
requirements generally do not apply to federally sponsored student loans. The
depositor or a trust,
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however, may be liable for violations of consumer protection laws that apply to
the student loans, either as assignee from a seller 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 Agreements--Sale of Student Loans to the Issuing Entity;
Representations and Warranties of the Depositor" and "Servicing and
Administration--Servicer Covenants" in this prospectus.
Loan Origination and Servicing Procedures Applicable to Student Loans
FFELP 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
FFELP student loans could result in adverse consequences. Any failure could
result in the U.S. 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.
Private Credit Student Loans. If the private credit loans on any trust are
insured, the surety bond, including the rules and regulations for that program,
imposes specific requirements and procedures for originating and servicing those
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.
See "The Student Loan Corporation, The Depositor, The Sub-servicer and The
Sub-administrator - The Sponsor, Primary Seller, Servicer and Administrator,"
"Student Loan Corporation's Student Loan Financing Business" and "Servicing and
Administration - Servicing Procedures."
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.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
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. For purposes of this summary, a "U.S. Holder" is a beneficial owner of a
note that is:
o an individual who is a citizen or a resident of the United States, for
U.S. federal income tax purposes;
o 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);
o an estate whose income is subject to U.S. federal income taxation
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.
For purposes of this summary, a "Non-U.S. Holder" is a beneficial owner of a
note that is:
o a nonresident alien individual for U.S. federal income tax purposes;
o a foreign corporation for U.S. federal income tax purposes;
o an estate whose income is not subject to U.S. federal income tax on a
net income basis; or
o a trust if no court within the United States is able to exercise primary
jurisdiction over its administration or if no United States persons have
the authority to control all of its substantial decisions.
An individual may, subject to certain exceptions, be deemed to be a resident
of the United States by reason of being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year (counting for
such purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year).
This summary is based on interpretations of the Internal Revenue Code of
1986, as amended (the "Code"), regulations issued thereunder, and rulings and
decisions currently in effect (or in some cases proposed), all of which are
subject to change. Any such change may be applied retroactively and may
adversely affect the federal income tax consequences described herein. This
summary addresses only U.S. Holders that purchase notes at initial issuance and
beneficially own such notes as capital assets and not as part of a "straddle,"
"hedge," "synthetic security" or a "conversion transaction" for federal income
tax purposes, or as part of some other integrated investment. This summary does
not discuss all of the tax consequences that may be relevant to particular
investors or to investors subject to special treatment under the federal income
tax laws (such as banks, thrifts, or other financial institutions; insurance
companies; securities dealers or brokers, or traders in securities electing
mark-to-market treatment; mutual funds or real estate investment trusts; small
business investment companies; S corporations; investors that hold their notes
through a partnership or other entity treated as a partnership for U.S. federal
tax purposes; investors whose functional currency is not the U.S. dollar;
certain former citizens or residents of the United States; persons subject to
the alternative minimum tax; retirement plans or persons holding the notes in
tax-deferred or tax-advantaged accounts; or "controlled foreign corporations" or
a "passive foreign investment companies" for U.S. federal income tax purposes).
This summary also does not address the tax consequences to shareholders, or
other equity holders in, or beneficiaries of, a holder, or any state, local or
foreign tax consequences of the purchase, ownership or disposition of the notes.
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF NOTES AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER TAXING JURISDICTION TO WHICH THEY MAY BE SUBJECT.
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Tax Characterization of the Trust
In the opinion of federal tax counsel, the trust, which issues one or more
classes of notes 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, unless otherwise provided in a related prospectus
supplement, in the opinion of federal tax counsel, the notes will be treated as
indebtedness for U.S. federal income tax purposes. However, because no specific
authority exists with respect to the characterization for U.S. federal income
tax purposes of notes having terms substantially similar to the notes, the
Internal Revenue Service (the "IRS") could assert, and a court could ultimately
hold, that the notes constitute equity in the trust for U.S. federal income tax
purposes. If the notes are treated as equity in, rather than debt of, the trust
for U.S. federal tax purposes, the trust could be treated as a publicly traded
partnership that would be taxable as a corporation. In this case, the trust
would be subject to U.S. federal income taxes at corporate tax rates on its
taxable income generated by student loans. An entity-level tax could result in
reduced distributions to noteholders.
Furthermore, even if the trust is not taxable as a corporation, the
treatment of notes as equity interests in a partnership could have adverse tax
consequences to noteholders. For example, income from classes of notes to
tax-exempt entities (including pension funds) might be "unrelated business
taxable income," individual U.S. Holders might be subject to limitations on
their ability to deduct their share of trust expenses, and U.S. Holders would be
required to report income from the trust for each of their own taxable years in
which the taxable year of the trust ends. In addition, a U.S. Holder that is a
cash basis taxpayer would be required to report income with respect to the trust
when it accrues, rather than under the cash method of accounting.
The trust's characterization of the notes as indebtedness for U.S. federal
income tax purposes will be binding on U.S. Holders. Except as otherwise
indicated, the balance of this summary assumes that the notes are treated as
indebtedness for U.S. federal, state and local income and franchise tax
purposes.
Stated Interest. Except as otherwise provided in a related prospectus
supplement, stated interest on the notes will be taxable to a U.S. Holder as
ordinary interest income as the interest accrues or is paid (in accordance with
the U.S. Holder's method of tax accounting).
Original Issue Discount. If so provided in a related prospectus supplement,
a note may be issued with original issue discount. A debt instrument has
original issue discount to the extent its "stated redemption price at maturity"
exceeds its "issue price" (each as defined below) by more than a de minimis
amount (generally 0.25% of the note's stated redemption price at maturity
multiplied by the number of years to its maturity, based on the anticipated
weighted average life of the notes and weighing each payment by reference to the
number of full years elapsed from the closing date to the anticipated date of
such payment). A note's "stated redemption price at maturity" includes all
payments thereon other than payments of "qualified stated interest," and its
"remaining stated redemption price at maturity" at any time is the sum of all
future payments to be made thereon other than payments of "qualified stated
interest." Except as otherwise provided in a related prospectus supplement, all
stated interest on the notes will be treated as qualified stated interest. The
term "issue price" generally means the first price (excluding any pre-issuance
accrued interest) at which a substantial portion of such debt instruments is
sold to investors other than placement agents, underwriters, brokers, or
wholesalers.
94
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.
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.
Auction Rate Notes and Reset Rate Notes. Unless otherwise provided in a
related prospectus supplement, we intend to treat all stated interest on auction
rate notes and reset rate notes as described above under "--Stated Interest." In
addition, solely for purposes of determining OID, we intend to treat auction
rate notes and reset rate
95
notes as maturing on each auction date or reset date, as applicable, for an
amount equal to the face amount of the notes as determined pursuant to the
auction or reset procedure, and reissued on the same date for the same amount.
However, there are uncertainties regarding the U.S. federal income tax treatment
of auction rate notes and reset rate notes, and other treatments are possible.
In this case, the timing and character of U.S. Holders' income, gain, loss, and
deduction in respect of such notes could differ from the treatment described
above. For example, it is possible that the auction or reset procedures could be
treated as modifications of the notes for U.S. federal income tax purposes that
cause the notes to be treated as retired and exchanged for new notes on the
auction or reset dates. In this case, a U.S. Holder that retains a note over an
auction date or reset date may be treated as having sold the note for its fair
market value on such date, and may be required to recognize taxable gain, even
though the U.S. Holder did not receive any proceeds. See generally "--Sale,
Exchange, and Retirement of Notes." Alternatively, the notes may be treated as
contingent payment debt instruments for U.S. federal income tax purposes
("CPDI"). In this case, a U.S. Holder would be required to include in income in
each year an amount equal to the "comparable yield" of the notes, which is
generally equal to the yield at which we would issue a noncontingent debt
instrument with terms and conditions similar to the notes, subject to certain
adjustments for the actual payments on the notes. Furthermore, any gain realized
on the maturity date or upon an earlier sale or exchange of the notes would
generally be treated as ordinary income, and all or a portion of any loss
realized on the maturity date or upon a sale or other disposition of the Notes
may be treated as capital loss. Other treatments are possible. U.S. Holders
should consult their tax advisors as to the U.S. federal income tax consequences
to them of auction notes or reset notes, including possible alternative
treatments.
Non-U.S. Dollar Denominated Notes. The following summary applies to
"Non-U.S. Dollar Denominated Notes." This summary does not apply to Non-U.S.
Dollar Denominated Notes that are denominated in or indexed to a currency that
is considered "hyperinflationary," are CPDIs or are dual currency notes. Special
U.S. federal income tax considerations applicable to Non-U.S. Dollar Denominated
Notes that are denominated in or indexed to a hyperinflationary currency, are
CPDIs, or are dual currency notes will be discussed in the related prospectus
supplement.
The conversion of U.S. dollars into a foreign currency and the immediate use
of that currency to purchase a Non-U.S. Dollar Denominated Note generally will
not result in a taxable gain or loss for a U.S. Holder.
In general, a U.S. Holder that uses the cash method of accounting and holds
a Non-U.S. Dollar Denominated Note will be required to include in income the
U.S. dollar value of the interest income received, even if the payment is not
received in U.S. dollars or converted into U.S. dollars. The U.S. dollar value
of the interest received is the amount of foreign currency interest received,
translated into U.S. dollars at the spot rate on the date received. The U.S.
Holder will not have exchange gain or loss on the interest payment itself, but
may have exchange gain or loss when it disposes of any foreign currency
received.
A U.S. Holder that uses the accrual method of accounting is generally
required to include in income the U.S. dollar value of interest accrued during
the accrual period. Accrual basis U.S. Holders may elect to determine the U.S.
dollar value of accrued interest in accordance with either of two methods. Under
the first method, the U.S. dollar value of accrued interest is translated at the
average rate for the interest accrual period (or, with respect to an accrual
period that spans two taxable years, the partial period within the taxable
year). For this purpose, the average rate is the simple average of spot rates of
exchange for each business day of such period, or other average exchange rate
for the period reasonably derived and consistently applied by the U.S. Holder.
Under the second method, the U.S. dollar value of accrued interest is translated
at the spot rate on the last day of the interest accrual period (in the case of
a partial accrual period, the last day of the taxable year) or, if the last day
of an interest accrual period is within five business days of the receipt, the
spot rate on the date of receipt. The election will apply to all debt
instruments held by the U.S. Holder and is irrevocable without the consent of
the IRS. An accrual method U.S. Holder will recognize foreign currency gain or
loss, as the case may be, on the receipt of a foreign currency interest payment
in an amount equal to the difference between the U.S. dollar value of the
foreign currency received, translated at the spot rate on the date received, and
the U.S. dollar value of the accrual. The foreign currency gain or loss will
generally be treated as U.S. source ordinary income or loss.
A U.S. Holder accrues OID on a Non-U.S. Dollar Denominated Note in the same
manner that an accrual basis U.S. Holder accrues stated interest on a Non-U.S.
Dollar Denominated Note, as described in the preceding paragraph. A U.S. Holder
will recognize foreign currency gain or loss, as the case may be, on the receipt
of amounts representing accrued OID, in an amount equal to the difference
between the U.S. dollar value of the foreign
96
currency received, translated at the spot rate on the date received, and the
U.S. dollar value of the accrual. The foreign currency gain or loss will
generally be treated as U.S. source ordinary income or loss.
A U.S. Holder that does not accrue market discount currently should compute
the amount of market discount in the foreign currency and translate that amount
into U.S. dollars at the spot rate on the date the Non-U.S. Dollar Denominated
Note is retired or otherwise disposed of. A U.S. Holder that accrues market
discount currently is generally required to include in income the U.S. dollar
value of the market discount, translated at the average exchange rate in effect
during the accrual period. A U.S. Holder will recognize foreign currency
exchange gain or loss, as the case may be, with respect to market discount on
the date of the retirement or disposition of the Non-U.S. Dollar Denominated
Note in an amount equal to the difference between the U.S. dollar value of the
accrued market discount, translated at the spot rate on the date of the
retirement or disposition of the Non-U.S. Dollar Denominated Note and the U.S.
dollar amount of the accrual. The foreign currency gain or loss will generally
be treated as U.S. source ordinary income or loss.
Amortizable bond premium on a Non-U.S. Dollar Denominated Note is determined
in the foreign currency and, if the U.S. Holder elects, reduces interest income
in the foreign currency. At the time the amortized bond premium offsets interest
income (i.e., the last day of the tax year in which the election is made and the
last day of each subsequent tax year), a U.S. Holder will recognize exchange
gain or loss, as the case may be, with respect to amortized bond premium in an
amount equal to the difference between the spot rate of the amortizable bond
premium at such time and the U.S. dollar value of the amortizable bond premium,
translated at the spot rate on the date the Non-U.S. Dollar Denominated Note was
acquired or deemed acquired. The foreign currency gain or loss will generally be
treated as U.S. source ordinary income or loss.
A U.S. Holder will recognize foreign currency gain or loss, as the case may
be, on the receipt of principal, equal to the difference between the U.S. dollar
value of the foreign currency principal amount, translated at the spot rate on
the date received or the date of disposition, and the U.S. dollar value of the
foreign currency principal amount, translated at the spot rate on the date the
Non-U.S. Dollar Denominated Note was acquired, or deemed acquired. The foreign
currency gain or loss will generally be treated as U.S. source ordinary income
or loss.
Exchange gain or loss computed on accrued interest, OID, market discount and
principal is realized only to the extent of total gain or loss on the
transaction. Amounts received upon the sale, exchange, retirement or other
disposition of a Non-U.S. Dollar Denominated Note will be treated first, as the
payment of accrued but unpaid interest (on which exchange gain or loss is
recognized as described above); second, accrued but unpaid OID (on which
exchange gain or loss is recognized as described above); and, finally,
principal.
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 noteholders to
waive an event of default or rescind an acceleration of the notes 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 notes, could be
treated for federal income tax purposes as a constructive exchange by a holder
of the notes for new notes, upon which gain or loss might be recognized.
97
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.
Tax Treatment of Non-U.S. Holders
Treatment of Interest. A Non-U.S. Holder that is not subject to U.S. federal
income tax as a result of any direct or indirect connection to the United States
other than its ownership of a note, should not be subject to U.S. federal income
or withholding tax in respect of the notes so long as (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 United States person, (2) the Non-U.S. Holder is not a
bank that has purchased the notes in the ordinary course of its trade or
business of making loans, as described in section 881(c)(3)(A) of the Code, (3)
the Non-U.S. Holder is not a "10-percent shareholder" within the meaning of
section 871(h)(3)(B) of the Code or a "related controlled foreign corporation"
within the meaning of section 881(c)(3)(C) of the Code with respect to any
trust, and (4) interest payable on the notes is not determined by reference to
any receipts, sales or other cash flow, income or profits, change in the value
of any property of, or any dividend or similar payment made by the trust or a
person related to the trust, within the meaning of section 871(h)(4)(A) of the
Code.
To the extent these conditions are not met, a 30% withholding tax may apply
to payments on the notes, unless an income tax treaty reduces or eliminates such
tax or the income 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 should be subject to United States federal income tax with
respect to all income from the notes at regular rates applicable to U.S.
taxpayers. If such Non-U.S. Holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments.
Treatment of Disposition of Notes. In general, the gain realized on the
sale, exchange or retirement of the notes by a Non-U.S. Holder should not be
subject to U.S. federal income tax with respect to the notes. However, if the
amount realized upon the sale, exchange or settlement of a note is effectively
connected with a trade or business conducted by the Non-U.S. Holder in the
United States, the Non-U.S. Holder will generally be subject to U.S. federal
income tax on any income or gain in respect of the note at the regular rates
applicable to U.S. taxpayers, and, for a foreign corporation, possibly branch
profits tax, unless an applicable treaty reduces or eliminates such tax.
Additionally, if the Non-U.S. Holder is an individual that is present in the
United States for 183 days or more in the year the gain is recognized and
certain other conditions are satisfied, the Non-U.S. Holder generally will be
subject to tax at a rate of 30% on the amount by which the gains derived from
the sale, exchange or settlement that are from U.S. sources exceed capital
losses allocable to U.S. sources.
U.S. Federal Estate Tax Treatment of Non-U.S. Holders
The Notes may be subject to U.S. federal estate tax if an individual
Non-U.S. Holder holds the Notes at the time of his or her death. Individual
Non-U.S. Holders should consult their tax advisors regarding the U.S. federal
estate tax consequences of holding the Notes at death.
Information Reporting and Backup Withholding
Distributions made on the notes and proceeds from the sale of notes to or
through certain brokers may be subject to a "backup" withholding tax on
"reportable payments" unless, in general, the noteholder complies with certain
procedures or is an exempt recipient. Any amounts so withheld from distributions
on the notes generally would be refunded by the IRS or allowed as a credit
against the noteholder's federal income tax, provided the noteholder makes a
timely filing of an appropriate tax return or refund claim.
Reports will be made to the IRS and to noteholders that are not excepted
from the reporting requirements.
98
State, Local And Foreign Taxes
The above discussion does not address the tax treatment of the related
trust, the notes, or the holders of the notes of any series under any state or
local tax laws. The activities of the servicer in servicing and collecting the
trust student loans will take place at each of the locations at which the
servicer's operations are conducted and, therefore, different tax regimes apply
to the trust and the holders of the notes. Prospective investors are urged to
consult with their own tax advisors regarding the state and local tax treatment
of the trust as well as any state and local tax consequences to them of
purchasing, owning and disposing of the notes.
The above discussion is only a summary of the U.S. federal tax
considerations in respect of an investment in the notes. We may modify or
supplement this discussion in a related prospectus supplement.
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.
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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 breaches 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 note by a Plan may, in certain circumstances, be deemed
to include an investment in the assets of the trust formed for that series of
notes. 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 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
100
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
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.
101
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 notes
under the Securities Act of 1933 as amended. 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 NOTEHOLDERS
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 notes. However, these
reports may be viewed at the sponsor's website:
http://studentloan.citibank.com/slcsite/fr_about.htm. The reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles.
The issuing entity will cause the administrator to file with the SEC all
periodic reports required under the Securities Exchange Act of 1934, as amended.
The reports concerning the issuing entity are required to be delivered to the
holders of the notes. These reports include, but are not limited to:
o Reports on Form 8-K (Current Report), following the issuance of the
series of notes of the related trust, including as Exhibits to the Form
8-K the transaction agreements or other documents specified in the
related prospectus supplement;
o Reports on Form 8-K (Current Report), following the occurrence of events
specified in Form 8-K requiring disclosure, which are required to be
filed within the time-frame specified in Form 8-K related to the type of
event;
o Reports on Form 10-D (Asset-Backed Issuer Distribution Report),
containing the distribution and pool performance information required on
Form 10-D, which are required to be filed 15 days following the
distribution date specified in the related prospectus supplement; and
o Report on Form 10-K (Annual Report), containing the items specified in
Form 10-K with respect to a fiscal year and the items required pursuant
to Items 1122 and 1123 of Regulation AB of the Act.
Each trust will have a separate Central Index Key assigned by the SEC for
the trust. Reports filed with respect to a trust with the SEC after the
prospectus supplement is filed will be available under that trust's Central
Index Key, which will be a serial company number assigned to the file number of
the depositor shown above.
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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 notes 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 website. If the depositor decides to provide
such information through an Internet website, the applicable prospectus
supplement accompanying this prospectus will disclose the specific website
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.
103
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/or
a separate placement agreement for the notes of that series. Under the
underwriting agreement, 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 notes listed in the prospectus supplement.
The underwriters will agree, subject to the terms and conditions of their
underwriting agreement, to purchase all the notes described in the underwriting
agreement 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 notes
for sale directly.
The underwriters or other offerors may offer the notes 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 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 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, the offering prices and
concessions may be changed.
Until the distribution of the notes is completed, SEC rules may limit the
ability of the underwriters and selling group members to bid for and purchase
the notes. As an exception to these rules, the underwriters are permitted to
engage in certain transactions that stabilize the price of the notes. These
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the notes.
If an underwriter creates a short position in the notes in connection with
the offering--that is, if it sells more notes than are shown on the cover page
of the related prospectus supplement--the underwriter may reduce that short
position by purchasing notes 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 notes in the
open market to reduce the underwriters' short position or to stabilize the price
of the notes, it may reclaim the amount of the selling concession from the
underwriters and selling group members who sold those notes 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 notes. 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 notes 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 notes offered by that
prospectus supplement. No underwriter will be obligated to make a secondary
market.
This prospectus may be used in connection with the remarketing of a class of
reset rate notes or the offering of a class of reset rate notes by SLC or its
affiliate after its exercise of the related call option with respect to that
class.
104
In connection with any remarketing of a class of reset rate notes, unless
the all hold rate will be in effect, we will prepare for distribution to
prospective purchasers a new prospectus supplement to the original prospectus
covering the terms of the remarketing.
If SLC or one of its subsidiaries exercises its call option with respect to
any class of reset rate notes previously publicly offered by any trust formed by
the depositor prior to a related reset date, that entity may resell those reset
rate notes under this prospectus. In connection with the resale, we will prepare
for distribution to prospective purchasers a new prospectus supplement to the
original prospectus covering such resale.
If applicable, each such prospectus supplement will also contain material
information regarding any new swap counterparty or counterparties. In addition,
each new prospectus supplement will contain any other pertinent information
relating to the trust as may be requested by prospective purchasers, remarketing
agents or otherwise, and will also contain material information regarding the
applicable student loan guarantors and information describing the
characteristics of the related pool of trust student loans that remains
outstanding as of a date reasonably proximate to the date of that prospectus
supplement, including updated tables relating to the information presented in
the original prospectus supplement, new tables containing the statistical
information generally presented by the depositor as part of its then recent
student loan securitizations, or a combination of both.
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 one or more of the underwriters.
Under each of the underwriting agreements for a given series of notes, the
closing of the sale of any class of notes will be conditioned on the closing of
the sale of all other classes.
The place and time of delivery for the notes 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 each trust, the depositor and SLC.
Each prospectus supplement will identify the other law firms who will give
opinions on additional legal matters for the underwriters, any other sellers and
specific U.S. federal and Delaware state income tax matters.
105
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 FFELP 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 FFELP 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 FFELP
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 U.S. Department of Education for between 75% and 100% of
the amount of each guarantee payment.
Four types of FFELP 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 PLUS Loans to parents of dependent undergraduate students and, after
July 1, 2006, to graduate and professional 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.
A-1
Legislative Matters
FFELP is subject to comprehensive reauthorization every 5 years and to
frequent statutory and regulatory changes. The most recent amendments to the
Higher Education Act are contained in the Higher Education Reconciliation Act of
2005 (Public Law 109-171). Before then, The Higher Education Act of 1965 (Pub.
L. No. 89-329) was reauthorized in 1968, 1972, 1976, 1980, 1986, 1992 and 1998.
Furthermore, The Higher Education Act was amended by Public Law 106-170 in 1999,
Public Law 106-554 in 2001, Public Law 107-139 in 2002 and Public Law 108-366 in
2004.
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 2005 amendments extended the principal provisions of FFELP and FDLP to
October 1, 2012. The 2005 legislation lowers the percentages of FFELP student
loan guarantees from 100% to 99% for loans for which claims are filed by
"exceptional performance" lenders on or after July 1, 2006 and from 98% to 97%
for any other loan which is made on or after July 1, 2006. It also increases the
fixed rate on PLUS loans made on or after July 1, 2006 to 8.5%.
The 1998 reauthorization, 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 student loans disbursed on or after
January 1, 2000 and before July 1, 2003. For these FFELP student 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 student 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.
The 2002 act 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 rate of 6.8% on
Stafford loans made on or after July 1, 2006, and (iii) extend the computation
of special allowance payments based on the three-month commercial paper
(financial) index.
Eligible Lenders, Students and Educational Institutions
Lenders eligible to make loans under FFELP generally include banks, savings
and loan associations, credit unions, pension funds and, under some conditions,
schools and guarantors. A FFELP 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
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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 U.S. Department of
Education must approve its eligibility under standards established by
regulation.
Financial Need Analysis
Subject to program limits and conditions, student loans generally are made
in amounts sufficient to cover the student's estimated costs of attending
school, including tuition and fees, books, supplies, room and board,
transportation and miscellaneous personal expenses as determined by the
institution. Each Stafford Loan applicant (and parents in the case of a
dependent child) must undergo a financial need analysis. This requires the
applicant (and parents in the case of a dependent child) to submit financial
data to a federal processor. The federal processor evaluates the parents' and
student's financial condition under federal guidelines and calculates the amount
that the student and the family are expected to contribute towards the student's
cost of education. After receiving information on the family contribution, the
institution then subtracts the family contribution from the student's costs to
attend the institution to determine the student's need for financial aid. Some
of this need is met by grants, 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 U.S. Department of Education to holders of FFELP 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 FFELP 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 and Forbearance
3.10% for PLUS, SLS and
Consolidation Loans
For FFELP 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;
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(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 and Forbearance
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.
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 U.S. Department of Education to holders of the loans in lieu of the
borrowers' making interest payments; and
o special allowance payments representing an additional subsidy paid by
the Department to the holders of eligible Stafford Loans.
We refer to all three types of assistance as "federal assistance".
Interest. The borrower's interest rate on a Stafford Loan can be fixed or
variable. Stafford Loan interest rates are presented below.
Trigger Date Borrower Rate Maximum Borrower Rate Interest Rate Margin
- ------------------------------------- ------------------------------- --------------------- -----------------------------
Before 10/01/81...................... 7% N/A N/A
From 01/01/81 through 09/12/83....... 9% N/A N/A
From 09/13/83 through 06/30/88....... 8% N/A N/A
From 07/01/88 through 09/30/92....... 8% for 48 months; thereafter, 8% for 48 months, 3.25% for loans made before
91-day Treasury + Interest Rate then 10% 7/23/92 and for loans made on
Margin or before 10/1/92 to new
student borrowers;
3.10% for loans made after
7/23/92 and before 7/1/94 to
borrowers with outstanding
FFELP student loans
From 10/01/92 through 06/30/94....... 91-day Treasury + Interest Rate 9% 3.10%
Margin
From 07/01/94 through 06/30/95....... 91-day Treasury + Interest Rate 8.25% 3.10%
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 Rate 8.25% 1.70% (In-School, Grace or
Margin Deferment); 2.30% (Repayment)
From 07/01/06........................ 6.8% N/A N/A
A-4
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 the 2005 amendments to the Higher Education Act, Stafford Loans with a
first disbursement on or after July 1, 2006 will move to a fixed annual interest
rate of 8.5%.
Interest Subsidy Payments. The U.S. 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 U.S. 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 or
insurance 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 U.S. 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 FFELP 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.
A-5
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.
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.
A-6
Interest that accrues during a deferment is paid by the U.S. Department of
Education for Subsidized Stafford Loans or deferred and capitalized for
Unsubsidized Stafford Loans.
The Higher Education Act also permits, and in some cases requires,
"forbearance" periods from loan collection in some circumstances. Interest that
accrues during a forbearance period is never subsidized.
PLUS and SLS Loan Programs
The Higher Education Act authorizes PLUS Loans to be made to parents of
eligible dependent students and previously authorized SLS Loans to be made to
the categories of students now served by the Unsubsidized Stafford Loan program.
Only parents who have no adverse credit history or who are able to secure an
endorser without an adverse credit history are eligible for PLUS Loans. The
basic provisions applicable to PLUS and SLS Loans are similar to those of
Stafford Loans for federal insurance and reinsurance. However, interest subsidy
payments are not available under the PLUS and SLS programs and, in some
instances, special allowance payments are more restricted.
Loan Limits. PLUS and SLS Loans disbursed before July 1, 1993 were limited
to $4,000 per academic year with a maximum aggregate amount of $20,000. The
annual loan limits for SLS Loans disbursed on or after July 1, 1993 range from
$4,000 for first and second year undergraduate borrowers to $10,000 for graduate
borrowers, with a maximum aggregate amount of $23,000 for undergraduate
borrowers and $73,000 for graduate and professional borrowers.
The annual and aggregate amounts of PLUS Loans first disbursed on or after
July 1, 1993 are limited only to the difference between the cost of the
student's education and other financial aid received, including scholarship,
grants and other student loans.
Interest. The interest rates for PLUS Loans and SLS Loans are presented in
the chart below.
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 applicable 1-year index or the bond equivalent rate of 91-day
Treasury bills, as applicable,
and
(2) the applicable interest rate margin.
Under current law, PLUS Loans with a first disbursement on or after July 1,
2006 will return to a fixed annual interest rate of 7.9%.
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.
A-7
Interest Rate
Trigger Date Borrower Rate Maximum Borrower 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 through 06/30/06.......... 91-day Treasury + Interest Rate Margin 9% 3.10%
From 07/01/06........................... 8.5% 8.5% N/A
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 or commercial paper rates,
as applicable 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 FFELP 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. Under certain circumstances, a FFELP borrower may obtain a
Consolidation Loan under the FDLP.
Consolidation Loans made on or after July 1, 1994 have no minimum loan
amount. Consolidation Loans for which an application was received on or after
January 1, 1993 but before July 1, 1994 were available only to borrowers who had
aggregate outstanding student loan balances of at least $7,500. For applications
received before January 1, 1993, Consolidation Loans were available only to
borrowers who had aggregate outstanding FFELP 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 and until July 1, 2006, married couples who
agree to be jointly and severally liable may apply for one Consolidation Loan.
In some cases borrowers may enter repayment status while still in school and
thereby become eligible to obtain a Consolidation Loan until July 1, 2006.
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
A-8
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 U.S. 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 student 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 FFELP student loans outstanding. The lender may, at its option, include
graduated and income-sensitive repayment plans in connection with FFELP 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. FFELP 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. For loans that
are made after October 1, 1993, but prior to July 1, 2006, lenders are insured
for at least 98% of principal and accrued interest. For loans that are made on
or after July 1, 2006, the lenders will be insured for at least 97% of principal
and accrued interest. All eligible FFELP default claims filed for reimbursement
on loans serviced by SLC on or after July 1, 2006 receive 99% (100% for loans
for which claims are filed for reimbursement prior to July 1, 2006)
reimbursement as a result of SLC's designation as an exceptional performer by
the U.S. Department of Education in recognition of its exceptional level of
performance in servicing FFELP student loans. However, these reimbursement rates
could be further 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
A-9
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 U.S.
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 FFELP
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.
FFELP Student Loan Discharges
FFELP student loans are not generally dischargeable in bankruptcy. Under the
United States Bankruptcy Code, before a FFELP 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, then 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.
FFELP 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.
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
A-10
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
FFELP student loan may be rehabilitated more than once.
Guarantor Funding
In addition to providing the primary guarantee on FFELP student 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 U.S.
Department of Education
Account Maintenance Fee............... 0.10% of the original principal
amount of loans outstanding, paid
by the U.S. 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.
U.S. Department of Education Oversight
The Secretary of Education has oversight powers over guarantors. If the U.S.
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-11
APPENDIX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in some limited circumstances, the notes offered under the related
prospectus supplement will be available only in book-entry form as "Global
Notes". Investors in the Global Notes may hold them through DTC or, if
applicable, Clearstream or Euroclear. The Global Notes 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 Notes 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 Notes 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 Global Notes 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 Notes 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 Notes 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 Notes 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 Notes 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 Notes will be held in book-entry form
by a common depositary for Clearstream and Euroclear in the name of a nominee to
be selected by the common depository. Investors' interests in the non-U.S.
Dollar denominated Global Notes 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 Notes 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 Notes 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 Notes 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 Notes 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 Notes 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 Notes against payment. Payment
will include interest accrued on the Global Notes 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 Notes.
Notes. After settlement has been completed, the Global Notes 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 Notes credit will appear the next
day (European time) and the cash debit will be back-valued to, and the interest
on the Global Notes 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 Notes 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 Notes would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Notes were credited to their accounts. However, interest on the Global
Notes would accrue from the value date. Therefore, in many cases the investment
income on the Global Notes 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 Notes 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 Notes 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 Global Notes to the DTC participant's account against
payment. Payment will include interest accrued on the Global Notes 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
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proceeds in the Clearstream or Euroclear participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
Global Notes 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 Notes in the U.S. from a DTC participant no later
than one day before settlement, which would give the Global Notes
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.
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U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Notes 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) and satisfying certain conditions. For further detail, see "Certain
U.S. Federal Income Tax Considerations" in this prospectus.
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. If the information shown on Form W-8BEN or Form W-8ECI
changes, a new Form W-8BEN or W-8ECI, as applicable must be filed within 30 days
of the change.
For these purposes, a U.S. person is:
o an individual who is a citizen or a resident of the United States, for
U.S. federal income tax purposes;
o 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);
o an estate whose income is subject to U.S. federal income taxation
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;
and a non-U.S. person is:
o a nonresident alien individual for U.S. federal income tax purposes;
o a foreign corporation for U.S. federal income tax purposes;
o an estate whose income is not subject to U.S. federal income tax on a
net income basis; or
o a trust if no court within the United States is able to exercise primary
jurisdiction over its administration or if no United States persons have
the authority to control all of its substantial decisions.
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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 Notes.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Notes.
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