As filed with the Securities and Exchange Commission on May 14, 2004
Registration Statement No. 333-114367
333-114367-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
KEY BANK USA, NATIONAL ASSOCIATION
(Seller and Master Servicer)
(Exact name of registrant as specified in its charter)
UNITED STATES 34-1804184
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
KEY CONSUMER RECEIVABLES LLC
(Originator of the Trusts described herein)
(Exact name of registrant as specified in its charter)
DELAWARE 34-1938746
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
KEY TOWER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216-689-6300)
(Address of registrant's principal executive offices)
- --------------------------------------------------------------------------------
DANIEL R. STOLZER
DEPUTY GENERAL COUNSEL
KEYCORP
KEY TOWER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216-689-6300)
(Name and address of agent for service)
- --------------------------------------------------------------------------------
Copies to:
Robert A. Selak, Esq. Reed D. Auerbach, Esq.
Thompson Hine LLP McKee Nelson LLP
312 Walnut Street 5 Times Square
14th Floor 35th Floor
Cincinnati, Ohio 45202 New York, New York 10036
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
============================================ ===================== ===================== ===================== ====================
Proposed Maximum Proposed Maximum
Amount Being Offering Price Per Aggregate Offering Amount of
Title of Securities Being Registered(1) Registered Unit (2) Price (2) Registration Fee (3)
- -------------------------------------------- --------------------- --------------------- --------------------- --------------------
Asset Backed Notes and Certificates.... $4,250,000,000 100% $4,250,000,000 $538,475(4)
============================================ ===================== ===================== ===================== ====================
(1) This Registration Statement is also related to market-making transactions
that may be made by KeyBanc Capital Markets, a Division of McDonald
Investments Inc., a wholly-owned subsidiary of KeyCorp and an affiliate of
the Registrant.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a) of the Securities Act.
(4) $126.70 of which was previously paid; and pursuant to Rule 457(p) of the
Securities Act, $173,982.50, representing the previously paid but unused
registration fee in connection with registration statement on Form S-3
number 333-62624; 333-62624-01, is hereby applied as an offset to the
registration fee due in connection herewith. The remaining $364,365.80 will
be paid at the time of this filing. Market making activities, for which no
fee is required, will continue in connection with securities previously
issued under registration statement no. 333-62624; 333-62624-01.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
which is part of this Registration Statement is a combined prospectus and
includes all the information currently required in a prospectus relating to
securities covered by Registration Statement No. 333-62624; 333-62624-01
previously filed by the Registrant.
This Registration Statement is also being used to register securities
that may be sold in market-making transactions by an affiliate of the
Registrant. The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS (I) A FORM OF PROSPECTUS SUPPLEMENT,
RELATING TO A PUBLIC OFFERING BY KEYCORP STUDENT LOAN TRUSTS (THE "TRUST") OF
ASSET BACKED NOTES AND ASSET BACKED CERTIFICATES (COLLECTIVELY, THE
"SECURITIES"); (II) CERTAIN PAGES OF A SECOND FORM OF PROSPECTUS SUPPLEMENT
WHICH MAY BE USED IN CONNECTION WITH OFFERS AND SALES RELATING TO MARKET-MAKING
TRANSACTIONS IN THE SECURITIES BY AN AFFILIATE OF THE REGISTRANT AND (III) A
BASE PROSPECTUS RELATING TO THE SECURITIES. THE FORM OF PROSPECTUS SUPPLEMENT
RELATING TO THE SECURITIES FOLLOWS IMMEDIATELY AFTER THIS EXPLANATORY NOTE.
FOLLOWING SUCH FORM OF PROSPECTUS SUPPLEMENT ARE ALTERNATE PAGES OF THE
MARKET-MAKING FORM OF PROSPECTUS SUPPLEMENT RELATING TO THE SECURITIES. ALL
OTHER PAGES OF THE PUBLIC OFFERING FORM OF PROSPECTUS SUPPLEMENT FOR THE
SECURITIES ARE ALSO TO BE USED FOR THE MARKET-MAKING PROSPECTUS.
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these Securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Prospectus Supplement to Prospectus dated ___________.
[PRINTER TO INSERT KEY SYMBOL]
$[ ]
KEYCORP STUDENT LOAN TRUST [ ]
KEY CONSUMER RECEIVABLES LLC
Depositor
KEY BANK USA, NATIONAL ASSOCIATION
Master Servicer
ASSET-BACKED NOTES
------------------------------------------
SECURITIES OFFERED
- classes of notes listed in the table below
ASSETS
- group I student loans: FFELP program student loans
- group II student loans: privately guaranteed student loans and
unguaranteed student loans
CREDIT ENHANCEMENT
- subordination of the group I and group II subordinate notes to the
group I and group II senior notes, respectively
- guaranty insurance policy (class [ ] notes, class [ ] notes
and class [ ] notes only)
- reserve account with respect to each group of notes
- excess interest on the student loans of the related group
- limited cross-collateralization
- interest rate swap with respect to the group I notes
- cap agreement with respect to the group II notes
You should carefully consider the risk factors beginning on page S-[ ] of this
prospectus supplement and page [ ] of the prospectus.
The notes are obligations only of the trust and are payable solely from the
student loans and other assets of the trust. The initial principal balance of
the student loans will be less than the initial principal balance of the notes.
The notes are not guaranteed by any person. The notes are not bank deposits.
The class [ ] notes will have the benefit of an irrevocable and unconditional
guaranty insurance policy issued by [ ], as securities insurer, guaranteeing
timely payment of interest and ultimate payment of principal to the holders of
those classes of notes.
[PRINTER TO INSERT [INSURER] LOGO]
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
INITIAL CLASS NOTE INTEREST RATE PRICE TO PUBLIC UNDERWRITING PROCEEDS TO THE
BALANCE (PER ANNUM)(1) FINAL MATURITY DATE (2) DISCOUNT SELLER
------------------ -------------- ------------------- --------------- ------------ ---------------
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
Total $[ ] $[ ](3)
- ---------------------
(1) [Subject to a maximum rate of interest described herein with respect to
each class of notes other than the class [ ] notes.
(2) Plus accrued interest, if any, from [ ].
(3) Before deducting expenses estimated to be $[ ], plus accrued interest in
the case of the class [ ] notes.
(4) Initial notional principal amount equal to $[ ].]
Proceeds to the seller from the sale of the class [ ] notes are expected to be
approximately $[ ] plus accrued interest, before deducting a portion of the
total expenses payable by the seller which total is estimated to be $[ ].
Delivery of the notes will be made on or about [ ]against payment in immediately
available funds.
JOINT LEAD MANAGER AND GLOBAL BOOKRUNNER JOINT LEAD MANAGER
[ ] [ ]
Prospectus Supplement dated [ ]
YOU SHOULD RELY ON INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
We provide information to you about the securities in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your securities; and (2) this prospectus supplement, which describes the
specific terms of your securities.
If the descriptions of the terms of the securities vary between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
This prospectus supplement and the accompanying prospectus include
cross-references to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
in the accompanying prospectus provide the pages on which these captions are
located.
UNTIL [ ] ALL DEALERS THAT EFFECT TRANSACTIONS IN THE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS AND PROSPECTUS SUPPLEMENT. THIS REQUIREMENT IS IN ADDITION TO THE
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
We are not offering the securities in any state where the offer is not
permitted. We do not claim the accuracy of the information in this prospectus
supplement and the accompanying prospectus as of any date other than the dates
stated on their respective covers.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary of Terms.................................................... S-3
Risk Factors........................................................ S-19
Defined Terms....................................................... S-37
Formation of the Trust.............................................. S-37
Use of Proceeds..................................................... S-40
The Master Servicer and the Sub-Servicers........................... S-40
The Depositor....................................................... S-42
The Student Loan Pools.............................................. S-43
Description of the Securities....................................... S-84
Description of the Transfer and Servicing Agreements, the Group
I Swap Agreement, the Group II Cap Agreement, the Basis
Risk Caps and the Put Option Agreements............ ........... S-92
The Group II Insured Notes Guaranty Insurance Policy and the
Securities Insurer........ .................................... S-124
Income Tax Consequences............................................. S-127
ERISA Considerations................................................ S-128
Underwriting........................................................ S-129
Experts............................................................. S-131
Legal Matters....................................................... S-132
Glossary............................................................ S-133
Appendix A-Report of Independent Auditors........................... A-1
PROSPECTUS
RISK FACTORS...................................................... 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................... 14
FORMATION OF THE TRUSTS........................................... 14
USE OF PROCEEDS................................................... 16
THE SELLER, THE DEPOSITOR, THE ADMINISTRATOR, THE
MASTER SERVICER AND THE SUB-SERVICERS........................ 16
THE STUDENT LOAN POOLS............................................ 17
THE STUDENT LOAN FINANCING BUSINESS............................... 19
WEIGHTED AVERAGE LIVES OF THE SECURITIES.......................... 49
POOL FACTORS AND TRADING INFORMATION.............................. 51
DESCRIPTION OF THE NOTES.......................................... 51
DESCRIPTION OF THE CERTIFICATES................................... 59
CERTAIN INFORMATION REGARDING THE SECURITIES...................... 61
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS 68
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS........................ 86
INCOME TAX CONSEQUENCES........................................... 95
FEDERAL TAX CONSEQUENCES FOR TRUSTS FOR WHICH A
PARTNERSHIP ELECTION IS MADE................................. 96
FEDERAL TAX CONSEQUENCES FOR TRUSTS IN WHICH ALL
CERTIFICATES ARE RETAINED BY THE SELLER, THE
DEPOSITOR OR A THIRD PARTY ORIGINATOR........................ 106
PENNSYLVANIA STATE TAX CONSEQUENCES............................... 106
ERISA CONSIDERATIONS.............................................. 107
PLAN OF DISTRIBUTION.............................................. 109
LEGAL MATTERS..................................................... 111
S-1
[INTENTIONALLY LEFT BLANK]
S-2
SUMMARY OF TERMS
- This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need
to consider in making your investment decision. To understand all of
the terms of the offering of the securities, you should read carefully
this entire prospectus supplement and accompanying prospectus.
- This summary provides an overview to aid your understanding and is
qualified by the full description of this information in this
prospectus supplement and the accompanying prospectus.
- You can find a definition of certain capitalized terms used in this
prospectus supplement under the caption "Glossary" beginning on page
S-[ ] in this prospectus supplement.
PRINCIPAL PARTIES
THE TRUST
- - KeyCorp Student Loan Trust [ ]
THE DEPOSITOR
- - Key Consumer Receivables LLC
THE MASTER SERVICER AND ADMINISTRATOR
- - Key Bank USA, National Association
THE SUB-SERVICERS
- - [ ]
- - [ ]
THE SELLER
- - Key Bank USA, National Association
THE SECURITIES INSURER (GROUP II INSURED NOTES)
- - [ ]
THE SWAP COUNTERPARTY
- - [ ]
THE CAP PROVIDER
- - [ ]
THE PUT OPTION PROVIDER
- - [ ]
THE ELIGIBLE LENDER TRUSTEE
- - [ ]
THE INDENTURE TRUSTEE
- - [ ]
DATES
DISTRIBUTION DATES
The [25th] day of each [ ], [ ], [ ] and [ ] or, if the [25th] is not a
business day, the next business day. The first distribution date is [ ].
CUTOFF DATES
- - [ ] for the initial student loans, and the date specified in the related
subsequent transfer agreement with respect to any subsequent student loans
and other student loans.
- - The trust will be entitled to receive all collections and proceeds on the
initial student loans and subsequent student loans on and after the related
cutoff date.
STATISTICAL CUTOFF DATE
- - [ ] for the initial student loans.
- - All statistical information relating to the initial student loans is
presented as of the statistical cutoff date.
CLOSING DATE
On or about [ ].
S-3
DESCRIPTION OF THE SECURITIES
GENERAL
The original principal amounts or notional amount, as applicable, and interest
rates for each class of notes are on the cover page of this prospectus
supplement.
The notes are issued in book-entry form through The Depository Trust Company,
Clearstream Banking, societe anonyme, and the Euroclear System.
The notes, other than the class [ ] notes, are available in minimum
denominations of $[1,000] and integral multiples of $[1,000] in excess thereof
and with respect to the class [ ] notes in minimum denominations of $[100,000]
and integral multiples of $[1,000] in excess thereof.
OFFERED SECURITIES (GROUP I)
Payable primarily from the group I student loans and other trust assets
allocated to the group I notes.
Group I Senior Notes
- - Class [ ] Notes
- - Class [ ] Notes
Group I Subordinate Notes
- - Class [ ] Notes
OFFERED SECURITIES (GROUP II)
Payable primarily from the group II Student loans, the group II guaranty
insurance policy (with respect to the group II insured notes only) and other
trust assets allocated to the group II notes.
Group II Senior Notes
- - Class [ ] Notes
- - Class [ ] Notes
- - Class [ ] Notes
- - Class [ ] Notes
Group II Subordinate Notes
- - Class [ ] Notes
Group II Insured Notes
- - Class [ ] Notes
- - Class [ ] Notes
- - Class [ ] Notes
CLASS [ ] NOTES
The class [ ] notes do not have a note principal balance and will not be
entitled to distributions of principal. The class [ ] notes will accrue interest
based on their notional amount, which on each distribution date will be equal to
the outstanding principal balance of the class [ ] notes. Once the principal
balance of the class [ ] notes has been reduced to zero, the class [ ] notes
will not be entitled to any future payments of interest. The group II insured
notes guaranty insurance policy does not guarantee any amounts payable on the
class [ ] notes.
NON-OFFERED SECURITIES
- - The trust will also issue a single class of certificates to the depositor
or an affiliate thereof as its designee.
- - The certificates will not have a principal balance and will not bear
interest.
- - The certificates will only be entitled to distributions on any distribution
date after all other required payments, deposits and distributions are
made.
- - Any information in this prospectus supplement relating to the certificates
is solely for informational purposes to further a better understanding of
the notes.
S-4
INTEREST PAYMENTS
- - Each interest rate, other than the class [ ] interest rate, is subject to a
maximum rate of interest equal to the student loan rate described in this
prospectus supplement under the caption "Description of the Securities"
herein.
- - The funds available to pay interest on the group I notes for any interest
period will be reduced based on the swap payments made by the trust
pursuant to the group I interest rate swap to [Key Bank USA, National
Association], as swap counterparty, and such available funds will be
increased based on swap payments made pursuant to the group I interest rate
swap by the swap counterparty to the trust.
- - [Key Bank USA, National Association], will provide two basis risk caps, one
each for the benefit of the group I and group II notes (other than the
class [ ] notes). Each basis risk cap will eliminate the effect of the
student loan rate on the interest rate of the applicable notes of each
group. Your right to receive payments under the basis risk cap related to
your group of notes is not rated by any rating agency.
- - the eligible cap counterparty will provide for an interest rate cap
agreement for the benefit of the group II notes.
- - Interest calculations are based on actual/360 for each class of notes.
- - Interest not paid on a distribution date due to the effect of the student
loan rate and not paid because of a default by the cap provider with
respect to the basis risk cap relating to your notes may be paid on future
distribution dates as described in this prospectus supplement under the
caption "Description of the Securities" herein.
- - The securities insurer will guarantee timely payment of interest, up to the
student loan rate, on the group II insured notes.
PRINCIPAL PAYMENTS
Principal payments on the notes of each group will be made on each distribution
date in an amount equal to the principal distribution amount for the related
group, allocated as described below under " -- Priority of Payments."
For each distribution date and each group of notes, the principal distribution
amount is generally equal to the amount by which the sum of the outstanding
principal balance of the notes of such group, other than the class [ ] notes
with respect to group II, exceeds the related pool balance of the student loans
in the related group plus the pre-funded amount relating to such group of notes
for such distribution date, subject to adjustment, as described herein under
"Description of the Transfer and Servicing Agreements -- Distributions."
CREDIT ENHANCEMENT
Group I Notes
- - subordination of the class [ ] notes to the class [ ] notes and class [ ]
notes
- - group I reserve account
- - excess interest
- - group I interest rate swap
- - limited cross-collateralization from group II
S-5
Group II Notes
- - subordination of the class [ ] notes to the class [ ] notes, class [ ]
notes, class [ ] notes and class [ ] notes
- - guaranty insurance policy (with respect to the group II insured notes only)
- - group II reserve account
- - excess interest
- - limited cross-collateralization from group I
GROUP II INSURED NOTES GUARANTY INSURANCE POLICY (GROUP II INSURED NOTES ONLY)
[ ] will issue a financial guaranty insurance policy for the benefit of the
group II insured notes.
The policy will unconditionally and irrevocably guarantee the timely payment of
interest on, and the ultimate payment of the principal amount of, the group II
insured notes, except as set forth below.
On each distribution date, the indenture trustee will calculate to what extent
the funds available to make the payments of principal and interest are
insufficient to pay current interest on the group II insured notes. If an
insufficiency exists, then the indenture trustee, on behalf of the holders of
each class of group II insured notes, will make a draw on the policy. In
addition, the policy will guarantee the full payment of the principal balance of
each class of group II insured notes on the related final maturity date.
The policy does not guarantee:
- - any amounts payable on the group I notes, the class [ ] notes or the class
[ ] notes;
- - any shortfalls in interest payments resulting from the application of the
student loan rate;
- - payments by the cap provider; or
- - payments by the cap counterparty.
The holders of the class [ ] notes and class [ ] notes and, if for any reason
the securities insurer does not make the payments required by the policy, the
holders of the group II insured notes, as applicable, will have to rely on the
group II student loans, the subordination of the group II subordinate notes to
the group II senior notes, the group II reserve account, limited
cross-collateralization from the group I student loans and the other credit
enhancement available to your class of group II notes for your payments of
interest and/or principal, as applicable, and you may suffer a loss.
PRIORITY OF PAYMENTS
On each distribution date, the indenture trustee will make the following
distributions and deposits to the extent of available funds with respect to the
related group in the order indicated:
GROUP I NOTES:
1. to the master servicer, certain fees;
2. to the administrator, certain fees;
3. prorata (x) to the holders of the class [ ] notes and class [ ] notes,
interest on a pro rata basis, subject to the student loan rate, and (y) to
the swap counterparty, amounts due from the trust pursuant to the group I
interest rate swap for such distribution date and certain termination
payments;
4. to the group I reserve account, an amount, if any, necessary to reinstate
the balance of the reserve account to a specified amount;
S-6
5. provided that a subordinate note interest trigger is not in effect, to the
holders of the class [ ] notes, interest subject to the student loan rate;
6. to the holders of the group I notes, the principal distribution amount for
the group I notes allocated as described under " -- Allocation of Group I
Principal Distribution Amount" below;
7. if a subordinate note interest trigger is in effect, to the holders of the
class [ ] notes, interest subject to the student loan rate;
8. to the holders of the group I senior notes, interest due in excess of the
student loan rate, if any, on a pro rata basis, to the extent not paid by
the cap provider under the group I basis risk cap;
9. to the holders of the group I subordinate notes, interest due in excess of
the student loan rate, if any, to the extent not paid by the cap provider
under the group I basis risk cap;
10. to the swap counterparty, any termination payments with respect to the
group I interest rate swap not paid pursuant to clause 3. above;
11. to the cap provider, an amount sufficient to reimburse the cap provider for
previous payments under the group I basis risk cap;
12. after all payments shown above are made, and if group II available funds
are insufficient to make all required payments pursuant to clauses 1.
through 13. below under " -- Group II Notes:" any remaining amounts will be
paid to the group II noteholders, the master servicer, the administrator,
the securities insurer and/or the cap provider, as applicable, in the order
and for the purposes set forth in such clauses 1. through 13., inclusive,
up to the amount of such deficiency in group II available funds; and
13. any remaining amounts will be paid to the holder of the certificates.
If the interest rate on any class of group I notes for any interest period
is capped at the related student loan rate and until the termination of the
group I basis risk cap, the cap provider will be obligated to pay the
difference between interest that would have been due without giving effect
to the related student loan rate and interest due at the related student
loan rate.
Allocation of the Group I Principal Distribution Amount
On each distribution date, the principal distribution amount for the group I
notes will be allocated as follows:
- - prior to the stepdown date, or after the related stepdown date if a
subordinate note principal trigger has occurred and remains in effect, the
principal distribution amount for the group I notes will be payable solely
to the group I senior notes in sequential order beginning with the class
[ ] notes until paid in full, then to the class [ ] notes until paid in
full, and then to the class [ ] notes until paid in full; and
- - after the stepdown date and so long as no subordinate note principal
trigger has occurred and remains in effect, the senior percentage of the
principal distribution amount for the group I notes will be payable to the
group I senior notes (in the same order of priority as described in the
preceding paragraph) and the subordinate percentage of the principal
distribution
S-7
amount will be payable to the class [ ] notes.
The senior percentage of the group I notes at any time equals the percentage
equivalent of a fraction, the numerator of which is the aggregate principal
balance of the group I senior notes and the denominator of which is the sum of
the aggregate principal balance of all the group I notes. The subordinate
percentage for the group I notes is equal to 100% minus the senior percentage of
the group I notes.
GROUP II NOTES:
1. to the master servicer, certain fees;
2. to the administrator, certain fees;
3. to the securities insurer, provided that no securities insurer payment
default has occurred and is continuing, all premiums due under the group II
insured notes guaranty insurance policy;
4. to the holders of the class [ ] notes, the class [ ] notes, the class [ ]
notes and the class [ ] notes, interest on a pro rata basis, in the case of
the class [ ] notes, the class [ ] notes and the class [ ] notes, subject
to the student loan rate;
5. provided that a subordinate note interest trigger is not in effect, to the
holders of the class [ ] notes, interest subject to the student loan rate;
6. to the securities insurer, provided that no securities insurer payment
default has occurred and is continuing, reimbursement for all amounts owed
pursuant to draws with respect to any payments of interest under the group
II insured notes guaranty insurance policy, plus interest thereon;
7. to the group II reserve account, an amount, if any, necessary to reinstate
the balance of the reserve account to a specified amount;
8. to the holders of the group II notes (other than the class [ ] notes) and
the securities insurer, the principal distribution amount for group II
allocated as shown under " -- Allocation of Group II Principal Distribution
Amount" below;
9. if a subordinate note interest trigger is in effect, to the holders of the
class [ ] notes, interest subject to the student loan rate;
10. to the securities insurer, reimbursement for all amounts owed pursuant to
draws made under the group II insured notes guaranty insurance policy, not
previously reimbursed as provided above, and all other amounts due under
the related insurance agreement, including premiums;
11. to the holders of the class [ ] notes, the class [ ] notes and the class [
] notes, interest due in excess of the student loan rate, if any, on a pro
rata basis, to the extent not paid by the cap provider under the group II
basis risk cap;
12. to the holders of the group II subordinate notes, interest due in excess of
the student loan rate, if any, to the extent not paid by the cap provider
under the group II basis risk cap;
13. to the cap provider, an amount sufficient to reimburse the cap provider for
previous payments under the group II basis risk cap;
14. after all payments shown above are made, and if group I available funds are
insufficient to make all required payments pursuant to clauses 1. through
11. above under " -- Group I
S-8
Notes:" any remaining amounts will be paid to the group I noteholders, the
master servicer, the administrator, the swap counterparty and/or the cap
provider, as applicable, in the order and for the purposes set forth in
such clauses 1. through 11., inclusive, up to the amount of such deficiency
in group I available funds; and
15. any remaining amounts will be paid to the holder of the certificates.
If the interest rate on any applicable class of group II notes for any interest
period is capped at the related student loan rate and until the termination of
the group II basis risk cap, the cap provider will be obligated to pay the
difference between interest that would have been due without giving effect to
the related student loan rate and interest due at the related student loan rate.
The group II insured notes guaranty insurance policy does not guaranty any
payments by the cap provider.
Allocation of the Group II Principal Distribution Amount
On each distribution date, the principal distribution amount for the group II
notes, other than the class [ ] notes, will be allocated as follows:
- - prior to the stepdown date, or after the stepdown date if a subordinate
note principal trigger has occurred, the principal distribution amount for
the group II notes, other than the class [ ] notes, will be payable solely
to the group II notes, other than the class [ ] notes, and the securities
insurer, in the following sequential order (a) to the class [ ] notes until
paid in full, then (b) to the class [ ] notes until paid in full, then (c)
to the class [ ] notes until paid in full, then (d) to the securities
insurer, provided that no securities insurer payment default has occurred
and is continuing, reimbursement for all amounts owed pursuant to draws
with respect to any payments of principal under the group II insured notes
guaranty insurance policy made to the holders of the class [ ] or class [ ]
notes, plus interest thereon, then (e) to the class [ ] notes until paid in
full, and finally (f) to the securities insurer, provided that no
securities insurer payment default has occurred and is continuing,
reimbursement for all amounts owed pursuant to draws under the group II
insured notes guaranty insurance policy made to the holders of the class [
] notes, plus interest thereon; and
- - after the stepdown date and so long as no subordinate note principal
trigger has occurred, the senior percentage of the principal distribution
amount for the group II notes will be payable to the group II senior notes
and the securities insurer (in the same order of priority as described in
the preceding paragraph) and the subordinate percentage of the principal
distribution amount will be payable to the class [ ] notes and the
securities insurer, if applicable.
The senior percentage of the group II notes at any time equals the percentage
equivalent of a fraction, the numerator of which is the aggregate principal
balance of the group II senior notes, other than the class [ ] notes, and the
denominator of which is the sum of the aggregate principal balance of all the
group II notes, other than the class [ ] notes. The subordinate percentage for
the group II notes is equal to 100% minus the senior percentage of the group II
notes.
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Subordinate Note Interest Trigger
A subordinate note interest trigger goes into effect for the group I or group II
subordinate notes, as applicable, if on the last day of the related collection
period, the aggregate principal balance of the related senior notes (excluding,
in the case of the group II notes, the class [ ] notes) exceeds the sum of the
pool balance of the related student loans plus the amount on deposit in the
related pre-funding account and the related reserve account. A collection period
is each period of three calendar months from and including the date following
the end of the preceding collection period (or, with respect to the first
collection period, the period beginning on [ ] and ending on [ ]).
A subordinate note interest trigger remains in effect as long as the aggregate
principal balance of the group I or group II senior notes (other than the class
[ ] notes), as applicable, exceeds the sum of the pool balance of group I or
group II student loans, as the case may be, plus the amount on deposit in the
related pre-funding account and the related reserve account. While this
condition exists, the priority of payment of interest on the class [ ] or class
[ ] notes, as applicable, will be affected as described herein.
Stepdown Date
The stepdown date for the group I or group II notes in each case will be the
earlier of (i) the first date on which no group I or group II senior notes, as
applicable, remain outstanding or (ii) the fifth anniversary of the closing
date.
Subordinate Note Principal Trigger
A subordinate note principal trigger with respect to the group I or group II
subordinate notes, as applicable, will occur if a note parity trigger occurs
with respect to the group I or group II notes, respectively. In addition, a
subordinate note principal trigger with respect to the group I or group II
subordinate notes, as applicable, will occur if the cumulative default
percentage for the group I or group II student loans, as the case may be,
exceeds [ ]% or [ ] %, respectively, for each group as of the end of the related
collection period.
A note parity trigger exists for the group I or group II notes, as applicable,
if on the last day of the related collection period relating to and after the
stepdown date for the group I or group II notes, as the case may be, the
aggregate principal balance of the related group I or group II notes, as
applicable (excluding, in the case of the group II notes, the class [ ] notes),
exceeds the sum of the pool balance of the related student loans plus the amount
on deposit in the related reserve account. A note parity trigger remains in
effect as long as the aggregate principal balance of the group I or group II
notes (other than the class [ ] notes), as applicable, exceeds the sum of the
pool balance of group I or group II student loans, as the case may be, plus the
amount on deposit in the related pre-funding account and the related reserve
account.
The cumulative default percentage of the group I student loans is calculated by
dividing (x) the aggregate total dollar amount of claims paid, including accrued
interest, with respect to the group I student loans, by (y) the sum of (i) the
aggregate original principal balance of all the group I student loans and (ii)
the
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original principal balance of all additional student loans that are group I
student loans, and, if applicable, any related cumulative capitalized interest,
related guarantee fee capitalization and other principal adjustments with
respect to the group I student loans, less (iii) the outstanding principal
balance of all group I student loans repurchased by the seller, master servicer
or a related sub-servicer, as applicable. The cumulative default percentage of
the group II student loans is calculated by dividing (x) the sum of (A) the
aggregate total dollar amount of claims paid on group II student loans that are
guaranteed, including accrued interest thereon, plus (B) the aggregate total
dollar amount of charge-offs on group II student loans that are not guaranteed
(not taking into account for such purpose any subsequent recoveries on such
unguaranteed student loans), by (y) the sum of (i) the aggregate original
principal balance of all the group II student loans and (ii) the original
principal balance of all additional student loans that are group II student
loans, and, if applicable, any related cumulative capitalized interest, related
guarantee fee capitalization and other principal adjustments with respect to the
group II student loans, less (iii) the outstanding principal balance of all
group II student loans repurchased by the seller, master servicer or a related
sub-servicer, as applicable. If a related subordinate note principal trigger
occurs and remains in effect, no principal payments will be made with respect to
the class [ ] notes or class [ ] notes, as applicable, until no group I senior
notes or group II senior notes, respectively, remain outstanding. Instead, all
principal payments with respect to the group I notes or group II notes (other
than the class [ ] notes) will be allocated to the group I senior notes or group
II senior notes (other than the class [ ] notes), respectively, and paid
sequentially.
FINAL MATURITY DATES
The unpaid principal amount of each class of notes will be payable in full on
the applicable final maturity date listed on the cover page of this prospectus
supplement.
OPTIONAL PUT OPTIONS
On the closing date, the trust will enter into two put option agreements with
[KeyBank National Association, an affiliate of Key Bank USA, National
Association]. Under the terms of each of the put option agreements: (a) with
respect to the group I student loans, a majority of the noteholders of the then
outstanding group I senior notes (or if no group I senior notes remain
outstanding, then a majority of the noteholders of the class I-B notes),
excluding for such purpose all notes owned by Key Bank USA, National
Association, its affiliates or its agents appointed for such purpose; and (b)
with respect to the group II student loans, a majority of the noteholders of the
then outstanding group II senior notes (or if no group II senior notes remain
outstanding, then a majority of the noteholders of the class II-B notes),
excluding for such purpose all notes owned by Key Bank USA, National Association
or its affiliates, may instruct the indenture trustee to exercise the related
put on the distribution date in [ ]. However, despite the receipt of such
instructions, the related put may not be exercised by the indenture trustee if
the proceeds received (plus amounts then on deposit in the related reserve
account) would be less than the aggregate principal balance of the related group
of notes (other than the class [ ] notes with respect to group II), plus
interest thereon (including interest accrued and unpaid in
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excess of the student loan rate), plus all amounts due and owing to the swap
counterparty, the cap provider (with respect to the put relating to each group
of student loans), and the securities insurer (with respect to the put relating
to the group II student loans only). If exercised, each put option will require
[KeyBank National Association] to purchase all student loans remaining in the
related group of student loans as of the end of the collection period
immediately preceding such distribution date. If the put option with respect to
your group of notes is exercised, the proceeds of such put option will be used
to redeem your securities. The exercise price for each put option is equal to
the then current fair market value of the related group of student loans.
AUCTION SALE
In the event that a put option is exercised and KeyBank National Association
defaults on its obligations with respect to such put, all student loans
remaining in the related group of student loans subsequent to such put default
will be offered for sale by the indenture trustee. Neither Key Bank USA,
National Association, nor any affiliate thereof or agent appointed for such
purpose, will be permitted to participate in any such auction as a potential
buyer. The proceeds of any sale of the student loans relating to your group of
notes will be used to redeem your securities. The auction price must at least
equal the unpaid principal amount of the related group of notes (other than the
class [ ] notes with respect to group II), plus accrued and unpaid interest
thereon (including interest accrued and unpaid in excess of the student loan
rate), plus all amounts due and owing to the swap counterparty, the cap provider
(with respect to auction sale relating to each group of student loans), and the
securities insurer (with respect to the auction sale relating to the group II
student loans only). If such minimum auction price is not bid by a potential
buyer, the related group of notes will not be redeemed on such distribution
date, but (a) with respect to the group I student loans, a majority of the
noteholders of the then outstanding group I senior notes (or if no group I
senior notes remain outstanding, then a majority of the noteholders of the class
[ ] notes), excluding for such purpose all notes owned by Key Bank USA, National
Association and its affiliates, or (b) with respect to the group II student
loans, a majority of the noteholders of the then outstanding group II senior
notes (or if no group II senior notes remain outstanding, then a majority of the
noteholders of the class [ ] notes), excluding for such purpose all notes owned
by Key Bank USA, National Association or its affiliates, may direct the
indenture trustee at any time to hold one or more additional sales until such
time as the related minimum auction price is received. In the event that both
put options are exercised and defaulted upon by KeyBank National Association,
the indenture trustee shall also auction both groups of student loans together
as part of one auction sale, and shall accept the higher aggregate bid received
from either: one purchaser of both groups of student loans, or from two
purchasers bidding on each group of student loans separately; provided, that, in
the event of such combined sale, the minimum auction price for both groups of
notes must be obtained or each group of student loans will be sold separately.
OPTIONAL PURCHASE
The master servicer may, but is not required to, repurchase all remaining
student loans in the pool of student loans
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when the principal balance of the student loans is equal to 10% or less of the
aggregate initial principal balance of all of the initial student loans and all
subsequent student loans, at a price equal to the unpaid principal balance of
the notes, other than the class [ ] notes, plus accrued and unpaid interest
thereon (including interest accrued and unpaid in excess of the student loan
rate), plus all amounts due and owing to the swap counterparty, the cap provider
and the securities insurer.
TRUST PROPERTY
GROUP I STUDENT LOANS
The group I student loans are all FFELP loans. FFELP loans are loans originated
under the Federal Family Education Loan Program created by the Higher Education
Act of 1965, as amended. Third party guarantee agencies guarantee the payment of
up to 100% of the principal amount of FFELP loans plus interest on the FFELP
loans.
Guarantee agencies that provide guarantees for the initial student loans in
group I include
- - [American Student Assistance,
- - California Student Aid Commission,
- - Colorado Student Loan Program,
- - Connecticut Student Loan Foundation,
- - Educational Credit Management Corporation,
- - Great Lakes Higher Education Guaranty Corporation,
- - Illinois Student Assistance Commission,
- - Kentucky Higher Education Assistance Authority,
- - Michigan Higher Education Assistance Agency,
- - National Student Loan Program,
- - New York State Higher Education Services Corporation,
- - Oregon Student Assistance Commission,
- - Pennsylvania Higher Education Assistance Agency,
- - Tennessee Student Assistance Corporation,
- - Texas Guaranteed Student Loan Corporation, and
- - United Student Aid Funds, Inc.]
These loans are partially reinsured by the Department of Education. All of the
group I student loans were originated by or initially purchased from third party
lenders by Key Bank USA, National Association.
GROUP II STUDENT LOANS
The student loans in group II are all private student loans that are not
reinsured by the Department of Education or any other government agency. The
group II student loans are either: (a) guaranteed by [The Educational Resources
Institute, Inc. or HEMAR Insurance Corporation of America], or (b) not
guaranteed by any guarantee agency or any private guarantor. All group II
student loans were originated by Key Bank USA, National Association, as part of
its private loan lending program, or purchased by Key Bank USA, National
Association, from other third party lenders.
[LIST OF GUARANTORS FOR BOTH GROUPS WILL BE UPDATED IN EACH PROSPECTUS
SUPPLEMENT TO REFLECT THE ACTUAL GUARANTORS FOR LOANS (WHICH MAY RESULT IN
SIGNIFICANT ADDITIONS TO OR DELETIONS FROM THIS SAMPLE LIST)]
S-13
For more detailed information on FFELP Loans and private loans (both guaranteed
and unguaranteed) please see "The Student Loan Pools" in this prospectus
supplement and "The Student Loan Financing Business" in the prospectus.
THE INITIAL STUDENT LOANS
The initial student loans in each group consist of certain graduate and
undergraduate student loans. The student loans in the initial pool will be
purchased by the trust from the depositor with proceeds from the sale of the
notes. The depositor will purchase all of the student loans from Key Bank USA,
National Association (the parent corporation of the depositor).
The initial student loans of each group have the characteristics set forth below
as of [ ]. Unless otherwise specified, percentages are of the initial pool
principal balance (including certain interest accrued to be capitalized).
INITIAL GROUP I STUDENT LOANS:
Aggregate Characteristics
- - Aggregate principal amount:.................................... $[ ]
- - Weighted average annual percentage rate:....................... [ ]%
- - Weighted average original term:................................ [ ] mths
- - Weighted average remaining term: ........................ ..... [ ] mths
Guarantees
- Percent guaranteed by [American Student Assistance] ...... [ ]%
- Percent guaranteed by [California Student Aid
Commission] [ ]%
- Percent guaranteed by [Colorado Student Loan Program] .... [ ]%
- Percent guaranteed by [Connecticut Student Loan
Foundation] .............................................. [ ]%
- Percent guaranteed by [Educational Credit Management
Corporation].............................................. [ ]%
- Percent guaranteed by [Great Lakes Higher Education
Guaranty Corporation] .................................... [ ]%
- Percent guaranteed by [Illinois Student Assistance
Commission].............................................. [ ]%
- Percent guaranteed by [Kentucky Higher Education
Assistance Authority] [less than] ........................ [ ]%
- Percent guaranteed by [Michigan Higher Education
Assistance Agency]........................................ [ ]%
- Percent guaranteed by [National Student Loan Program] .... [ ]%
- Percent guaranteed by [New York State Higher Education
Services Corporation] .................................... [ ]%
- Percent guaranteed by [Oregon Student Assistance
Commission]............................................... [ ]%
- Percent guaranteed by [Pennsylvania Higher Education
Assistance Agency] ....................................... [ ]%
- Percent guaranteed by [Tennessee Student Assistance
Corporation] ............................................. [ ]%
- Percent guaranteed by [Texas Guaranteed Student Loan
Corporation] ............................................. [ ]%
- Percent guaranteed by [United Student Aid Funds, Inc.] ... [ ]%
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INITIAL GROUP II STUDENT LOANS:
Aggregate Characteristics
- - Aggregate principal amount:.................................... $[ ]
- - Weighted average annual percentage rate:....................... [ ]%
- - Weighted average original term:................................ [ ] mths
- - Weighted average remaining term: .............................. [ ] mths
Guarantees
- - Percent not guaranteed by private guarantors................... [ ]%
- - Percent guaranteed by private guarantors....................... [ ]%
- Percent guaranteed by [The Educational Resources
Institute, Inc.].......................................... [ ]%
- Percent guaranteed by [HEMAR Insurance Corporation of
America].................................................. [ ]%
SUBSEQUENT STUDENT LOANS
The student loans that are subsequent student loans will be purchased by the
trust from the depositor with proceeds on deposit in the applicable sub-account
of the pre-funding account. The depositor will purchase all of the subsequent
student loans from Key Bank USA, National Association. All of the group I
subsequent student loans will be FFELP loans and all of the group II subsequent
student loans will be private student loans. The subsequent student loans will
have generally the same attributes applicable to the initial student loans, but
the addition of the subsequent student loans will affect the aggregate
statistical characteristics of the group I and group II student loans. The
subsequent student loans may be purchased on different dates and may have
different related cutoff dates, but all purchases of subsequent student loans by
the trust will occur on or before [ ].
PRE-FUNDING PERIOD
There will be two pre-funding accounts, each with two sub-accounts. The first of
the group I and group II pre-funding sub-accounts will have approximately $[ ]
and $[ ], respectively, deposited on the closing date to be used on or before
[ ] for the purchase of subsequent student loans into the related student loan
group. The second of the group I and group II pre-funding sub-accounts will have
approximately $[ ] and $[ ], respectively, deposited on the closing date,
which sums are expected to be used by the trust, on or prior to the end of the
funding period, to purchase consolidation loans and serial loans with respect to
each group, to pay capitalized interest on each pool of student loans and to pay
advances for certain fees related to the student loans of each group. All
amounts in excess of $[ ] remaining in the first sub-account of either
pre-funding account after [ ], and all amounts remaining in the second
sub-account of each pre-funding account after [ ], will be distributed as a
prepayment of principal to the noteholders of the related group. In addition,
the pre-funding period will terminate a business day prior to the earliest
effective date of any amendment to FASB 140 (Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities) or any other
relevant or related accounting literature that is issued, the effect of which is
to amend the criteria defining a qualifying special purpose entity or its
permitted activities. If FASB 140 is so amended or such other accounting
literature is issued then all amounts then remaining on deposit in the
pre-funding
S-15
accounts will be distributed to the related group I or group II noteholders, as
applicable, as a prepayment of principal on the next following distribution
date.
THE RESERVE ACCOUNTS
There will be two reserve accounts, each relating to one group of notes, to
cover servicing fees, administration fees, premiums due the securities insurer
(from the group II reserve account only), interest on the related group of notes
and payments due to the swap counterparty under the group I interest rate swap
(from the group I reserve account only). The reserve accounts will also be used
to make principal payments on the notes, other than the class [ ] notes, of the
related group in the same order of priority as described above under "Priority
of Payments," generally to the extent realized losses on the student loans of
such related group during any collection period exceed excess interest available
to be distributed as principal on the notes, other than the class [ ] notes, of
the related group. Amounts on deposit in each reserve account also will be
available, if necessary, to pay principal on each class of notes, other than the
class [ ] notes, in the related group on its respective final maturity date.
Initially, the amount in the group I reserve account will be approximately
$[ ] and the amount in the group II reserve account will be approximately
$[ ]. On each distribution date, any available funds remaining after making
all prior required distributions with respect to such group as described in this
prospectus supplement will be deposited into the reserve account up to the
specified reserve account balance for the related group of notes. We refer you
to "Description of the Transfer and Servicing Agreements -- Credit Enhancement
- -- Reserve Accounts" herein for a description of the specified reserve account
balance for each group of notes.
INTEREST RATE SWAP
Certain of the group I student loans have special allowance payments based on a
commercial paper rate. To reduce the risk that the rate of interest received on
the commercial paper rate student loans would not be sufficient to pay the rate
of interest on the group I notes on the closing date, the trust will enter into
an interest rate swap with [Key Bank USA, National Association], as the swap
counterparty.
On each distribution date with respect to the group I interest rate swap, the
trust will owe the swap counterparty the following amount for each of the
monthly periods in the related collection period beginning with the monthly
period commencing [ ]:
The product of:
(1) the commercial paper rate as determined in accordance with the
commercial paper rate loans as of the first day of the related monthly period;
(2) the principal balance of the group I student loans that have
special allowance payments based on the commercial paper rate as determined as
of the first day of the related monthly period; and
(3) a fraction, the numerator of which is the actual number of
days in the related monthly period and the denominator of which is 360.
On each distribution date with respect to the group I interest rate swap, the
swap counterparty will owe the trust an amount
S-16
equal to the following amount for the monthly periods in the related collection
period beginning with the monthly period commencing [ ]:
The product of:
(1) three-month LIBOR (calculated in the same manner and on such
dates as such index is calculated for the notes for the related interest period)
less [ ]%;
(2) the principal balance of the group I student loans that have
special allowance payments based on the commercial paper rate as determined as
of the first day of the related monthly period; and
(3) a fraction, the numerator of which is the actual number of
days in the related monthly period and the denominator of which is 360.
Payments on the group I interest rate swap will be made on a net basis between
the trust and the swap counterparty.
The swap counterparty has long-term, senior unsecured debt ratings of [ ] and [
] by [ ] and [ ]; respectively. The obligations of the swap counterparty
are not guaranteed by the securities insurer.
If the long-term, senior unsecured rating of the swap counterparty is withdrawn,
suspended or downgraded below [ ] by [ ] or [ ] or its equivalent by any
other rating agency then rating the notes, the swap counterparty is required, no
later than the [30th] day following such rating withdrawal, suspension or
downgrade, at the swap counterparty's expense, either to (i) obtain a substitute
swap counterparty that does not cause any of the rating agencies rating the
group I notes to reduce its then current rating of such classes of notes and
that has a long-term senior, unsecured debt rating of at least [ ] by [ ]or
[ ] or its equivalent by each other rating agency then rating the notes, or
(ii) enter into arrangements reasonably satisfactory to the indenture trustee
and each of the rating agencies then rating the group I notes, including
collateral arrangements, guarantees or letters of credit, which arrangements in
the view of such rating agency will result in the elimination of the effect or
impact of such rating withdrawal, suspension or downgrade on the noteholders
and/or the securities insurer, as applicable.
GROUP II CAP AGREEMENT
The trust will enter into an agreement on the closing date with an eligible cap
counterparty to purchase an interest rate cap agreement with respect to the
group II notes. On the closing date, the trust will pay such cap counterparty
from the net proceeds from the sale of the notes an upfront payment. Under the
group II cap agreement, on the third business day before each distribution date
to and including the [ ] distribution date, the cap counterparty will pay
to the trust an amount, calculated on a quarterly basis, equal to the product of
(a) the excess of (1) three-month LIBOR, except for the first interest period,
as determined for the interest period relating to the applicable distribution
date over (2) [ ]%and (b) the lesser of (i) a notional amount equal to
$[ ] and (ii) the aggregate principal balance of the group II notes, other
than the class [ ] notes. LIBOR for the first interest period will be
determined using the same formula as applies to the notes. Amounts, if any,
received under the group II cap agreement will be used to increase the specified
S-17
reserve account balance of the group II reserve account.
TAX STATUS
Thompson Hine LLP, as federal tax counsel to the trust, is of the opinion that
(1) the trust will not be classified as an association or a publicly traded
partnership taxable as a corporation for federal income tax purposes and (2) the
notes, including the combined class [ ] note and class [ ] note, will be
characterized as debt for federal income tax purposes. See "Income Tax
Consequences" herein. Each noteholder, by accepting a note, will agree to treat
the notes as indebtedness.
Kirkpatrick & Lockhart LLP, as Pennsylvania tax counsel to the trust, is of the
opinion that, assuming the notes are treated as debt for federal income tax
purposes, the notes will be treated as debt for Pennsylvania income tax
purposes. Moreover, Pennsylvania tax counsel is of the opinion that the entity
classification of the trust for Pennsylvania state income tax purposes would be
the same as the entity classification of the trust for federal income tax
purposes.
ERISA CONSIDERATIONS
Subject to the considerations discussed under "ERISA Considerations" herein the
notes are eligible for purchase by employee benefit plans.
RATINGS
At least two nationally recognized rating agencies must rate each class of group
I senior notes and the group II notes, other than the class [ ] notes, in the
highest investment rating category and the group I subordinate notes in one of
the four highest rating categories. In addition, it is a condition that at least
one nationally recognized rating agency assigns an investment grade rating to
the class [ ] notes.
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RISK FACTORS
We recommend that you consider the following risk factors together with
all the information contained in this prospectus supplement and the related
prospectus in deciding whether to purchase any of the notes.
YOU MAY HAVE DIFFICULTY
\SELLING YOUR SECURITIES The notes will not be listed on any
securities exchange. As a result, if you
want to sell your notes you must locate a
purchaser that is willing to purchase them.
The underwriters intend to make a secondary
market for the notes. The underwriters will
do so by offering to buy the notes from
investors that wish to sell. However, the
underwriters will not be obligated to make
offers to buy the notes and may stop making
offers at any time. In addition, the prices
offered, if any, may not reflect prices that
other potential purchasers would be willing
to pay, were they to be given the
opportunity. There have been times in the
past where there have been very few buyers
of asset backed securities, and there may be
such times in the future. As a result, you
may not be able to sell your notes when you
want to do so or you may not be able to
obtain the price that you wish to receive.
IF THE TRUST ASSETS ALLOCATED TO
YOUR GROUP OF NOTES ARE
INSUFFICIENT TO MAKE PAYMENTS
ON THE SECURITIES, YOU MAY INCUR
A LOSS The trust is not permitted to have any
significant assets or sources of funds other
than the student loans, the group II insured
notes guaranty insurance policy, the
guarantee agreements, the reserve accounts,
the escrow accounts, the pre-funding
accounts, the put options, the interest rate
swap and, to a limited extent, the basis
risk caps. The indenture only provides for
limited cross-collateralization, and
consequently, you must rely for repayment
upon payments only from the trust's assets
allocable to your group of notes. You will
have no claim to any amounts properly
distributed to the certificateholder or to
Key Consumer Receivables LLC, in its
capacity as depositor, KeyBank National
Association, in its capacity as the put
option provider, or to Key Bank USA,
National Association, in its capacities as a
seller, administrator, swap counterparty,
cap provider or master servicer, or to any
of the sub-servicers, from time to time.
S-19
Group I Notes: With respect to the group I
notes, if for any reason the group I reserve
account and the group I pre-funding account
are exhausted, the trust will depend solely
on payments with respect to the group I
student loans and payments by the swap
counterparty to make payments on your group
of notes and you could suffer a loss.
Group II Notes: With respect to the group II
notes, if you are a holder of any class [ ]
notes or class [ ] notes, or if you are a
holder of any class of group II insured
notes and for any reason the securities
insurer fails to make payments due under the
group II insured notes guaranty insurance
policy, and the group II reserve account and
the group II pre-funding account are
exhausted, the trust will depend solely on
payments with respect to the group II
student loans and payments by the swap
counterparty (other than with respect to the
class [ ] notes) to make payments on your
group of notes and you could suffer a loss.
REVENUES RELATING TO EACH GROUP
OF NOTES MAY NOT BE AVAILABLE FOR
PAYMENT OF NOTES OF THE OTHER
GROUP The revenues relating to each group of
student loans will be allocated first to
expenses and all other amounts required to
be paid with respect to the related group of
notes. Those revenues will be available for
payments with respect to the other group
only to the extent they exceed amounts
required to be applied with respect to the
related group. If the revenues from one
group are not sufficient to make required
payments with respect to that group, there
is no assurance that revenues from the other
group will be available to make up any
shortfall.
In addition, if all related student loans of
a group are sold in connection with the
redemption of the notes of that group
(either through the exercise of the related
put option, an auction sale or an optional
purchase by the master servicer) or after
all the notes of a group are otherwise paid
in full, there will be no further revenues
of that group available to the other group
on any basis.
Group I Student Loans: Payments with respect
to the FFELP loans, including payments from
the guarantee agencies or the Department of
Education, and other amounts available for
distribution to holders of group I notes at
any time will not be available for
distribution to
S-20
holders of group II notes except to the
extent they exceed all amounts then required
to be distributed with respect to the
administration of the FFELP loans and the
payment of group I notes. You should not
assume that any such revenues will be
available.
Group II Student Loans: Payments with
respect to the private student loans, and
other amounts available for distribution to
holders of group II notes at any time will
not be available for distribution to holders
of group I notes except to the extent they
exceed all amounts then required to be
distributed with respect to the
administration of the private loans and the
payment of group II notes. You should not
assume that any such revenues will be
available. In addition, no amounts from the
group II insured notes guaranty insurance
policy will be payable to holders of group I
notes, the class [ ] notes or the class [ ]
notes.
THE TRUST'S PURCHASE OF GROUP I
STUDENT LOANS AT A PREMIUM MAY
RESULT IN LOSSES The sum of the outstanding principal balance
of the initial student loans in group I as
of the statistical cutoff date and the
amount deposited in the related pre-funding
account, the related reserve account and the
related sub-account of the collection
account on the closing date will equal
approximately [ ]% of the original principal
balance of the group I notes. In addition,
the above percentage without giving effect
to amounts initially on deposit in the
related reserve account is approximately [
]%. Each group I subsequent student loan
will be purchased by the trust for an amount
not in excess of 100% of the principal
balance thereof. There can be no assurance
that the aggregate principal amount of the
group I notes at all times will be equal to
or less than the sum of the principal amount
of the related pool of student loans for
such group plus the amount in the related
pre-funding account and the amounts on
deposit in the related reserve account. If
an event of default occurs under the
indenture, and the group I student loans are
liquidated at a time when the outstanding
principal amount of the group I notes
exceeded the sum of the principal amount of
the group I student loans, the amount on
deposit in the group I pre-funding account
and the amounts on deposit in the group I
reserve account, the group I noteholders
will suffer a loss.
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THE CHARACTERISTICS OF THE
STUDENT LOANS MAY CHANGE Certain characteristics of the student loans
in each group will vary from the
characteristics of the related initial
student loans due to payments received and
other changes in the related initial student
loans that occur from the statistical cutoff
date to the cutoff date, the addition of
subsequent student loans in each group of
student loans, and due to the trust's
purchase of consolidation loans and serial
loans with respect to each group of student
loans. Each group's distribution by loan
type and weighted average interest rates may
vary as a result of variations in the
effective rates of interest applicable to
the related student loans after each
transfer of additional student loans to the
trust (and such group) and the remaining
term of the deferral and forbearance
periods.
Key Bank USA, National Association,
currently makes available and may in the
future make available certain incentive
programs to borrowers. The effect of these
incentive programs may be to reduce the
yield on the initial pool of student loans.
YOUR YIELD TO MATURITY MAY BE
REDUCED BY PREPAYMENTS,
DELINQUENCIES AND DEFAULTS The pre-tax return on your investment is
uncertain and will depend on a number of
factors including the following:
- THE RATE OF RETURN OF PRINCIPAL IS
UNCERTAIN. The amount of distributions of
principal on each group of notes, other than
the class [ ] notes with respect to the
group II notes, and the time when you
receive those distributions depends on the
amount and the times at which borrowers make
principal payments on the related student
loans. Those principal payments may be
regularly scheduled payments or unscheduled
payments resulting from prepayments,
defaults or consolidations of the student
loans.
Group I Notes: With respect to the group I
notes, in the event of a related subordinate
note principal trigger, the group I
subordinate notes will not receive any
payments of principal until all of the group
I senior notes have been repaid in full. In
this event, the yield to maturity of the
group I subordinate notes may be adversely
impacted and the holders of the group I
subordinate notes could suffer a loss. With
respect to the group I senior notes, in the
event of a subordinate note principal
trigger, the group I senior
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noteholders will receive accelerated
payments of principal and such noteholders
will bear the risk of any reinvestment risk
resulting from these accelerated payments of
principal.
Group II Notes: With respect to the class [
] notes, and the group II insured notes if
the securities insurer defaults, in the
event of a related subordinate note
principal trigger, the group II subordinate
notes will not receive any payments of
principal (absent required payments under
the group II insured notes guaranty
insurance policy) until all of the group II
senior notes have been repaid in full. In
this event, the yield to maturity of the
group II subordinate notes may be adversely
impacted and (absent required payments under
the group II insured notes guaranty
insurance policy) the holders of the group
II subordinate notes could suffer a loss.
With respect to the group II senior notes
other than the class [ ] notes, in the event
of a subordinate note principal trigger, the
group II senior noteholders other than the
holders of the class [ ] notes will receive
accelerated payments of principal and such
noteholders will bear the risk of any
reinvestment risk resulting from these
accelerated payments of principal. Moreover,
as a result of certain other triggers
required by the rating agencies relating to
losses on the group II student loans, the
holders of the group II notes may receive
accelerated payments of principal and such
noteholders will bear any reinvestment risk
resulting from these accelerated payments of
principal, and, if the securities insurer
defaults on its obligations, holders of the
group II notes could suffer a loss.
- YOU MAY RECEIVE A SIGNIFICANT
PRINCIPAL PREPAYMENT ON [ ]. The trust
intends to purchase subsequent student loans
with $[ ]and $[ ] that will be deposited in
the first sub-account of the group I and
group II pre-funding accounts, respectively,
on the closing date. If the entire amount in
either first sub-account of the related
pre-funding account is not used to purchase
subsequent student loans by [ ] you may
receive a principal prepayment on [ ]. If
the amount remaining in the first
sub-account of the group I or group II
pre-funding account on such date is $[ ] or
less, the indenture trustee, or the
administrator on its behalf, will transfer
such amount to the second sub-account of the
group I or group II pre-funding account, as
applicable; or if either of such remaining
amounts is greater than $[ ], the indenture
trustee will distribute such amounts to each
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class of notes in the related group of
notes, pro rata, based on the initial
principal balance of each class of notes in
the related group of notes.
- YOU MAY RECEIVE A PREPAYMENT OF
PRINCIPAL AT THE END OF THE FUNDING PERIOD.
Approximately $[ ] and $[ ] will be
deposited on the closing date into the
second sub-account of the group I and group
II pre-funding accounts, respectively, to be
used primarily to purchase student loans
that are consolidation loans or serial loans
that are eligible to be purchased by the
trust during the funding period. If amounts
on deposit in either of these second
sub-accounts are not fully utilized by the
end of the funding period, the related
noteholders may receive a principal
prepayment. Any such amount will be
distributed on the distribution date
immediately after the end of the funding
period.
Amounts on deposit in these pre-funding
sub-accounts may not be utilized by the end
of the pre-funding period, either because
sufficient eligible consolidation or serial
loans have not been originated by such time
or the pre-funding period was terminated on
an earlier date because of an amendment to
FASB 140 (Accounting for Transfers and
Servicing of Financial Assets and
Extinguishments of Liabilities) or the
issuance of new accounting literature, which
is issued to amend the criteria defining a
qualifying special purpose entity or its
permitted activities. There can be no
assurance when or if such a change in
accounting standards will occur. If a change
in accounting standards were to occur early
in the funding period, the amount of the
principal payment to the applicable class of
noteholders could be substantial.
- PROPOSED LEGISLATION IF ADOPTED MAY
RESULT IN MORE RAPID REPAYMENTS OF
CONSOLIDATION LOANS. Several bills have
recently been introduced in the U.S. House
of Representatives that, if enacted into
law, would permit borrowers under most
consolidation loans to refinance their
student loans at lower interest rates. At
this time, it is difficult to predict
whether any of these bills will be enacted
into law or when such legislation might
become effective. Any legislation that
permits borrowers to refinance existing
consolidation loans at lower interest rates
could significantly increase the rate of
prepayments on the student loans.
Approximately [ ]% of the initial group I
student loans are consolidation loans, and
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potentially all of the group I student loans
could be consolidation loans. If these
borrowers choose to refinance their existing
consolidation loans, the length of time that
the group I notes are outstanding and their
weighted average lives may be shortened
significantly.
- PROPOSED LEGISLATION COULD RESULT
IN MORE RAPID REPAYMENT THROUGH
GOVERNMENT-SPONSORED LOAN FORGIVENESS.
Numerous bills have recently been introduced
in the U.S. House of Representatives and
Senate that, if enacted into law, would
expand existing provisions allowing for loan
forgiveness of certain Stafford and
consolidation loans for qualifying
borrowers. This legislation would expand
existing loan forgiveness programs
authorized under sections 428J and 428K of
the Higher Education Act providing loan
forgiveness for qualifying student loan
borrowers who are teachers or childcare
workers. At this time, it is difficult to
predict whether any of these bills, or
versions of them that may include additional
professions, will be enacted into law or
when such legislation might become
effective.
- YOU MAY NOT BE ABLE TO REINVEST
DISTRIBUTIONS IN COMPARABLE INVESTMENTS.
Asset backed securities, like the securities
offered by this prospectus supplement,
usually produce more returns of principal to
investors when market interest rates fall
below the interest rates on the student
loans and produce less returns of principal
when market interest rates are above the
interest rates on the student loans. As a
result, you are likely to receive more money
to reinvest at a time when other investments
generally are producing a lower yield than
that on the notes, and are likely to receive
less money to reinvest when other
investments generally are producing a higher
yield than that on the notes. You will bear
the risk that the timing and amount of
distributions on your notes will prevent you
from attaining your desired yield.
- AN EARLY TERMINATION WILL SHORTEN
THE LIFE OF YOUR INVESTMENT WHICH MAY REDUCE
YOUR YIELD TO MATURITY. Your investment in
the notes may end before you desire if (1) a
majority of the group I senior noteholders,
or the group I subordinate noteholders if no
group I senior notes are outstanding (with
respect to the group I notes), or a majority
of the group II senior noteholders, or the
group II subordinate noteholders if no group
II senior notes are outstanding (with
respect to the group II notes), choose to
S-25
exercise the put option with respect to your
group of notes (which results in either the
purchase of the related group of student
loans by KeyBank National Association or a
successful auction of such student loans),
or (2) the master servicer exercises its
option to purchase all of the student loans.
In such event, because your notes will no
longer be outstanding, you will not receive
the additional interest payments that you
would have received had the notes remained
outstanding. In addition, you may not be
able to reinvest the principal you receive
at a rate comparable to that on your notes.
THE CLASS [ ] NOTES ARE
ESPECIALLY SENSITIVE TO RAPID
PREPAYMENTS OF THE GROUP II
STUDENT LOANS An investment in the class [ ] notes is
risky because the return of the investment
depends solely on the payments of interest
by borrowers under the group II student
loans. The class [ ] notes receive only
payments of interest and are sensitive to
variations in the rate of prepayments on the
group II student loans. If you purchase a
class [ ] note and the rate of prepayments
on the group II student loans is faster than
you expected, your yield will be lower than
expected and under certain prepayment
scenarios you may not fully recoup your
initial investment.
RISKS WITH RESPECT TO THE GROUP
I INTEREST RATE SWAP In certain circumstances following a default
under the group I interest rate swap or a
termination event (each as more fully
described under "Description of the Transfer
and Servicing Agreements -- Interest Rate
Swap") the group I interest rate swap is
subject to early termination. In the event
of an early termination of the group I
interest rate swap, the trust or the swap
counterparty may be liable to pay the other
a termination payment (regardless of which
party has caused the termination), which
will be based on the value of the group I
interest rate swap computed in accordance
with the procedures set forth in the group I
interest rate swap. Any such termination
payment required to be made by the trust
could be substantial, and could reduce the
amounts otherwise payable to the group I
notes. In addition, if the swap counterparty
defaults on its obligations under the group
I interest rate swap, the student loan rate
on the group I notes will be lower than it
would have been had the swap counterparty
made its required payment and consequently,
the interest rate on each class of group I
notes is more
S-26
likely to be subject to the related student
loan rate. In this event, the liquidity and
marketability of your group I notes may
decline.
YOU MAY NOT RECEIVE CURRENT
PAYMENTS AT THE APPLICABLE
INTEREST RATE You may not be paid interest at the related
note rate on each class of notes, other than
the class [ ] notes, because payments of
interest on those notes are subject to a
maximum rate of interest equal to the
student loan rate. The student loan rate may
be triggered for any of the following
reasons:
- Due to market forces, the
applicable index used to calculate interest
on any class of notes, other than the class
[ ] notes (plus the applicable margin)
becoming greater than the indices used to
calculate interest on the related group of
student loans.
- The principal balance of each group
of student loans will initially be less than
the aggregate principal amount of the
applicable notes in each group.
Consequently, the aggregate principal
balances of each group of student loans on
which interest will be collected will be
less than the principal amount of the
applicable notes in each group.
- The student loan rate will be
reduced as a result of the trust's
obligation to pay certain amounts to the
Department of Education (with respect to
group I student loans) or to repay certain
amounts to borrowers.
The group II insured notes guaranty
insurance policy guarantees payments of
interest on the group II insured notes only
up to the student loan rate. As a result you
may realize a lower than anticipated yield
on your investment.
Although, with respect to each group of
notes, other than the class [ ] notes with
respect to group II, the cap provider is
obligated to pay the difference between the
applicable note rate and the related student
loan rate, the obligations of the cap
provider under each basis risk cap are
dependent on the cap provider's ability to
make the necessary payments and are not
rated by any rating agency. If the interest
rate relating to your group of notes, other
than the class [ ] notes with respect to
group II, is subject to the student loan
rate and the cap provider
S-27
defaults or the related basis risk cap is
terminated, you may receive interest not
previously paid because of the application
of the related student loan rate on
subsequent distribution dates on a
subordinated basis. We cannot assure you
that there will be sufficient funds
available for that purpose. The group II
insured notes guaranty insurance policy does
not guaranty the payments by the cap
provider. If your note rate is limited by
the student loan rate, the market value and
liquidity of your notes may decline. In
addition, there can be no assurance the
related basis risk cap will not terminate in
accordance with its terms before the
outstanding principal balance of your class
of notes, other than the class [ ] notes
with respect to group II, is reduced to
zero.
RELIANCE ON SUB-SERVICERS
FOR SERVICING STUDENT LOANS Although the master servicer is obligated to
cause the student loans to be serviced in
accordance with the terms of the transaction
agreements, except with respect to
approximately [ ] % of the initial group II
student loans, by outstanding principal
balance as of the statistical cut-off date,
that are serviced directly by Key Bank USA,
National Association, the timing of payments
will be directly affected by the ability of
the sub-servicers to adequately service the
student loans. In addition, you will be
relying on each of the sub-servicers'
compliance with federal and private program
regulations, as applicable, to ensure that
the guarantors are obligated to maintain
guaranteed payments and that any reinsurance
by the Department of Education (with respect
to the group I notes) is maintained. If a
sub-servicer defaults on its obligations and
is terminated, you will be relying on the
ability of the master servicer to find an
alternative sub-servicer to service the
student loans and you may suffer a delay in
the timing of payments until any transfer of
servicing is completed or effective.
SUB-SERVICERS MAY MAKE IT
MORE DIFFICULT TO FIND A
SUCCESSOR MASTER SERVICER The master servicer or any successor master
servicer may only terminate a sub-servicer
for cause or by paying a deconversion fee.
Moreover, a successor master servicer is
responsible for any breaches by the
sub-servicer of a subservicing agreement. As
a result, it may be more difficult to find a
successor master servicer than if the
successor master servicer were able to
terminate the sub-servicer without the
payment of a deconversion fee or if
S-28
the successor master servicer were not
liable for breaches by the sub-servicer. Any
delay in finding a successor master servicer
may cause the market value and liquidity of
your notes to decline, and, with respect to
the group II insured notes, if the
securities insurer defaults, cause you to
suffer a loss on your investment.
LIMITED PERFORMANCE HISTORY
ON UNGUARANTEED GROUP II
STUDENT LOANS Key Bank USA, National Association, has been
originating unguaranteed student loans only
since 1995, and only a portion of these
loans have been in active repayment status
for an extended period of time. If you own
any group II notes, you bear the prepayment
and yield risk that prepayments on the
unguaranteed group II student loans are
faster or slower than you anticipated. In
addition, if you own any class [ ] notes or
class [ ] notes, or if you own any group II
insured notes and the securities insurer
defaults, you will also bear the risk that
the level of losses and delinquencies on the
group II student loans will exceed the other
limited credit enhancement of the financing
structure available to the group II notes.
RISK OF DEFAULT OF UNGUARANTEED
GROUP II STUDENT LOANS The group II student loans are generally
dischargeable by a borrower in bankruptcy
[(unless it is determined that such student
loan has been made under any program funded
in whole or in part by a governmental unit
or non-profit institution)]. If you own any
class [ ] notes or class [ ] notes, or if
you own any group II insured notes and the
securities insurer defaults, you will bear
any risk of loss resulting from the default
by any borrower of an unguaranteed student
loan to the extent the amount of the default
is not covered by the other limited credit
enhancement of the financing structure
available to the group II notes.
RISK OF DEFAULT BY PRIVATE
GUARANTORS ON THE GROUP II
STUDENT LOANS Currently, [except for The Educational
Resources Institute, Inc. (also known as
TERI)], none of the private guarantors has
an investment grade credit rating by any
national statistical rating organization. If
a private guarantor defaults on its
guarantee obligations, and you own any class
of group II notes, you will rely solely on
payments from the related borrower for
payments on the related private guaranteed
loan. In these circumstances, if you are
S-29
a holder of any class [ ] notes or class [ ]
notes, or if you are a holder of any group
II insured notes and the securities insurer
defaults, you will bear the risk of loss
resulting from the failure of any borrower
of a private guaranteed group II student
loan if the securities insurer defaults
(with respect to the group II insured notes
only) or the limited credit enhancement
provided by the financing structure
available to the group II notes is
inadequate to cover such loss. [Moreover, if
a [TERI trigger event] occurs, payments on
the notes may be accelerated and you will
bear the risk of reinvestment and any
adverse effect on the weighted average life
and yield on your notes.]
RISK OF DEFAULT ON REHABILITATED
GROUP II STUDENT LOANS Approximately [ ] % [no more than 5%] of the
initial group II student loans, as of the
statistical cut-off date, were at one time
in default but have since been
rehabilitated. All of these loans are 100%
guaranteed by [TERI]. However, there can be
no assurance that these group II student
loans will not become delinquent again at
some point in the future. In the event that
any of these group II student loans defaults
again, if you own any [ ] notes or class [ ]
notes, or if you own any group II insured
notes and the securities insurer defaults,
and/or [TERI] defaults in its guarantee
obligations, you will suffer a loss. None of
the subsequent loans will be rehabilitated
student loans.
INVESTORS IN THE SUBORDINATE
NOTES ARE SUBJECT TO VARIABILITY
OF CASH FLOWS AND FACE GREATER
RISK OF LOSS Although interest on the group I and group
II subordinate notes generally will be paid
prior to principal on the related group of
senior notes, if a related subordinate note
interest trigger is in effect for a class of
subordinate notes, interest on such
subordinate notes will be subordinated to
the payment of principal on the related
group of senior notes. In addition,
principal on the group I and group II
subordinate notes, as applicable, will not
begin to be paid until the related stepdown
date. Moreover, the group I and group II
subordinate notes, as applicable, will not
receive any payments of principal after the
stepdown date if a related subordinate note
principal trigger occurs and is continuing
until the related group of senior notes have
been paid in full. Thus, investors in the
group I and group II subordinate notes, as
applicable, will bear losses on the group I
or group II student loans, as the case may
be, prior
S-30
to such losses being borne by holders of the
related senior notes. Investors in the
subordinate notes will also bear the risk of
any adverse effects on the anticipated yield
and weighted average life of their notes
resulting from the variability in payments
on their subordinate notes.
THE GROUP I NOTES MAY BE
ADVERSELY AFFECTED BY A
HIGH RATE OF PREPAYMENTS In periods of low interest rates, borrowers
of FFELP loans have a tendency to
consolidate their variable rate FFELP loans,
resulting in higher levels of prepayments
than anticipated. Prepayments may also
result from borrower defaults and from
voluntary and full or partial prepayments,
among other things. The interest rates on
FFELP consolidation loans were adjusted
downward on July 1, 2003, making it more
attractive for borrowers to consolidate
their outstanding variable rate FFELP loans.
The yield to group I noteholders could be
adversely affected if holders of variable
rate loans prepay or consolidate their FFELP
loans at greater levels than anticipated and
could result in a lower than anticipated
yield to maturity or a shorter than expected
weighted average life of certain classes of
group I notes.
PAYMENT PRIORITIES ON THE NOTES
CHANGE UPON CERTAIN EVENTS OF
DEFAULT Upon the occurrence of an event of default
with respect to a group of notes and the
acceleration of such group of notes, payment
of the principal of and interest on the
related subordinate notes will be fully
subordinated to the payment in full of all
amounts due and payable on the related
senior notes. Following such acceleration,
if available funds are not sufficient to
fully repay all of the notes in such group
(and, with respect to the class [ ] notes,
the securities insurer does not make its
required payments under the group II insured
notes guaranty insurance policy), the
holders of the related subordinate notes
will suffer a loss.
THE FAILURE TO PAY THE SUBORDINATE
NOTES IS NOT AN EVENT OF DEFAULT So long as group I or group II senior notes,
as applicable, are outstanding, the
indenture provides that there cannot be an
event of default for the failure to pay
interest or principal on the related
subordinate notes. If amounts otherwise
allocable to the group I or group II
subordinate notes are used to fund payments
of interest and/or
S-31
principal, as applicable, on the group I or
group II senior notes, respectively (and,
with respect to the class [ ] notes, the
securities insurer does not make its
required payments under the group II insured
notes guaranty insurance policy),
distributions on the related subordinate
notes may be delayed or reduced and you may
suffer a loss.
THE HOLDERS OF GROUP I SENIOR
NOTES HAVE CERTAIN CONTROLLING
RIGHTS Until the group I senior notes are no longer
outstanding, the group I senior noteholders
will control substantially all of the rights
of the group I subordinate noteholders.
Without the consent of the group I
subordinate noteholders, a majority of the
group I senior noteholders may, among other
things, (1) decide whether or not to
exercise the group I put option, (2) declare
or waive certain defaults by or cause the
removal of the master servicer with respect
to the group I student loans, (3) consent to
the entering into of certain supplemental
indentures, (4) upon the occurrence and
continuation of an event of default under
the indenture with respect to the group I
notes: instruct the indenture trustee to
declare the principal of the group I notes
to be immediately due and payable or to
subsequently rescind such acceleration,
instruct the indenture trustee concerning
any related proceedings or remedies, and
waive certain non-payment defaults affecting
the group I notes under the indenture, and
(5) direct the trust to terminate the group
I interest rate swap in the event of a swap
counterparty default. After the group I
senior notes are paid in full, the group I
subordinate noteholders will then possess
these voting rights.
THE SECURITIES INSURER HAS
CONTROLLING RIGHTS WITH RESPECT
TO THE GROUP II INSURED NOTES AND
CERTAIN RIGHTS WITH RESPECT TO
THE INDENTURE AND THE TRUST For so long as no securities insurer default
has occurred and is continuing, the
securities insurer will be deemed to be
treated as a 100% holder of the group II
insured notes, for which payments are
insured by the securities insurer, for
purposes relating to the exercise of rights
under the indenture. As a result, the
securities insurer will have the right to
exercise all of the rights of the holders of
the group II insured notes set forth in the
prospectus, which (together with the rights
held by the class [ ] noteholders) include
S-32
the rights to (1) declare or waive certain
defaults by or cause the removal of the
master servicer with respect to the group II
student loans, (2) consent to the entering
into of certain supplemental indentures, (3)
consent to the appointment of any successor
master servicer with respect to the group II
student loans, and (4) upon the occurrence
and continuation of an event of default
under the indenture with respect to the
group II notes: instruct the indenture
trustee to declare the principal of the
group II notes to be immediately due and
payable or to subsequently rescind such
acceleration, instruct the indenture trustee
concerning any related proceedings or
remedies, and waive certain non-payment
defaults affecting the group II notes under
the indenture. In addition, until the class
[ ] and class [ ] notes are paid in full,
the securities insurer (unless a securities
insurer default has occurred and is
continuing) will be able to exercise control
over decisions that otherwise might require
the consent of a specified percentage of the
holders of the class [ ] notes.
The holders of the class [ ] notes will not
be allocated any voting rights and will be
subject to the decisions made by the
applicable controlling noteholders.
Moreover, it is expected that soon after the
issuance of the notes, the class [ ] notes
will be repackaged in the secondary market
and the securities insurer will issue a
policy for the benefit of the purchasers of
those securities. In this event, for so long
as the securities insurer has not defaulted
on the related policy and such policy is in
full force and effect, the securities
insurer will possess all voting rights
otherwise exercisable by the holders of the
class [ ] notes.
In addition, without the consent of any
noteholders, including the group I
noteholders, the securities insurer shall
have the right to remove the administrator
following an administrator default or the
trustee following a trustee default and will
have the right to consent to the appointment
of any successor trustee or administrator.
RATINGS ON YOUR NOTES ONLY
ADDRESS PAYMENT OF PRINCIPAL BY
THE FINAL MATURITY DATE Each class of notes, other than the class [
] notes, is rated as to the receipt of
principal on or by the related final
maturity date. Despite the existence of the
put options, there are no guarantees that
the put option relating to your
S-33
notes will be exercised on its related
exercise date (either through a decision by
the related controlling parties not to
exercise the related put option, the
inability of the indenture trustee to
exercise the put option because the fair
market value of the related student loans is
insufficient or a default by the put option
provider). In addition, in the event that
the put option relating to your group of
notes is exercised, if the put option
provider defaults on its purchase
obligations with respect to such put option,
there is no assurance that the resulting
auction sale will result in a bid at least
equal to the minimum purchase amount, in
which event the indenture trustee will not
be permitted to consummate a sale of the
related group of student loans. Finally, the
master servicer may choose, at its sole
option, not to exercise its optional
purchase rights with respect to the student
loans. If any of these events occur, you may
not receive a return of principal on your
notes as quickly as you anticipated.
MASTER PROMISSORY NOTE For periods of enrollment beginning on or
after July 1, 1999, a master promissory note
may evidence any student loan made to a
borrower under the Federal Family Education
Loan Program. Under the master promissory
note, each borrower executes only one
promissory note with each lender. Subsequent
student loans from that lender are evidenced
by a confirmation sent to the student.
Therefore, if a lender originates multiple
student loans to the same student, all the
student loans are evidenced by a single
promissory note.
Pursuant to the Higher Education Act, each
student loan made under a master promissory
note may be sold independently of any other
student loan note under the same master
promissory note and each such student loan
is separately enforceable on the basis of an
original or copy of the master promissory
note. Also, a security interest in such
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 the Federal Family Education Loan
Program was evidenced by a separate note.
Delivery of the original note was required
to effect a transfer or assignment.
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Certain of the initial student loans have
been originated under a master promissory
note and it is expected that serial loans or
consolidation loans purchased during the
funding period will be originated under a
master promissory note. If through
negligence or otherwise the master servicer
(or a sub-servicer on its behalf) 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 such student
loan. Such third party's interest may be
prior to or on parity with the interest of
the indenture trustee.
WITHDRAWAL OR DOWNGRADING
OF INITIAL RATINGS WILL
ADVERSELY AFFECT THE PRICES
FOR THE NOTES The rating of the group I notes and the
class [ ] and class [ ] notes will depend
primarily on an assessment by the rating
agencies of the group I student loans and
the group II student loans, respectively.
Any subsequent downgrade in the assessment
of the credit quality of the group I student
loans or the group II student loans, as
applicable, may result in a reduction in the
rating initially assigned to the group I
notes or the class [ ] and class [ ] notes,
as the case may be. In addition, the rating
agencies will take into account the long
term debt rating of the swap counterparty
and a reduction in the long term debt rating
of the swap counterparty may adversely
impact the rating initially assigned to the
group I notes or the class [ ] notes, as the
case may be.
The rating of the group II insured notes,
will depend primarily on an assessment of
the financial strength of the securities
insurer and on an assessment by the rating
agencies of the group II student loans. Any
reduction in a rating assigned to the
financial strength of the securities insurer
below the rating initially given to the
group II insured notes, may result in a
reduction in the rating of the group II
insured notes.
A security rating is not a recommendation to
buy, sell or hold securities. Similar
ratings on different types of securities do
not necessarily mean the same thing. We
recommend that you analyze the significance
of each rating independently from any other
rating. Any rating agency may change its
rating of the notes after the notes are
issued if that rating agency believes that
circumstances
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have changed. Any subsequent withdrawal or
downgrading of a rating will likely reduce
the price that a subsequent purchaser will
be willing to pay for the applicable notes.
The ratings do not address the likelihood of
the ultimate payment to you of any interest
in excess of the student loan rate,
including amounts required to be paid by the
cap provider.
None of the trust, the depositor, the
seller, the administrator, the master
servicer, any sub-servicer, the indenture
trustee or the eligible lender trustee is
required to maintain the rating of any class
of the notes. Any downgrade in the ratings
assigned to your notes could result in a
decline in the market value and liquidity of
your securities.
THE NOTES ARE NOT
SUITABLE INVESTMENTS
FOR ALL INVESTORS The notes, and in particular the subordinate
notes, are not a suitable investment if you
require a regular or predictable schedule of
payments or payment on any specific date.
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, the tax
consequences of an investment, and the
interaction of these factors.
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DEFINED TERMS
In later sections, we use a few terms that we define in the Glossary at
the end of this prospectus supplement. These terms appear in BOLD FACE on their
first use and in initial capital letters in all cases.
FORMATION OF THE TRUST
THE TRUST
KeyCorp Student Loan Trust [ ] is a statutory trust formed under
Delaware law and under [a trust agreement][an amended and restated trust
agreement], dated as of [ ], between the depositor and the eligible lender
trustee. The assets of the trust will include the student loans. The group I
student loans will be reinsured by the Department of Education and are sometimes
referred to in this prospectus supplement as federal loans. The group II student
loans will not be reinsured by the Department of Education or any other
government agency. Some of the group II student loans will be guaranteed by a
private guarantor and some of the group II student loans will not be guaranteed
by any person as described in this prospectus supplement. Group II student loans
that are guaranteed by a private guarantor are sometimes referred to in this
prospectus supplement as guaranteed private loans and group II student loans
that are not guaranteed by any person are sometimes referred to in this
prospectus supplement as unguaranteed private loans. As described under
"Description of the Securities--The Notes" the group I notes will be entitled to
receive payments of interest and principal from the cashflow on the group I
student loans and except for limited cross-collateralization, the group I notes
will not be entitled to any cashflow from the group II student loans; likewise,
the group II notes, other than the class [ ] notes, will be entitled to receive
payments of interest and principal, and the class [ ] notes will be entitled to
payments of interest, from the cashflow on the group II student loans, and
except for limited cross-collateralization, the group II notes will not be
entitled to any cashflow from the group I student loans.
The trust will not engage in any activity other than:
- acquiring, holding and managing the student loans and the
other assets of the trust and related proceeds;
- issuing the notes and certificates;
- making payments on them;
- entering into and performing its obligations under the group I
interest rate swap, the basis risk caps and the put options
for each group of the student loans, the group II cap
agreement and the insurance agreement, dated as of [], among
the securities insurer, the master servicer, the seller, the
administrator, the trust, the depositor, the eligible lender
trustee and the indenture trustee relating to the group II
insured notes; and
- engaging in other activities that are related to the
activities listed above.
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The trust will be initially capitalized with equity of approximately $[
] representing the amount deposited by the depositor into the two reserve
accounts on the closing date in the name of the indenture trustee. The reserve
account for the group I notes will have an initial balance of approximately $[ ]
and the reserve account for the group II notes will have an initial balance of
approximately $[ ]. The net proceeds from the sale of the notes will be used by
the eligible lender trustee to purchase on behalf of the trust the initial
student loans from the depositor under the sale and servicing agreement dated as
of [ ] among the trust, the depositor, the administrator, the master servicer
and the eligible lender trustee and to fund the deposit of approximately $[ ]
with respect to the group I notes and $[ ] with respect to the group II notes
into pre-funding accounts to be maintained by the indenture trustee for each of
the group I and group II notes. Each pre-funding account will have two separate
sub-accounts. Approximately $[ ] of the amount in the group I pre-funding
account and approximately $[ ] of the amount in the group II pre-funding account
will be allocated to the related first sub-account to be used exclusively for
the purchase of subsequent group I student loans and subsequent group II student
loans, respectively. The remaining amounts in each pre-funding account will be
allocated to the related second sub-account, which will be used to purchase
other student loans during the FUNDING PERIOD.
Following completion of these transactions, the property of the trust
will consist of:
- the initial student loans, legal title to which is held by the
eligible lender trustee on behalf of the trust;
- all funds collected on the initial student loans on or after
the cutoff date;
- all guarantee agreements and other relevant rights under
certain collateral agreements with respect to the guaranteed
private loans, to the extent guaranteed or insured by third
parties, and assigned to the trust by the depositor;
- all moneys and investments on deposit, from time to time, in
the collection account, the two pre-funding accounts, the two
reserve accounts and two escrow accounts in the name of the
indenture trustee; and
- the group I interest rate swap, the group II cap agreement,
the basis risk caps, the put options and rights of the trust
under the insurance agreement, each as described below.
On the closing date, portions of the net proceeds from the sale of the
initial student loans will be paid to: [Key Bank USA, National Association] for
entering into the group I interest rate swap and the two basis risk cap
agreements with the trust; [KeyBank National Association] for entering into the
put option agreements with the trust; and [Key Bank USA, National Association]
for entering into the group II cap agreement.
On the closing date, a portion of the net proceeds from the sale of the
initial student loans will also be paid to the securities insurer in payment for
the issuance of the group II insured notes guaranty insurance policy described
in this prospectus supplement.
To facilitate servicing and to minimize administrative burden and
expense, the master servicer will be appointed by the eligible lender trustee as
the custodian, and the master servicer will then appoint the sub-servicers as
the custodians on behalf of the indenture trustee and trust,
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of the promissory notes representing the student loans that each services on
behalf of the master servicer. For those loans that the master servicer is
servicing directly, [ ] will be appointed as custodian, on behalf of the
indenture trustee and trust, of the related promissory notes and other items in
the related student loan file.
As of the statistical cutoff date, the initial group I student loans
had an aggregate principal balance of approximately $[ ] and the initial group
II student loans had an aggregate principal balance of approximately $[..].
Unless we state otherwise, all information regarding the initial student loans
is presented in this prospectus supplement as of [ ], which is the statistical
cutoff date.
ELIGIBLE LENDER TRUSTEE
[ ] is the eligible lender trustee for the trust and acts as holder of
legal title to the student loans on behalf of the trust. The principal offices
of [ ] are located at [ ] and its [ ] offices are located at [ ].
The eligible lender trustee will acquire on behalf of the trust legal
title to all the student loans acquired from time to time under the sale and
servicing agreement. The eligible lender trustee on behalf of the trust will
enter into a guarantee agreement or comparable arrangement with each of the
guarantors described in this prospectus supplement [(including assignments of
rights under surety bonds issued by HEMAR Insurance Corporation of America (also
known as HICA)] with respect to the student loans that are guaranteed or
insured. The eligible lender trustee qualifies as an eligible lender and owner
of all group I and group II student loans for all purposes under the Higher
Education Act of 1965 and the guarantee agreements. Failure of the group I loans
to be owned by an eligible lender would result in the loss of any guarantee
payments from any of the following federal guarantors: [American Student
Assistance, California Student Aid Commission, Colorado Student Loan Program,
Connecticut Student Loan Foundation, Educational Credit Management Corporation,
Great Lakes Higher Education Guaranty Corporation, Illinois Student Assistance
Commission, Kentucky Higher Education Assistance Authority, Michigan Higher
Education Assistance Agency, National Student Loan Program, New York State
Higher Education Services Corporation, Oregon Student Assistance Commission,
Pennsylvania Higher Education Assistance Agency, Tennessee Student Assistance
Corporation, Texas Guaranteed Student Loan Corporation or United Student Aid
Funds, Inc.], and any federal assistance with respect to such group I student
loans. The federal guarantors described in the last sentence are also known
individually as [ASA, CSAC, CSLP, CSLF, ECMC, GLHEGC, ISAC, KHEAA, MHEAA, NSLP,
NYHESC, OSAC, PHEAA, TSAC, TGSLC and USAF], respectively. See "The Student Loan
Pools--Insurance of Student Loans; Guarantors of Student Loans" herein.
[LIST OF ACTUAL GUARANTORS, BOTH FEDERAL AND PRIVATE, WILL BE REVISED
IN EACH PROSPECTUS SUPPLEMENT AND MAY DIFFER SIGNIFICANTLY FROM THIS SAMPLE
LIST.]
The eligible lender trustee's liability in connection with the issuance
and sale of the notes and the certificates is limited solely to the express
obligations of the eligible lender trustee set forth in the trust agreement and
the sale and servicing agreement. See "Description of the
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Securities" and "Description of the Transfer and Servicing Agreements" in this
prospectus supplement. Key Bank USA, National Association and its affiliates
plan to maintain normal commercial banking relations with the eligible lender
trustee.
USE OF PROCEEDS
After making the required deposit to each of the related pre-funding
accounts, the balance of the net proceeds from the sale of the notes, less the
fees paid under the group I interest rate swap, the group II cap agreement, the
basis risk caps and the put options, and certain amounts paid to the securities
insurer to acquire the group II insured notes guaranty insurance policy, will be
paid by the trust to the depositor for the initial student loans on the closing
date. The depositor will use the proceeds paid to it, [plus amounts received
from Key Bank USA, National Association as a capital contribution,] to pay the
seller for the initial student loans purchased by the depositor, to make the
required initial deposits into the reserve accounts and to make an initial
deposit into each sub-account of the collection account.
THE MASTER SERVICER AND THE SUB-SERVICERS
KEY BANK USA, NATIONAL ASSOCIATION
Key Bank USA, National Association, in its capacity as master servicer
under the sale and servicing agreement, will be responsible for master servicing
the student loans. The master servicer will arrange for and oversee the
performance by the sub-servicers of their respective servicing obligations with
respect to the student loans that are not KEY CAREERLOANS. The master servicer
will service the student loans that are Key CareerLoans. See "The Student Loan
Financing Business--Description of Private Loans Under the Programs" in the
prospectus for a discussion of Key CareerLoans. The master servicer will be
entitled to receive the master servicing fee described under "--Services and
Fees of Master Servicer and the Sub-Servicers", but will in turn be solely
responsible for all compensation due to the sub-servicers for the performance of
their respective obligations under the related sub-servicing agreements.
Key Bank USA, National Association is a national banking association
and a wholly owned subsidiary of KeyCorp. Key Bank USA, National Association is
engaged in consumer loan activities nationally, including, automobile lending,
home equity financing of both first- and second-home mortgages, education
lending, and marine and recreational vehicle financing. As of [ ], Key Bank USA,
National Association's Education Loan Servicing Center in Boston, Massachusetts
was servicing approximately [ ] student and parental accounts with an
outstanding balance of $[ ] for itself and three other lenders nationwide. As of
[ ], Key Bank USA, National Association had total assets of approximately $[ ]
billion, total liabilities of approximately $[ ] billion and approximately $[ ]
million in stockholders' equity. The principal executive offices of the master
servicer are located at [Key Center, 127 Public Square, Cleveland, Ohio 44114]
and its telephone number is [(216) 689-6300].
[PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY]
[PHEAA] is a public corporation and government instrumentality created
by the Pennsylvania legislature. [PHEAA] is authorized to issue bonds or notes,
with the approval of the Governor of Pennsylvania for the purpose of purchasing,
making, or guaranteeing loans. It
S-40
may also originate and service loans made by [PHEAA] and others. [PHEAA's]
headquarters are located in Harrisburg, Pennsylvania with regional offices
located throughout Pennsylvania and additional offices located in [California,
Delaware and West Virginia]. As of [ ] it had approximately [ ] employees.
[PHEAA] has been guaranteeing student loans since 1964 and, as of [ ],
[ ] has guaranteed a total of approximately $[ ] billion principal amount of
Stafford Loans and approximately $[ ] billion principal amount of Parent Loans
for Undergraduate Students (also known as PLUS Loans) and SLS Loans and $[ ]
billion principal amount of consolidation loans under the Higher Education Act.
In addition to guaranteeing loans under the Higher Education Act, [PHEAA] also
operates certain guarantee programs for which it receives no federal
reinsurance. [PHEAA] had outstanding guarantee obligations of these loans in the
amount of approximately $[ ] billion including consolidation loans as of [ ].
Under two sub-servicing agreements with the master servicer, [PHEAA]
has agreed to service, and perform all other related tasks with respect to,
certain of the student loans. [PHEAA] is required to perform all services and
duties customary to the servicing of student loans in compliance with all
applicable standards and procedures. See "Description of the Transfer and
Servicing Agreements--Servicing Procedures."
We obtained the above information about [PHEAA] from [PHEAA] and none
of the depositor, the master servicer nor the underwriters have conducted any
independent verification of this information. PHEAA will provide a copy of its
most recent audited financial statements to holders of notes and certificates
upon receipt of a written request directed to [ ].
[GREAT LAKES EDUCATIONAL LOAN SERVICES, INC.]
GENERAL. [Great Lakes Educational Loan Services, Inc.] (also known as
[GLELSI]) is a wholly owned subsidiary of [Great Lakes Higher Education
Corporation], a Wisconsin nonstock, nonprofit corporation. The primary
operations center for [Great Lakes Higher Education Corporation] and its
affiliates (including [GLHEGC, the federal guarantor, and GLELSI]) is in
[Madison, Wisconsin], which includes the data processing center and operational
staff offices for both guarantee support services provided by [GLELSI to GLHEC]
and affiliates and third-party guaranty agencies and lender servicing and
origination functions. [Great Lakes Higher Education Corporation] and affiliates
also maintain regional offices in [Columbus, Ohio] and [St. Paul, Minnesota] and
customer support staff located nationally.
As of [ ], [GLELSI] serviced [ ] student and parental accounts with an
outstanding balance of $[ ] billion for over [ ] lenders nationwide. As of [ ],
[ ]% of the portfolio serviced by [GLELSI] was in repayment status, [ ]% was in
grace status and the remaining [ ]% was in interim status.
Under two sub-servicing agreements with the master servicer, [GLELSI]
has agreed to service, and perform all other related tasks with respect to,
certain of the student loans. [GLELSI] is required to perform all services and
duties customary to the servicing of the student loans in compliance with all
applicable standards and procedures. See "Description of the Transfer and
Servicing Agreements--Servicing Procedures."
S-41
We obtained the information above about [GLELSI] from [GLELSI] and none
of the depositor, the master servicer nor the underwriters have conducted any
independent verification of this information. [GLELSI] will provide a copy of
[Great Lakes Educational Loan Services, Inc.'s] most recent consolidated
financial statements upon receipt of a written request directed to [ ].
SERVICES AND FEES OF MASTER SERVICER AND THE SUB-SERVICERS
Under the sale and servicing agreement, Key Bank USA, National
Association will act as master servicer of all of the student loans, and will
enter into one or more sub-servicing agreements with each of [PHEAA] and
[GLELSI] relating to all of the student loans except for Key CareerLoans, which
the master servicer will service directly. As of the closing date, each
sub-servicer will sub-service both group I and group II student loans. The
securities insurer will have the right to approve the appointment of any
additional or replacement sub-servicers for the group II student loans not
agreed upon as being acceptable on the closing date. The trust will be an
intended third-party beneficiary of each sub-servicing agreement. Each
sub-servicer is required to maintain its eligibility as a third-party servicer,
to the extent applicable, under the Higher Education Act. See "Description of
the Transfer and Servicing Agreements--Servicing Procedures" herein.
The master servicer will receive a monthly fee payable by the trust on
or about the [twenty-fifth] day of each month equal to [ ]% on an annualized
basis of the POOL BALANCE of each of the group I and group II student loans as
of the last day of the preceding calendar month together with late fees,
administrative fees and similar charges. The master servicer will be solely
responsible for the fees due to the sub-servicers under the related
sub-servicing agreements except under certain limited circumstances following an
auction sale as described under "Description of Transfer and Servicing
Agreements--Termination" in this prospectus supplement. See "Description of
Transfer and Servicing Agreements--Master Servicing Compensation".
THE DEPOSITOR
Key Consumer Receivables LLC will serve as depositor of the trust. The
depositor, a Delaware limited liability company, was formed by a Limited
Liability Company Declaration, dated November 22, 2000, entered into by Key Bank
USA, National Association as its sole equity member. The depositor is a
special-purpose "bankruptcy remote" entity formed to purchase student loans from
Key Bank USA, National Association and its affiliates, and to form trusts that
will issue asset-backed securities. The principal executive offices of the
depositor are located at Key Center, 127 Public Square, Cleveland, Ohio 44114
and its telephone number is (216) 828-8122. The depositor will acquire the
student loans from the seller under a student loan transfer agreement, dated as
of [ ], between the depositor and the seller. The depositor will sell the
student loans to the trust under the sale and servicing agreement. See
"Description of Transfer and Servicing Agreements" in this prospectus
supplement.
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THE STUDENT LOAN POOLS
GENERAL
The pool of student loans will include the initial student loans
purchased by the eligible lender trustee on behalf of the trust as of the cutoff
date, and the subsequent student loans and any additional student loans
purchased by the eligible lender trustee on behalf of the trust from the
depositor, each as of the applicable subsequent cutoff dates.
The cutoff date for the initial student loans is [ ]. The trust will be
entitled to collections on and proceeds of the initial student loans on and
after the cutoff date. We have based all percentages shown below on the
outstanding principal balances of the related student loans as of the
statistical cutoff date.
On the closing date, [PHEAA] will sub-service approximately [ ]% of the
group I initial student loans with an aggregate principal balance of
approximately $[ ], and approximately [ ]% of the group II initial student loans
with an aggregate principal balance of approximately $[ ]. On the closing date,
[GLELSI] will sub-service approximately [ ]% of the group I initial student
loans with an aggregate principal balance of approximately $[ ], and
approximately [ ]% of the group II initial student loans with an aggregate
principal balance of approximately $[ ]. The remainder of the group II initial
student loans (approximately [ ]% of all group II initial student loans) are Key
CareerLoans, which will be serviced directly by the master servicer. As of [ ],
Key Bank USA, National Association had originated approximately $[ ] million of
Key CareerLoans.
[Some of the group II initial student loans were purchased by the
seller from [ ] under [ ]. [ ]% these loans are group II student loans and are
guaranteed private loans that are guaranteed by [TERI]. These loans have, as of
the statistical cutoff date, the characteristics described below under
"--Characteristics of the [ ] Loans."]
[Some of the group I and group II initial student loans were purchased
by the seller from the Access Group, pursuant to a loan purchase and sale
agreement, dated as of [August 1, 1999], between the Access Group and the
seller. These loans have, as of the statistical cutoff date, the characteristics
described below under "--Characteristics of the Access Group Loans." ]
In addition, some of the group II initial student loans are
rehabilitated student loans. Rehabilitated student loans [are 100% guaranteed by
TERI] and were at one time in default and transferred to TERI upon its guaranty
claim payment, but were sold back to the seller after they were brought current
and after at least three consecutive monthly payments in full. As of the
statistical cutoff date, no rehabilitated student loan was more than 30 days
delinquent in payment of interest and principal. See "--Rehabilitated Student
Loans" below.
In addition to the subsequent student loans, the trust may use funds on
deposit in the second sub-account of each of the group I and group II
pre-funding accounts to acquire certain other student loans. Other student loans
are either serial loans (made to borrowers who are also borrowers under at least
one outstanding student loan) or consolidation loans, and may be acquired by the
trust any time prior to the end of the Funding Period. When we use the term
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additional student loans, we mean collectively the subsequent student loans,
other student loans and fee advances. Additional student loans may be either
group I or group II student loans.
The student loans will be purchased by the depositor from the seller
under the student loan transfer agreement. The seller either originated the
student loans or purchased them from [Fleet, the Access Group or other]
third-party lenders. All of the student loans will be selected from the seller's
existing portfolios of originated and purchased student loans and will have
certain characteristics, including, as of the statistical cutoff date or the
applicable subsequent cutoff date, as the case may be, the following:
- Each student loan
- was originated in the United States or its
territories or possessions, either by the seller
under and in accordance with the student loan
programs described in the prospectus), by [Fleet] (as
more fully described below under "--Characteristics
of the [Fleet] Loans"), or by the [Access Group] (as
more fully described below under "--Characteristics
of the Access Group Loans) (including, in the case of
borrowers of group I loans, a financial need analysis
and, in the case of borrowers of group II loans, a
creditworthiness evaluation) to a borrower who (or
with respect to PLUS Loans, to a parent of a student
who), in connection with the initial student loans
and the subsequent student loans (i) if undergraduate
loans, has graduated, completed a certificate program
or otherwise left an undergraduate institution or is
expected to graduate or otherwise leave an
undergraduate institution by [ ], and (ii) if
graduate loans, has graduated or otherwise left
graduate school or is expected to graduate or
otherwise leave graduate school by [ ],
contains terms required by the programs, any
applicable guarantee agreements and other applicable
requirements, and
- with respect to the initial student loans, is not
more than [180] days past due as of the cutoff date
for guaranteed loans, or [120] days past due as of
the cutoff date for unguaranteed loans or, with
respect to the subsequent student loans or other
student loans not more than [90] days past due as of
the applicable subsequent cutoff date, as the case
may be.
- As of the statistical cutoff date, no initial student loan had
a borrower who was noted in the related records of the master
servicer, [Fleet, the Access Group], or a sub-servicer as
being currently involved in a bankruptcy proceeding or
deceased since the date the trust was created.
- No initial student loan as of the statistical cutoff date
consists of a student loan that was subject to a seller's
prior obligation to sell such loan to a third party.
- No selection procedures believed by a seller to be adverse to
the holders of the notes or the certificates were used or will
be used in selecting the student loans.
- Except for the rehabilitated loans (which represent
approximately [ ]% [no more than 5%] of the group II initial
student loans as of the statistical cutoff date), the student
loans do not and will not include any non-prime or sub-prime
student
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loans. Non-prime or sub-prime student loans are student loans
originated to individuals who have previously defaulted on
their student loans. See "--Rehabilitated Student Loans"
below.
- As of the statistical cutoff date, none of the initial student
loans are non-performing student loans. Non-performing student
loans are student loans which are in default and the seller
expects to write-off as a loss.
- [No subsequent student loan will be a rehabilitated student
loan.]
Each of the student loans provides or will provide for the amortization
of the outstanding principal balance of that student loan over a series of
regular payments, including an installment of interest calculated on the basis
of the outstanding principal balance of the student loan multiplied by the
applicable interest rate and further multiplied by the period elapsed (as a
fraction of a calendar year) since the last payment of interest was made. As
payments are received on each student loan, the amount received is applied first
to interest accrued to the date of payment and the balance 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 last 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.
On the other hand, if a borrower pays a monthly installment after its
scheduled due date, a late fee will be assessed where applicable and the portion
of the payment allocable to interest for the period since the last 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 either case, subject to any applicable deferral periods or
forbearance periods (each as described in the prospectus under the heading "The
Student Loan Financing Business"), 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 and any accrued but unpaid interest on such student loan.
Approximately [ ]% of the group I initial student loans, with an
aggregate unpaid principal balance as of the statistical cutoff date of
approximately $[ ], bear interest at the commercial paper rate. The commercial
paper rate is the 90-day AA Financial Commercial Paper rate posted in the
Federal Reserve Release entitled "Commercial Paper Rates and Outstandings"
(converted, if necessary, from a discount basis to a bond equivalent yield).
Approximately [ ]% of the group II initial student loans, with an
aggregate unpaid principal balance as of the statistical cutoff date of
approximately $[ ], bear interest at the prime rate. The prime rate is defined
in each related borrower's note as the rate published as the prime rate in The
Wall Street Journal in its Money Rates section, or if more than one prime rate
is published by The Wall Street Journal, the highest such rate is used, and
interest on each of these loans is calculated for each calendar month using the
prime rate for the last business day of the prior calendar month.
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The additional student loans to be conveyed to the eligible lender
trustee on behalf of the trust during the Funding Period will consist of the
subsequent student loans, the other student loans or fee advances, in each case
originated by the seller in accordance with the programs (or with respect to
subsequent student loans, also by [Fleet, Access or other] third party lenders)
and other applicable requirements. Subsequent student loans may consist of
consolidation loans, serial loans or student loans made to borrowers that are
not part of the pool of initial student loans. The other student loans and fee
advances must be made to a borrower who has, immediately prior to the date of
any such conveyance, outstanding student loans that are part of the pool of
student loans. Each additional student loan must otherwise comply with the
criteria set forth above. See "Description of the Transfer and Servicing
Agreements--Additional Fundings" herein.
The seller expects that, generally, the subsequent student loans will
have characteristics similar to the initial student loans; however, except for
the criteria described above, there will be no required characteristics of the
additional student loans, except that no additional student loan will have a
term to maturity longer than [30] years at the time of its sale to the trust
[and not more than $[ ] aggregate principal amount of additional student loans,
as of the related subsequent transfer dates, will be guaranteed by TERI].
Therefore, following the transfer of additional student loans to the eligible
lender trustee on behalf of the trust, the aggregate characteristics of the
entire pool of group I student loans and/or group II student loans, as
applicable, including the composition of the group I and group II student loans,
the distribution by weighted average interest rate and the distribution by
principal amount described in the following tables, may vary significantly from
those of the group I and group II initial student loans, as applicable, as of
the statistical cutoff date. Also, the distribution by weighted average interest
rate applicable to the group I and/or group II student loans on any date
following the statistical cutoff date may vary significantly from that set forth
in the following tables as a result of variations in the effective rates of
interest applicable to the related student loans. The remaining term to maturity
of the group I and/or group II initial student loans as of the statistical
cutoff date may also vary significantly from the actual term to maturity of any
of the group I and/or group II initial student loans as a result of the granting
of deferral periods and forbearance periods.
CHARACTERISTICS OF LOANS ORIGINATED BY THE SELLER
For a description of the student loans originated by the seller,
including Key CareerLoans, Key Alternative Loans and Key Education Consolidation
Loans(sm), see "The Student Loan Financing Business" in the prospectus.
CHARACTERISTICS OF THE [FLEET] LOANS
Some of the group II initial student loans were acquired from [Fleet]
under the [ ] agreement and are guaranteed by [TERI]. The loans were originated
by [Fleet (or by BankBoston or its predecessors prior to its merger into Fleet)]
under one of the programs described below that are sponsored by [TERI]. All of
these loans are group II student loans.
The following is a description of the programs applicable to the loans
acquired from [Fleet], as in effect on the date of purchase of these loans by
the seller. We do not represent, nor
S-46
should any prospective investor in the notes assume, that the information
presented below is an accurate description of such programs as in existence on
the date of this prospectus supplement.
[TERI Alternative Program. The TERI Alternative Program is a private
loan program designed to offer loans to students enrolled in accredited
degree-granting undergraduate institutions in the United States and Canada. To
be eligible for a loan under the TERI Alternative Program, a student must be
deemed creditworthy or provide a creditworthy co-borrower. Also, at least one
applicant must be a U.S. citizen or a certified permanent resident of the United
States.
In determining whether a student or co-borrower is creditworthy, a
credit bureau report is obtained for each applicant, including the student. A
satisfactory credit history has generally been defined by [TERI and Fleet] as
the making of continuous and prompt payment by the borrower on all credit
obligations such as mortgages, personal loans, credit cards, auto loans, and
especially, student loans. There should be no record of charged off loans which
exceeded $200 within the past five years (exceptions may be granted) nor a
record of foreclosure, repossession, open judgment or suit, unpaid tax lien,
unpaid prior student loan defaults or other negative public record items in the
past seven years with respect to the applicant. The applicant should not have a
record of bankruptcy within the past 10 years (exceptions may be granted where
the applicant provides written documentation demonstrating that the
circumstances leading up to the bankruptcy were beyond the applicant's control).
Eligible borrowers under the TERI Alternative Program may borrow from
$500 up to the cost of education, less any financial aid received per academic
year. A 5% guaranty fee for borrowers making either interest only or principal
and interest payments while the student is in school, or a 6.5% guaranty fee for
borrowers deferring payments of principal and interest while the student is in
school full-time or maintains at least a half time status is deducted from the
loan proceeds.
Interest rates on loans under the TERI Alternative Program will be
variable either on a monthly or quarterly basis. The rate is equal to [Fleet's]
prime or base rate plus a margin of between 0% and 2%.
A loan under the TERI Alternative Program may be repaid in up to 25
years, depending on the total amount borrowed. For borrowers who do not elect
deferment, repayment of a loan under the TERI Alternative Program begins within
45 days after the disbursement date. However, subject to certain exceptions,
deferment of principal is allowed for up to four years, with only interest being
paid, while the student is in school. Payment of principal and interest begins
within 45 days after graduation or withdrawal from school. In addition, in some
cases, deferment of principal and interest is permitted for up to four years,
while the student is in school. Payment of principal and interest begins 45 days
after graduation or withdrawal from school. Once principal payments begin, the
monthly principal and interest payment remains fixed throughout the life of the
loan. Therefore, for variable rate loans, fluctuations in the interest rate are
reflected in the length of the repayment term, not the monthly amount, unless an
increase in the monthly amount is needed to keep the repayment period within 25
years. Loans under the TERI Alternative Program may be prepaid at any time
without penalty.
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Each loan under the TERI Alternative Program is guaranteed by TERI. The
terms of the TERI guaranty for loans in the TERI Alternative Program are as
described below in "--Insurance of Student Loans; Guarantors of Student
Loans--Guarantor for the Guaranteed Private Loans."]
[PEP Program. The PEP Program is a private loan program designed to
offer loans to graduate and professional school students enrolled at least
half-time in an accredited degree-granting (masters and/or doctorate, or the
equivalent) institution in the United States and Canada. The credit criteria for
the PEP Program are very similar to the credit criteria for the [TERI
Alternative Program], except as specifically described below.
Eligible borrowers of PEP Program loans may borrow a minimum of $500 up
to $15,000 per academic year on their own signature provided they have no
adverse credit history or, if the student has a creditworthy co-borrower, up to
the full cost of attendance less the estimated other financial aid the student
is eligible to receive. The aggregate total amount of borrowings is based on
future income projections. In general, an 8% guarantee fee (6% with a
co-borrower) is deducted from the loan proceeds. In addition, for those
borrowers who have no co-borrower, an additional 2% guarantee fee is charged at
the time the PEP Program loan goes into repayment, which is added to the
principal amount of the loan.
The interest rate on PEP Program loans will be variable either on a
monthly or quarterly basis. The rate is generally equal to [Fleet's] prime or
base rate plus a margin of between 0% and 2%, or with respect to certain PEP
Program loans, based on the Treasury bill rate plus a margin of between 2.4% and
2.7%.
PEP Program loans may be repaid in up to 25 years, depending on the
total amount borrowed. Repayment of the PEP Program loan begins six months after
the student has graduated or separated from school or has caused his enrolled
status to be less than half time. Both principal and interest are deferred for
up to 4-1/2 years while the student is in school (any such deferred interest
will be capitalized and added to principal). Medical students may defer after
graduation for up to four years while completing a residency program. Once
principal payments begin, the monthly principal and interest payment remains
fixed throughout the life of the loan. Therefore, for variable rate loans,
fluctuations in the interest rate are reflected in the length of the repayment
term, not the monthly amount, unless an increase in the monthly amount is needed
to keep the repayment period within 25 years.
Each PEP Program loan is guaranteed by TERI. The terms of the TERI
guaranty for loans in the PEP Program are as described below in "--Insurance of
Student Loans; Guarantors of Student Loans--Guarantor for the Guaranteed Private
Loans."]
[DUAL Undergraduate Alternative Program. The DUAL Program is a private
loan program established by TERI and is designed to offer loans to degreed
undergraduate students pursuing an additional undergraduate degree or to
teachers completing a credentialing program, enrolled at least half-time in a
degree-granting program and completing a second bachelor's degree, or the
student can be enrolled in the Education Credentials Certificate program
(considered a fifth-year undergraduate student). The credit criteria are very
similar to the credit criteria described above for the TERI Alternative Program.
S-48
Eligible Borrowers of DUAL Program loans may borrow a minimum of $500
up to $15,000 per academic year on their own signature provided they have no
adverse credit history or, if the student has a creditworthy co-borrower up to
the full cost of attendance less the estimated other financial aid the student
is eligible to receive. In general, an 8% guarantee fee (6% with a co-borrower)
is deducted from the loan proceeds. In addition, for those borrowers who have no
co-borrower, an additional 2% guaranty fee is charged at the time the DUAL
Program loan goes into repayment, which is initially paid to TERI [by Fleet],
who in turn adds such amount to the principal amount of the loan.
The interest rate on DUAL Program loans will be variable either on a
monthly or a quarterly basis. The rate is equal to [Fleet's] prime or base rate
plus a margin of between 0% and 2%.
DUAL Program loans may be repaid in up to 25 years depending on the
total amount borrowed. Repayment of DUAL Program loans begins six months after
the student has graduated or separated from school or has caused his enrollment
status to be less than half-time. Both the principal and interest are deferred
for the years while the student is in school (any such deferred interest will be
capitalized and added to the principal). Once principal payments begin, the
monthly principal and interest payment remains fixed throughout the life of the
loan. Therefore, for variable rate loans, fluctuations in the interest rate are
reflected in the length of the payment term, not the monthly amount, unless an
increase in the monthly amount is needed to keep the repayment period within 25
years.
Each DUAL Program loan is guaranteed by TERI. The terms of the TERI
guaranty for loans in the DUAL Program are as described below in "--Insurance of
Student Loans; Guarantors of Student Loans--Guarantor for the Guaranteed Private
Loans."]
[CHARACTERISTICS OF THE ACCESS GROUP LOANS
Some of the group I and group II initial student loans have been
selected from student loans originated under the Access Group Loan Programs
(also known as the Access Program) and made to students enrolled in or recently
graduated from approved or accredited law schools, medical schools, dental
schools, graduate business schools or other graduate level certificate or degree
programs.
The following is a description of the Access Program, as such programs
were in effect on the respective dates of purchase of the Access Group loans by
the seller. We make no representation, nor should any prospective investor in
the notes assume, that the information presented below is an accurate
description of such programs as in existence on the date hereof.
The Access Program. The Access Program was originated in 1983 as the
"Law School Assured Access Program." The Access Program was developed by Law
School Admission Council, Inc., a Delaware nonstock corporation, and initially
operated by Law School Admission Services, Inc., another Delaware nonstock
corporation of which Law School Admission Council, Inc. is the sole member. The
program initially provided only federal loans to law students. Beginning in
1986, the program was expanded to include private loans to meet the borrowing
needs of law students that were not being met by the federal loans. In 1993,
Access Group (then
S-49
known as "Law Access, Inc.") was organized to operate the program, which was
then known as the "Law Access Loan Program." Over the next several years the
program was expanded to include loans for other graduate and professional
students. In 1997, the organization changed its name to Access Group, Inc. to
reflect the broader scope of its programs.
Access Group and its predecessor, Law School Admission Services, Inc.,
have provided for the Access Program by entering into contracts with a series of
lenders, guarantee agencies and loan servicers. Under these contracts, the
lenders agreed to make the loans to eligible borrowers on the terms offered by
the Access Program from time to time. Prior to academic year 1998-1999, these
contracts did not provide for Access Group to purchase the loans, but provided
for the lenders to pay Access Group marketing fees in connection with its
administration of the Access Program. Beginning with academic year 1998-1999,
Access Group's contracts for the Access Program provide for Access Group to
acquire the loans.
Access Group entered into agreements with a national banking
association acting as lender which agreed to originate student loans under the
Access Program, including both federal loans and guaranteed private loans. See
"Description of Federal Loans Under the Programs" for a general description of
the characteristics and terms of federal loans. Certain characteristics and
terms of the guaranteed private loans are discussed below.
Loan Characteristics of the Guaranteed Private Loans Under the Access
Program. The guaranteed private loans made under the Access Program included in
the subsequent student loans were made by the Access Group. These guaranteed
private loans include several different types of loans: Law Access Loans,
Business Access Loans, Medical Access Loans and Dental Access Loans, which are
available to graduate and professional students in various courses of study that
correspond to the names of the loans, and Graduate Access Loans, which are
available to other graduate or professional students. Bar Examination Loans are
available to law students or recent law graduates to cover costs of preparing
for the bar examination, and Residency Loans and Dental Residency Loans are
available to medical or dental students or recent graduates to finance costs
involved with obtaining and participating in required residency or postdoctoral
programs. In addition, several universities have special loan programs through
Access Group with loan terms that generally correspond to the terms and
eligibility requirements for the loans listed above.
Access Group loans that are also guaranteed private loans are unsecured
loans made directly to the student borrowers. In some cases, the borrower is
required to provide a co-signer for the loan. Access Group loans that are also
guaranteed private loans and are included as group II initial student loans are
guaranteed by [TERI] as described below under "--Insurance of Student Loans;
Guarantors of Student Loans--Guarantors for the Guaranteed Private Loans."
The guaranteed Access Group loans included as group II initial student
loans were made to applicants enrolled or accepted for enrollment in eligible
graduate or professional schools, or to recent graduates of such schools. The
applicants are required to meet the eligibility requirements for the Access
Program, including that the applicant must:
- be a U.S. Citizen or an eligible non-citizen;
S-50
- be attending a qualified graduate or professional school at
least half-time (or, in the case of Bar Examination Loans,
Residency Loans and Dental Residency Loans, have graduated
from such a graduate or professional school); and
- meet the Access Program credit eligibility criteria.
The credit eligibility criteria require that if an applicant has any
credit history (as shown on a credit bureau report obtained in evaluating the
application), the applicant must either have a certain minimum credit score or
provide a co-signer who meets credit criteria that include a minimum credit
score and certain other credit history requirements. To be eligible, a graduate
or a professional school must be either a state institution or a tax-exempt
nonprofit organization and must be approved or accredited by the applicable body
provided for in the program guidelines (which, in the case of law schools, is
the American Bar Association).
There are no annual loan limits for loans under the Access Program;
students may borrow up to their entire unmet need, as certified by the school
they are attending. However, before academic year 2000-2001, there have been
limits on the aggregate amount of education debt which an applicant could have
outstanding. These limits, which included all undergraduate and graduate
education debt (including FFELP Loans, private alternative and supplemental
loans and any other loans) varied depending upon loan type, ranging from
$120,000 to $195,000. There are no limits on aggregate outstanding debt
beginning with academic year 2000-2001.
The interest rates on loans made for academic years 1998-1999 and
1999-2000 (and for some loans made for academic year 2000-2001) vary each
calendar quarter, and are equal to the coupon equivalent yield of the 13-week
U.S. Treasury Bills for the final auction held during the preceding calendar
quarter (as reported in The Wall Street Journal), plus a margin that ranges from
2.45% to 3.50% per annum. Beginning with academic year 2000-2001, the index on
which the interest rate for most of these guaranteed private loans is based has
been changed to the Three Month LIBOR. The margins to be added to the index
range from 2.25% to 3.20%. No interest is due prior to the commencement of the
repayment period. Interest that accrues prior to the repayment period and is not
otherwise paid is added to the principal balance once, at the commencement of
repayment.
The loans must be repaid during a twenty-year period. The repayment
period begins nine months after the borrower graduates or otherwise ceases to be
enrolled in an eligible course of instruction at a participating school (or in
the cases of Medical Access Loans and Dental Access Loans, after the borrower
completes or ceases to participate in a residency or postdoctoral program, but
in no event more than 57 months after graduation). Payments of principal and
interest are due monthly. The minimum monthly payment is $50.
Access Group currently offers three repayment options: (1) a level
payment plan, which requires approximately equal monthly payments of principal
and interest throughout the repayment period (with the payment amount adjusted
each time the interest rate changes, to equal the amount that would amortize the
outstanding principal balance over the remaining repayment period, based on the
then-current interest rate), (2) a deferred principal payment plan which
requires only interest payments during the first two years, followed by
approximately equal monthly payments of principal and interest sufficient to
amortize the principal amount over the remaining repayment period, and (3) a
deferred principal payment plan that requires only
S-51
interest payments during the first two years, followed by interest and partial
principal payments for three years, followed by approximately equal monthly
payments of principal and interest sufficient to amortize the remaining
principal amount over the remaining repayment period. In addition, a borrower
who is experiencing difficulty repaying his or her loan may arrange for a
repayment schedule that further defers principal payments. ]
REHABILITATED STUDENT LOANS
Approximately [ ]% [no more than 5%] of the group II initial student
loans, with an aggregate unpaid principal balance as of the statistical cutoff
date of approximately $[ ], are rehabilitated student loans. Rehabilitated
student loans were [TERI] guaranteed loans that were transferred to [TERI] upon
default and the original guaranty claim was paid. The rehabilitated student
loans were originated under the [TERI Alternative Loan Program, the TERI Dual
Undergraduate Alternative Loan Program or the TERI Professional Education (PEP)
Program], each as described above under "--Description of the [Fleet] Loans," by
either the seller, [Fleet (including BankBoston and its predecessors)] [ ] or [
]. After principal and interest payments were brought current, and after at
least three consecutive timely payments of principal and interest, the
rehabilitated student loans were sold to the seller.
No rehabilitated student loan has defaulted on principal or interest
payments more than once and none is more than 30 days delinquent in payment of
interest and principal as of the statistical cutoff date. None of the subsequent
student loans will be rehabilitated student loans. All rehabilitated student
loans remain [100% guaranteed by TERI] for principal and accrued interest.
THE STUDENT LOANS
We have set forth in the following tables a description of certain
additional characteristics of the group I and group II initial student loans,
each as of the statistical cutoff date. Unless otherwise specified, percentages
are of the related pool principal balances (including certain interest accrued
to be capitalized). In addition, certain columns and rows on each table may not
total to exact dollar amounts or exactly to 100% due to rounding conventions.
S-52
COMPOSITION OF THE INITIAL STUDENT LOANS AS OF THE STATISTICAL CUTOFF DATE
KEYCORP STUDENT LOAN TRUST [ ] GROUP I(4) GROUP II(4)
- -------------------------------- ---------- -----------
Aggregate Outstanding Balance(1) $[ ] $[ ]
Number of Borrowers [ ] [ ]
Average Outstanding Balance Per Borrower $[ ] $[ ]
Number of Loans [ ] [ ]
Average Outstanding Balance Per Loan $[ ] $[ ]
Weighted Average Remaining Term to Maturity(2) [ ] [ ]
Weighted Average Annual Borrower Interest Rate(3) [ ]% [ ]%
(1) Includes the net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment,
estimated to be $[ ] and $[ ] with respect to the group I and group II
student loans, respectively, as of the statistical cutoff date.
(2) Determined from the statistical cutoff date to the stated maturity date of
the student loans, assuming repayment commences promptly upon expiration of
the typical grace period following the expected graduation date and without
giving effect to any deferral periods or forbearance periods that may be
granted in the future. See "The Student Loan Financing Business" in the
prospectus.
(3) Determined using the borrower interest rates exclusive of special allowance
payments applicable to the initial student loans as of the statistical
cutoff date. However, because all the student loans effectively bear
interest at a variable rate per annum, there can be no assurance that the
foregoing rate will remain applicable to the student loans at any time
after the statistical cutoff date. See "The Student Loan Financing
Business" in the prospectus.
(4) The sum in any column may not equal the total indicated due to rounding.
The weighted average spread for student loans (including special allowance
payments), if they were in repayment as of the statistical cutoff date, are as
follows:
Aggregate Outstanding
Type of Loan/Index Principal Balance Weighted Average Spread
------------------ ----------------- -----------------------
Federal Loans/Treasury Bill Rate $[ ] [ ]%
Federal Loans/CP Rate [ ] [ ]
Private Loans/Treasury Bill Rate [ ] [ ]
Private Loans/Prime Rate [ ] [ ]
Private Loans/LIBOR Rate [ ] [ ]
Total $[ ] [ ]%
S-53
The weighted average spread for student loans (including special allowance
payments), with respect to borrowers that are still in school, or in grace or
deferment periods, as of the statistical cutoff date, are as follows:
Aggregate Outstanding
Type of Loan/Index Principal Balance Weighted Average Spread
------------------ ----------------- -----------------------
Federal Loans/Treasury Bill Rate $[ ] [ ]%
Federal Loans/CP Rate [ ] [ ]
Private Loans/Treasury Bill Rate [ ] [ ]
Private Loans/Prime Rate [ ] [ ]
Private Loans/LIBOR Rate [ ] [ ]
Total $[ ] [ ]%
S-54
DISTRIBUTION BY LOAN TYPE AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
---------------------------------- --------------------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF
OUTSTANDING RELATED OUTSTANDING RELATED
NUMBER PRINCIPAL POOL NUMBER OF PRINCIPAL POOL
LOAN TYPE OF LOANS BALANCE(1) BALANCE LOANS BALANCE(2) BALANCE
--------- -------- ---------- ------- ----- ---------- -------
Alternative Dental Education Assistance -- -- -- [ ] $[ ] [ ]%
Loan - Private dental loan
Alternative Loan Program - Private -- -- -- [ ] [ ] [ ]
undergraduate loan
Business Loans -- -- -- [ ] [ ] [ ]
Bar Exam Loans -- -- -- [ ] [ ] [ ]
Continuing Education Loans -- -- -- [ ] [ ] [ ]
Graduate Loans [ ] [ ] [ ]
Chiropractic Health Loans -- -- -- [ ] [ ] [ ]
Law Loans -- -- -- [ ] [ ] [ ]
Medical Loans -- -- -- [ ] [ ] [ ]
Dental Loans -- -- -- [ ] [ ] [ ]
International Student Loans -- -- -- [ ] [ ] [ ]
Key Alternative Loans -- -- -- [ ] [ ] [ ]
Unguaranteed Consolidation Loans -- -- -- [ ] [ ] [ ]
Key Career Loans -- -- -- [ ] [ ] [ ]
Residency Loans -- -- -- [ ] [ ] [ ]
PLUS Loans [ ] [ ] [ ]% -- -- --
Supplemental Loans for Students [ ] [ ] [ ] -- -- --
Subsidized Stafford Loans - Title IV loan [ ] [ ] [ ] -- -- --
Subsidized Consolidation Loans - [ ] [ ] [ ]
Title IV consolidation -- -- --
Unsubsidized Consolidation Loans - Title IV [ ] [ ] [ ] -- -- --
Unsubsidized Stafford Loans - Title IV [ ] [ ] [ ] -- -- --
TOTAL [ ] $[ ] [ ]% [ ] $[ ] [ ]%
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of statistical cutoff date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
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DISTRIBUTION BY BORROWER INTEREST RATE AS OF THE STATISTICAL CUTOFF DATE(1)
GROUP I GROUP II
------------------------------------ --------------------------------------------
AGGREGATE PERCENT OF
OUTSTANDING PERCENT OF AGGREGATE RELATED
NUMBER PRINCIPAL RELATED POOL NUMBER OUTSTANDING POOL
INTEREST RATE OF LOANS BALANCE(2) BALANCE OF LOANS PRINCIPAL BALANCE(3) BALANCE
- ------------- -------- ---------- ------------ -------- -------------------- ----------
Less than [ ]% [ ] $ [ ] [ ]% [0] $ [ ]%
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] [ ] [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] -- [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] -- [ ] [ ]
[ ]% to [ ]% [ ] [ ] [ ] -- [ ] [ ]
[ ]% to [ ]% ] [ ] [ ] -- [ ] [ ]
TOTAL: [ ] $[ ] [ ]% [ ] $ [ ] [ ]%
(1) Determined using the interest rates applicable to the initial student loans
as of the statistical cutoff date. However, because all the initial student
loans effectively bear interest at a variable rate per annum, we can give
you no assurance that the information above will remain applicable to the
initial student loans at any time after the statistical cutoff date. See
"The Student Loan Financing Business" in the prospectus.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
S-56
DISTRIBUTION BY OUTSTANDING PRINCIPAL BALANCE AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
------------------------------------ ------------------------------------
AGGREGATE AGGREGATE PERCENT OF
OUTSTANDING PERCENT OF OUTSTANDING RELATED
OUTSTANDING PRINCIPAL NUMBER OF PRINCIPAL RELATED POOL NUMBER OF PRINCIPAL POOL
BALANCE LOANS(1) BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE
- --------------------- -------- ---------- ------- ----- ---------- -------
Less than $[ ] [ ] $[ ] [ ]% [ ] $[ ] [ ]%
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
S-57
DISTRIBUTION BY OUTSTANDING PRINCIPAL BALANCE AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
------------------------------------ ------------------------------------
AGGREGATE AGGREGATE PERCENT OF
OUTSTANDING PERCENT OF OUTSTANDING RELATED
OUTSTANDING PRINCIPAL NUMBER OF PRINCIPAL RELATED POOL NUMBER OF PRINCIPAL POOL
BALANCE LOANS(1) BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE
- --------------------- --------- ----------- ------------ --------- ----------- ----------
$[ ] to $[ ] [ ] $[ ] [ ]% [ ] [ ] [ ]%
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] to $[ ] [ ] [ ] [ ] [ ] [ ] [ ]
$[ ] and above [ ] [ ] [ ] [ ] [ ] [ ]
TOTAL [ ] $[ ] [ ]% [ ] [ ] [ ]%
(1) Borrowers generally have more than one outstanding loan. The average
aggregate outstanding principal balance of loans per borrower is $[ ] with
respect to the group I initial student loans and $[ ] with respect to the
group II initial student loans, each as of the statistical cutoff date.
Approximately [ ] borrowers have both group I and group II initial student
loans.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
S-58
DISTRIBUTION BY BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
---------------------------------- ----------------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF
OUTSTANDING RELATED OUTSTANDING RELATED
NUMBER OF PRINCIPAL POOL NUMBER OF PRINCIPAL POOL
PAYMENT STATUS (1) LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE
- ------------------ ----- ---------- ------- --------- ---------- -------
[ ] and below [ ] $[ ] [ ]% [ ] $[ ] [ ]%
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] to [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] and above [ ] [ ] [ ] [ ] [ ] [ ]
TOTAL [ ] $[ ] [ ]% [ ] $[ ] [ ]%
(1) Determined from the statistical cutoff date to the stated maturity date of
the applicable initial student loan, assuming repayment commences promptly
upon expiration of the typical grace period following the expected
graduation date and without giving effect to any deferral or forbearance
periods that may be granted in the future. See "The Student Loan Financing
Business" in the prospectus.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment estimated to be $[
] as of the statistical cutoff date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
S-59
DISTRIBUTION BY BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
---------------------------------- ----------------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF
OUTSTANDING RELATED OUTSTANDING RELATED
NUMBER PRINCIPAL POOL NUMBER OF PRINCIPAL POOL
PAYMENT STATUS (1) OF LOANS BALANCE(2) BALANCE LOANS BALANCE(3) BALANCE
- ------------------ -------- ---------- ------- --------- ---------- -------
In School [ ] $[ ] [ ]% [ ] $[ ] [ ]%
Grace [ ] [ ] [ ] [ ] [ ] [ ]
Deferral [ ] [ ] [ ] [ ] [ ] [ ]
Forbearance [ ] [ ] [ ] [ ] [ ] [ ]
Repayment [ ] [ ] [ ] [ ] [ ] [ ]
First Year in Repayment
Second Year in Repayment [ ] [ ] [ ] [ ] [ ] [ ]
More than Two Years in Repayment [ ] [ ] [ ] [ ] [ ] [ ]
TOTAL [ ] $[ ] [ ]% [ ] $[ ] [ ]%
(1) Refers to the status of the borrower of each initial student loan to be
added, as of the statistical cutoff date: such borrower may still be
attending an undergraduate institution or a graduate school ("In-School"),
may be in a grace period prior to repayment commencing ("Grace"), may be
repaying such loan ("Repayment") or may have temporarily ceased repaying
such loan through a deferral ("Deferral") or a forbearance ("Forbearance")
period. See "The Student Loan Financing Business" in the prospectus.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
(3) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
S-60
SCHEDULED WEIGHTED AVERAGE MONTHS REMAINING IN CURRENT BORROWER PAYMENT STATUS
AS OF THE STATISTICAL CUTOFF DATE(1)
GROUP I GROUP II
-------------------------------------------------- --------------------------------------------------
PAYMENT STATUS IN-SCHOOL GRACE DEFERRAL FORBEARANCE REPAYMENT IN-SCHOOL GRACE DEFERRAL FORBEARANCE REPAYMENT
- -------------- --------- ----- -------- ----------- --------- --------- ----- -------- ----------- ---------
Deferment [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Forbearance [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
In Grace [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
In Repay [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
In School [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
WEIGHTED AVERAGE: [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
(1) Determined without giving effect to any deferral periods or forbearance
periods that may be granted in the future.
S-61
GEOGRAPHIC DISTRIBUTION OF STATES REPRESENTING APPROXIMATELY 1% OR MORE OF THE
GROUP I POOL BALANCES AS OF THE STATISTICAL CUTOFF DATE(1)
NUMBER AGGREGATE OUTSTANDING PRINCIPAL PERCENT OF RELATED POOL
STATE OF LOANS BALANCE(2) BALANCE
- -----------------------------------------------------------------------------------------
Ohio [ ] $[ ] [ ]%
California [ ] [ ] [ ]
New York [ ] [ ] [ ]
Michigan [ ] [ ] [ ]
Pennsylvania [ ] [ ] [ ]
Texas [ ] [ ] [ ]
Illinois [ ] [ ] [ ]
Florida [ ] [ ] [ ]
Massachusetts [ ] [ ] [ ]
Virginia [ ] [ ] [ ]
New Jersey [ ] [ ] [ ]
Maryland [ ] [ ] [ ]
Connecticut [ ] [ ] [ ]
North Carolina [ ] [ ] [ ]
District of Columbia [ ] [ ] [ ]
Georgia [ ] [ ] [ ]
Indiana [ ] [ ] [ ]
Tennessee [ ] [ ] [ ]
Washington [ ] [ ] [ ]
Other(3) [ ] [ ] [ ]
TOTAL [ ] $[ ] [ ]%
(1) Based on the permanent billing addresses of the borrowers of the initial
student loans shown on the master servicer's or a sub-servicer's records as
of the statistical cutoff date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
(3) Includes all other states, none of which exceeds [ ]% of the related Pool
Balance.
S-62
GEOGRAPHIC DISTRIBUTION OF STATES REPRESENTING APPROXIMATELY 1% OR MORE OF THE
GROUP II POOL BALANCES AS OF THE STATISTICAL CUTOFF DATE(1)
AGGREGATE OUTSTANDING PRINCIPAL PERCENT OF RELATED POOL
STATE NUMBER OF LOANS BALANCE(2) BALANCE
- -------------- --------------- ------------------------------- -----------------------
New York [ ] $[ ] [ ]%
California [ ] [ ] [ ]
Ohio [ ] [ ] [ ]
Florida [ ] [ ] [ ]
Pennsylvania [ ] [ ] [ ]
Massachusetts [ ] [ ] [ ]
Illinois [ ] [ ] [ ]
Texas [ ] [ ] [ ]
New Jersey [ ] [ ] [ ]
Michigan [ ] [ ] [ ]
Maryland [ ] [ ] [ ]
Washington [ ] [ ] [ ]
Virginia [ ] [ ] [ ]
Georgia [ ] [ ] [ ]
Connecticut [ ] [ ] [ ]
Wisconsin [ ] [ ] [ ]
North Carolina [ ] [ ] [ ]
Indiana [ ] [ ] [ ]
Arizona [ ] [ ] [ ]
Other(3) [ ] [ ] [ ]
TOTAL: [ ] $[ ] [ ]%
(1) Based on the permanent billing addresses of the borrowers of the initial
student loans shown on the master servicer's or a sub-servicer's records as
of the statistical cutoff date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
(3) Includes all other states, none of which exceeds [ ]% of the related Pool
Balance.
S-63
DISTRIBUTION OF FEDERAL LOANS BY DATE OF DISBURSEMENT AS OF THE STATISTICAL
CUTOFF DATE
GROUP II
GROUP I (NOT APPLICABLE)
------------------------------------ -----------------------------------
AGGREGATE PERCENT OF
OUTSTANDING FEDERAL LOANS
NUMBER PRINCIPAL IN INITIAL
DATE OF DISBURSEMENT(1) OF LOANS BALANCE(2) POOL
- ----------------------- -------- ----------- ------------- ---- ------------ ---------------
Prior to [ ] [ ] $[ ] [ ]%
[ ] to [ ] [ ] [ ] [ ]
[ ]to Present [ ] [ ] [ ]
TOTAL [ ] $[ ] [ ]%
(1) Federal loans disbursed prior to [ ] are [ ]% guaranteed by the applicable
federal guarantor, and reinsured against default by the Department of
Education up to [ ]% of the applicable guarantee payments. Federal loans
disbursed on or after [ ] (but before [ ]) are [ ]% guaranteed by the
applicable federal guarantor, and reinsured against default by the
Department of Education up to a maximum of [ ]% of the guarantee payments.
Federal loans first disbursed on or after [ ]are [ ]% guaranteed by the
applicable federal guarantor, and reinsured against default by the
Department of Education up to [ ]% of the guarantee payments. See "The
Student Loan Financing Business--Description of Federal Loans Under the
Programs" and "--Insurance of Student Loans; Guarantors of Student Loans"
in the prospectus.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
S-64
DISTRIBUTION BY NUMBER OF DAYS OF DELINQUENCY AS OF THE STATISTICAL CUTOFF
DATE
GROUP I GROUP II
---------------------------------- ----------------------------------
AGGREGATE PERCENT OF AGGREGATE PERCENT OF
OUTSTANDING RELATED OUTSTANDING RELATED
NUMBER OF PRINCIPAL POOL NUMBER OF PRINCIPAL POOL
DAYS DELINQUENT LOANS BALANCE(1) BALANCE LOANS BALANCE(2) BALANCE
- --------------- --------- ---------- ---------- --------- ----------- ----------
Current [ ] $[ ] [ ]% [ ] $[ ] [ ]%
[ ]- [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ]- [ ] [ ] [ ] [ ] [ ] [ ] [ ]
[ ] and above [ ] [ ] [ ] [ ] [ ] [ ]
TOTAL [ ] $[ ] [ ]% [ ] $[ ] [ ]%
(1) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
(2) Includes net principal balance due from borrowers, plus accrued interest
thereon to be capitalized upon commencement of repayment, estimated to be
$[ ] as of the statistical cutoff date.
S-65
DISTRIBUTION BY LOAN REPAYMENT TERM AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
----------------------------------- ------------------------------------------
AGGREGATE AGGREGATE
OUTSTANDING PERCENT OF OUTSTANDING PERCENT OF
LOAN NUMBER PRINCIPAL RELATED POOL NUMBER OF PRINCIPAL BALANCE RELATED POOL
REPAYMENT TERMS OF LOANS BALANCE(1) BALANCE LOANS (2) BALANCE
- -------------------- -------- ----------- ------------ --------- ----------------- ------------
Level Payment [ ] $ [ ] [ ]% [ ] $ [ ] [ ]%
Graduated Payment(3) [ ] [ ] [ ] [ ] [ ] [ ]
TOTAL [ ] $ [ ] [ ]% [ ] $ [ ] [ ]%
(1) Includes net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment,
estimated to be $[ ] as of the statistical cutoff date.
(2) Includes net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment,
estimated to be $[ ] as of the statistical cutoff date.
(3) Student loans with graduated repayment terms require borrowers to make
payments of interest only for the first two years after entering
repayment which increase over the next three years to a level payment
amount which will amortize the then outstanding principal balance of
the loan over the then remaining term.
S-66
MATURITY AND PREPAYMENT ASSUMPTIONS
The rate of payment of principal of each class of notes, other than the
class [ ] notes, and the yield on each class of notes will be affected by
prepayments of the related group of student loans that may occur as described
below. All the student loans in each group are prepayable in whole or in part by
the borrowers at any time, including by means of federal consolidation loans,
Federal Direct Consolidation Loans or private consolidation loans or as a result
of a borrower's default, death, disability or bankruptcy and subsequent
liquidation or collection of related guarantee payments. We cannot predict
prepayment rates, and they may be influenced by a variety of economic, social,
legislative and other factors, including those described below. In general, the
rate of prepayments may tend to increase if alternative financing becomes
available at prevailing interest rates significantly below the interest rates
applicable to each group of student loans. The rate of prepayment of
consolidation loans may increase should Congress enact legislation providing
consolidation loan borrowers the option of refinancing existing consolidation
loans. Such legislation has been introduced in Congress, but has not yet been
enacted. However, because many of the student loans in each group bear interest
at a rate that either actually or effectively is floating, it is impossible to
determine whether changes in prevailing interest rates will be similar to or
vary from changes in the interest rates on the student loans in each group.
Borrowers of some student loans may qualify for loan forgiveness as a
teacher under section 428J of the Higher Education Act or as a child care
provider under section 428K of the Higher Education Act. Service requirements to
qualify for this loan forgiveness are high and few borrowers have qualified for
loan forgiveness under existing law. However, Congress is currently considering
expansion of loan forgiveness programs that could expand the categories of
qualifying professions, change service requirements, and increase the maximum
amount of loan indebtedness eligible for forgiveness. At this time, we cannot
predict whether any of these bills, or versions of them that may include
additional professions, will be enacted into law or when such legislation might
become effective.
If borrowers of student loans in either group elect to borrow
consolidation loans with respect to such student loans from the seller after the
end of the Funding Period or from another lender at any time: (1) with respect
to the group I student loans, the holders of the group I notes will collectively
receive as a prepayment of principal the aggregate principal amount of such
group I student loans; and (2) with respect to the group II student loans, the
holders of the group II notes will collectively receive as a prepayment of
principal the aggregate principal amount of such group II student loans.
If the seller makes a consolidation loan during the Funding Period (in
which event the seller will then sell that consolidation loan to the depositor,
who will sell it to the eligible lender trustee as either a group I student loan
or group II student loan, as applicable, to the extent that funds are available
in the related escrow account and, during the Funding Period, the applicable
other student loan sub-account of the pre-funding account, for the purchase
thereof), the aggregate outstanding principal balance of student loans in each
group (after giving effect to the addition of these consolidation loans) will be
at least equal to and in most cases greater than such balance before this
prepayment, although, with respect to group I student loans, the portion of the
loan guaranteed will be [ ]% with respect to any federal consolidation loan
disbursed on or after
S-67
[ ] even if the underlying federal loans were [ ]% guaranteed. See "The Student
Loan Financing Business--Description of Federal Loans Under the Programs--The
Federal Consolidation Loan Program" in the prospectus. We can give you no
assurance that borrowers with student loans will not seek to obtain
consolidation loans from the seller with respect to those student loans after
the end of the Funding Period or by another lender at any time. We can also give
you no assurance that borrowers of consolidation loans will not seek to obtain
refinancing of such loans should Congress enact legislation providing borrowers
with this option. At this time, we have difficulty predicting whether any such
legislation will be enacted into law or when such legislation might become
effective.
Also, under the sale and servicing agreement, (1) the depositor is
obligated to repurchase (or to cause the seller to repurchase) any student loan
as a result of a breach of any of its representations and warranties (or the
seller's representations and warranties contained in the student loan transfer
agreement) and (2) the master servicer is obligated to purchase any student loan
under the sale and servicing agreement as a result of a breach of certain
covenants with respect to such student loan, in each case where such breach
materially adversely affects the interests of the noteholders, the swap
counterparty or the securities insurer (with respect to group II student loans,
as determined by the securities insurer) in that student loan and is not cured
within the applicable cure period (it being understood that, if a student loan
has the benefit of a guarantee agreement, any such breach that does not affect
any guarantor's obligation to guarantee payment of that student loan will not be
considered to have a material adverse effect for this purpose). See "Description
of the Transfer and Servicing Agreements--Sale of Student Loans; Representations
and Warranties" and "--Master Servicer Covenants" in the prospectus.
Also, see "Description of the Transfer and Servicing
Agreements--Additional Fundings" in this prospectus supplement and in the
prospectus for a description of prepayments of principal to noteholders that
will occur (1) on the special redemption date on [ ] if, as of the special
determination date, occurring on [ ], either the group I subsequent student loan
pre-funding sub-account and/or the group II subsequent student loan pre-funding
sub-account, as the case may be, has not been reduced to zero and is greater
than $[10,000,000] or (2) at the end of the Funding Period if, as of the end of
the Funding Period, the balance in either of the other student loan sub-accounts
of the pre-funding account has not been reduced to zero.
If any amendment to FASB 140 (Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities) or any other relevant or
related accounting literature is issued, the effect of which is to amend the
criteria defining a qualifying special purpose entity or its permitted
activities, the Funding Period will terminate one business day prior to the
earliest effective date of such amendment or other accounting literature and all
sums then on deposit in the pre-funding accounts will be distributed to the
applicable group I or group II noteholders as a prepayment of principal on the
immediately following distribution date.
Also, see "Description of the Transfer and Servicing
Agreements--Termination" in this prospectus supplement and in the prospectus for
a description of the master servicer's option to purchase the student loans when
the aggregate Pool Balance of all of the student loans then outstanding is less
than or equal to 10% of the aggregate group I and group II initial student loan
pool balance plus the initial principal balance of all subsequent student loans,
and potential
S-68
exercise of the put options regarding each group of student loans to occur on
the [ ] distribution date.
Group I senior noteholders will also receive accelerated payments of
principal from excess interest collections in the event of a SUBORDINATE NOTE
PRINCIPAL TRIGGER, and group II senior noteholders, other than the holders of
the class [ ] notes, will receive accelerated payments of principal from excess
interest collections in the event of a Subordinate Note Principal Trigger or a
TRIGGER EVENT, or, with respect to either group of notes, if the related put
option is exercised and either (i) the put option provider defaults or (ii) the
proceeds received from the exercise of the related put option would be
insufficient to pay the principal of all the notes (plus all accrued interest
thereon) in the related group, plus other sums owed to certain parties, and
subsequent to such default or inability to exercise the related put option there
is also a failed auction of the related group of student loans. Any reinvestment
risk from such accelerated payment of principal will be borne by the noteholders
in each group receiving such prepayment.
On the other hand, scheduled payments on, and maturities of, the
student loans in either group may be extended, including pursuant to grace
periods, deferral periods and, under certain circumstances, forbearance periods
or as a result of the conveyance of serial loans (that are added to the pool of
either group I or group II student loans) to the eligible lender trustee on
behalf of the trust before the end of the Funding Period or of refinancings
through consolidation loans to the extent such consolidation loans are sold to
the eligible lender trustee on behalf of the trust as described above. If that
happens, the fact that such consolidation loans will likely have longer
maturities than the group I or group II student loans, as applicable, they are
replacing may lengthen the remaining term of the group I or group II student
loans, as applicable, and the average life of the group I or group II student
loans. The rate of payment of principal of the notes of each group, other than
the class [ ] notes with respect to group II, and the yield on the notes of each
group may also be affected by the rate of defaults resulting in losses on
defaulted student loans in the related group 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 guarantee payments with respect thereto. In
addition, the maturity of certain of the group I and group II student loans, as
applicable, will extend well beyond the final maturity date of the class [ ]
notes or class [ ] notes, as the case may be. However, the group II insured
notes guaranty insurance policy will guarantee the payment of the outstanding
principal balance of each group II insured note on its respective final
distribution date.
We cannot predict the rate of prepayment on either the group I or group
II student loans. You will bear any reinvestment risks resulting from a faster
or slower incidence of prepayment of student loans related to your group of
notes. Reinvestment risks may include the risk that interest rates and the
relevant spreads above particular interest rate bases are lower at the time you
receive payments from the trust than the interest rates and the spreads that
would otherwise have been had prepayments not been made or had prepayments been
made at a different time.
INSURANCE OF STUDENT LOANS; GUARANTORS OF STUDENT LOANS
Each group I student loan will be required to be guaranteed by one of
the federal guarantors described in this prospectus supplement and reinsured by
the Department of
S-69
Education under the Higher Education Act. These student loans must also be
eligible for special allowance payments and, with respect to each federal loan
that is a Stafford Loan (excluding any Unsubsidized Stafford Loan or
consolidation loan where none of the underlying federal loans were Unsubsidized
Stafford Loans), must be eligible for interest subsidy payments paid by the
Department of Education. All of the group I initial student loans are, and all
of the group I subsequent student loans will be, federal loans.
As of the statistical cutoff date, approximately [ ]% (by aggregate
principal balance) of the group II initial student loans will be guaranteed
private loans that are required to be guaranteed or insured as to principal and
interest by [TERI or HICA]. As of the statistical cutoff date, approximately [
]% (by aggregate principal balance) of the group II initial student loans will
be unguaranteed private loans.
S-70
We have provided information in the following tables with respect to
the portion of the student loans guaranteed by each guarantor: [LIST OF
GUARANTORS TO BE UPDATED IN EACH PROSPECTUS SUPPLEMENT]
DISTRIBUTION BY GUARANTORS AS OF THE STATISTICAL CUTOFF DATE
GROUP I GROUP II
------------------------------------ ------------------------------------------
AGGREGATE AGGREGATE
OUTSTANDING PERCENT OF OUTSTANDING PERCENT OF
NUMBER OF PRINCIPAL RELATED POOL PRINCIPAL RELATED POOL
LOANS BALANCE(1) BALANCE NUMBER OF LOANS BALANCE(2) BALANCE
--------- ----------- ------------ --------------- ----------- ------------
Federal
Guarantors
ASA [ ] $ [ ] [ ]% -- -- --
CSAC [ ] [ ] [ ] -- -- --
CSLF [ ] [ ] [ ] -- -- --
CSLP [ ] [ ] [ ] -- -- --
ECMC [ ] [ ] [ ] -- -- --
GLHEGC [ ] [ ] [ ] -- -- --
ISAC [ ] [ ] [ ] -- -- --
KHEAA [ ] [ ] -- -- -- --
MHEAA [ ] [ ] [ ] -- -- --
NSLP [ ] [ ] [ ] -- -- --
NYSHESC [ ] [ ] [ ] -- -- --
OSAC [ ] [ ] [ ] -- -- --
PHEAA [ ] [ ] [ ] -- -- --
TGSLC [ ] [ ] [ ] -- -- --
TSAC [ ] [ ] [ ] -- -- --
USAF [ ] [ ] [ ] -- -- --
Private
Guarantors
[TERI] -- -- -- [ ] $ [ ] [ ]%
[HICA] -- -- -- [ ] [ ] [ ]
Unguaranteed -- -- -- [ ] [ ] [ ]
TOTAL [ ] $ [ ] [ ]% [ ] $ [ ] [ ]%
(1) Includes net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment,
estimated to be [ ] as of the statistical cutoff date.
(2) Includes net principal balance due from borrowers, plus accrued
interest thereon to be capitalized upon commencement of repayment,
estimated to be $[ ] as of the statistical cutoff date.
S-71
Federal Reinsurance. Under the Higher Education Act, each federal
guarantor is reimbursed by the Department of Education pursuant to certain
agreements between the Department of Education and that federal guarantor for up
to 95% of amounts paid to lenders under its guaranty agreement on loans the
first disbursement for which is made on or after October 1, 1998 (up to 98% for
loans the first disbursement for which was made between October 1, 1993 and
September 30, 1998). Payments to lenders are made for valid default and other
claims of principal and accrued and unpaid interest. The federal guarantor may
be subject to reimbursement of a lower percentage of principal and accrued and
unpaid interest based on the guarantor's default experience. Federal reinsurance
payments are dependent on compliance by the federal guarantor and the lender
with applicable program regulations and submission of an eligible claim. See
"The Student Loan Financing Business -- Insurance of Student Loans; Guarantors
of Student Loans" in the prospectus for a description of the federal reinsurance
program and factors affecting the federal guarantors.
Guarantors for the Federal Loans. The Higher Education Act requires
every state to designate a guarantee agency, either by establishing its own or
by designating another guarantee agency. A guarantor who has been designated by
a particular state is obligated to guarantee loans for students who reside or
attend school in that state and must agree to provide loans to any such students
who are otherwise unable to obtain a loan from any other lender.
The eligible lender trustee has entered into a guarantee agreement with
each of [ASA, CSAC, CSLF, CSLP, ECMC, GLHEGC, ISAC, KHEAA, MHEAA, NSLP, NYHESC,
OSAC, PHEAA, TGSLC, TSAC and USAF], by which each such federal guarantor has
agreed to serve as guarantor for certain federal loans. [ASA] is the designated
student loan guarantor for Massachusetts and the District of Columbia and has
established an operating center in Boston, Massachusetts. [CSAC] is the
designated student loan guarantor for California and has established an
operating center in Rancho Cordova, California. [CSLF] is the designated student
loan guarantor for Connecticut and has established an operating center in Rocky
Hill, Connecticut. [CSLP] is the designated student loan guarantor for Colorado
and has established an operating center in Denver, Colorado. [ECMC] is the
designated student loan guarantor for Virginia and has established operating
centers in St. Paul, Minnesota and Richmond, Virginia. [GLHEGC] is the
designated student loan guarantor for Minnesota, Wisconsin, Ohio, Puerto Rico
and the U.S. Virgin Islands and has established an operating center in Madison,
Wisconsin. ISAC is the designated student loan guarantor for Illinois and has
established an operating center in Deerfield, Illinois. [KHEAA] is the
designated student loan guarantor for Kentucky and Alabama and has established
an operating center in Frankfort, Kentucky. [MHEAA] is the designated student
loan guarantor for Michigan and has established an operating center in Lansing,
Michigan. [NSLP] is the designated student loan guarantor for Nebraska and has
established an operating center in Lincoln, Nebraska. [NYHESC] is the designated
student loan guarantor for New York, and has established an operating center in
Albany, New York. [OSAC] is the designated student loan guarantor for Oregon and
has established an operating center in Eugene, Oregon. [PHEAA] is the designated
student loan guarantor for Pennsylvania, West Virginia and Delaware, and has an
established operating center in Harrisburg, Pennsylvania. (For more information
concerning [PHEAA], see "The Master Servicer and the Sub-Servicers -- [PHEAA]"
herein.) [TGSLC] is the designated student loan guarantor for Texas and has
established an operating center in Austin, Texas. [TSAC] is the designated
student loan
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guarantor for Tennessee and has established an operating center in Nashville,
Tennessee. [USAF] is the designated Student Loan guarantor for Indiana, Kansas,
Alaska, Arizona, Nevada, Wyoming, Maryland, Hawaii and Mississippi and has
established an operating center in Fishers, Indiana. All of the group I initial
student loans are federal loans and are guaranteed by federal guarantors. None
of the group II initial student loans are, and none of the group II subsequent
student loans will be, federal loans and none are or will be guaranteed by
federal guarantors.
Under its guarantee agreement, each federal guarantor guarantees
payment of up to 100% of the principal (including any interest capitalized from
time to time) and accrued interest for each federal loan guaranteed by it as to
which any one of the following events has occurred:
- failure by the borrower to make monthly principal or
interest payments on the federal loan when due, provided
that the failure continues for a statutorily determined
period of at least 180 days (or 270 days with respect to
federal loans for which the first date of delinquency occurs
on or after October 7, 1998) (except that the guarantee
against such failures will be 98% of principal and accrued
and unpaid interest in the case of Financed Federal Loans
first disbursed on or after October 1, 1993);
- any filing by or against the borrower of a petition in
bankruptcy pursuant to any chapter of the Bankruptcy Code;
- the loan application was falsely certified as to borrower
eligibility by the school;
- the death of the borrower;
- the total and permanent disability of the borrower to work
and earn money or attend school, as certified by a qualified
physician;
- the school closed thereby preventing the borrower from
completing his/her program of study; or
- the failure of the borrower's school to pay a refund owed to
the borrower, to the extent of the amount of the refund that
is allocable to the federal loan.
When these conditions are satisfied, the Higher Education Act requires
the federal guarantor generally to pay the claim within 90 days of its
submission by the lender. The obligations of each federal guarantor under its
guarantee agreement are obligations of each federal guarantor alone, and are not
supported by the full faith and credit of any state government. However, the
Higher Education Act provides that if the Secretary of Education determines that
a guarantor is unable to meet its insurance obligations, holders of loans may
submit insurance claims directly to the Department of Education until the
obligations are transferred to a new federal guarantor capable of meeting the
obligations or until a successor federal guarantor assumes the obligations. We
can give you no assurance that the Department of Education would under any given
circumstances assume the obligation to assure satisfaction of a guarantee
obligation by exercising its right to terminate a reimbursement agreement with a
federal guarantor or by making a determination that the federal guarantor is
unable to meet its guarantee obligations. The Secretary of Education is also
authorized, among other things, to take
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actions necessary to ensure the continued availability of student loans to
residents of the state or states in which the guarantor did business, the full
honoring of all guarantees issued by the guarantor prior to the assumption by
the Secretary of Education of the functions of the guarantor, and the proper
servicing of student loans guaranteed by the guarantor prior to the Secretary of
Education's assumption of the functions of the guarantor.
Each of the federal guarantors' guarantee obligations with respect to
any federal loan are conditioned upon the satisfaction of all the conditions in
the applicable guarantee agreement. These conditions include, but are not
limited to, the following:
- the origination and servicing of the federal loan being performed
in accordance with the programs, the Higher Education Act and
other applicable requirements;
- the timely payment to the applicable federal guarantor of the
required guarantee fee;
- the timely submission to the federal guarantor of all required
pre-claim delinquency status notifications and of the claim with
respect to the federal loan; and
- the transfer and endorsement of the promissory note evidencing
the federal loan to the federal guarantor, at the time of a claim
to receive guarantee payments thereon.
Failure to comply with any of the applicable conditions, including
those described above, may result in the refusal of the applicable federal
guarantor to honor its guarantee agreement with respect to the federal loan, in
the denial of guarantee coverage with respect to certain accrued interest
amounts on the federal loan or in the loss of certain interest subsidy payments
and special allowance payments with respect to the federal loan. Under the sale
and servicing agreement, such failure to comply would be a breach of the master
servicer's covenants or the depositor's or the master servicer's representations
and warranties, and would create an obligation of the depositor or the master
servicer to repurchase or purchase the federal loan or to reimburse the trust
for such unguaranteed interest amounts or the related lost interest subsidy
payments and special allowance payments. See "Description of the Transfer and
Servicing Agreements -- Sale of Student Loans; Representations and Warranties"
and " -- Master Servicer Covenants" herein. See also "Risk Factors" herein.
ALL FEDERAL GUARANTORS
Guaranty Volume. We have set forth in the following table the
approximate aggregate principal amount of federally reinsured education loans
(including loans under the Parent Loans for Undergraduate Students program but
excluding federal consolidation loans) that have first become guaranteed by all
federal guarantors in each of the last five federal fiscal years:*
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STAFFORD, SLS AND PLUS LOANS GUARANTEED
(DOLLARS IN MILLIONS)
FEDERAL FISCAL YEAR
(ENDING SEPTEMBER 30) ALL GUARANTORS
- --------------------- --------------
1999 22,923
2000 25,656
2001 28,356
2002 32,749
2003 38,865
* The information set forth in the table has been obtained from the
Department of Education's Federal Student Loan Programs Data Books and the
Department of Education's Quarterly Volume Updates. Information for each
federal guarantor was provided by such federal guarantor.
Reserve Ratio. Each federal guarantor's reserve ratio is determined by
dividing its cumulative cash reserves, the Federal Student Loan Reserve Fund (as
defined in Section 422A of the Higher Education Act), by the original principal
amount of the outstanding loans it has agreed to guarantee.
On October 7, 1998, former President Clinton signed a bill to
reauthorize the Higher Education Act for the next five years. The bill created a
new funding model for guarantors but also permitted the Department of Education
to enter into "Voluntary Flexible Agreements" with up to six guarantors to
create alternate funding models. As of March 2004, ASA, CSAC, GLHEGC and TGSLC
had entered into "Voluntary Flexible Agreements" with the Department of
Education. In general, the reauthorization bill required most federal guarantors
to establish two separate funds, a Federal Reserve Fund and an Agency Operating
Fund (as defined in Section 422A of the Higher Education Act). Under the new
funding model, the Federal Reserve Fund is considered the property of the
Federal government and the Agency Operating Fund is considered the property of
the related federal guarantor.
The Federal Reserve Fund was established on October 1, 1998 through the
deposit of all existing funds, securities and other liquid assets previously
identified as the Federal Family Education Loan Program (or FFELP). Most federal
guarantors will deposit into the Federal Reserve Fund all guarantee fees, the
reinsurance received from the Department of Education and the recovery of the
non-reinsured portion of defaulted loans and investment earnings. The Federal
Reserve Fund may be used only to pay lender default claims, default aversion
fees into the Agency Operating Fund, and for other limited purposes. Under
certain circumstances, at the instruction of the Department of Education,
account maintenance fees are paid to the Agency Operating Fund from the Federal
Reserve Fund. Federal guarantors approved for Voluntary Flexible Agreements
operate under rules negotiated individually between the related federal
guarantor and the Department of Education.
The term cumulative cash reserves is equal to the difference of sources
less uses of funds for the Federal Reserve Funds. Prior to enactment of the new
model, cumulative cash reserves referred to cash reserves plus (i) the federal
guarantor's quarterly report on sources of funds
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(including insurance premiums, state appropriations, federal advances, federal
reinsurance payments, administrative cost allowances, collections on claims paid
and investment earnings) minus (ii) the federal guarantor's quarterly report on
uses of funds (including claims paid to lenders, operating expenses, lender
fees, the Department of Education's share of collections on claims paid,
returned advances and reinsurance fees).
The original principal amount of outstanding loans consists of the
original principal amount of loans guaranteed by the federal guarantor minus (i)
the original principal amount of loans canceled, claims paid, loans paid in full
and loan guarantees transferred from the federal guarantor to other guarantors,
plus (ii) the original principal amount of loan guarantees transferred to the
federal guarantor, from other guarantors, excluding loan guarantees transferred
to another guarantor pursuant to a plan of the Secretary of Education in
response to the insolvency of a guarantor.
We have set forth in the following tables the national average reserve
ratio for all federal guarantors for the last five federal fiscal years:
NATIONAL AVERAGE RESERVE RATIO*
FEDERAL FISCAL YEAR ENDING SEPTEMBER 30 NATIONAL AVERAGE
- --------------------------------------- ----------------
1998 1.5
1999 1.6
2000 1.0
2001 0.8
2002 **
[ ] [ ]
[ ] [ ]
- -----------------------
* The information set forth in the table above has been obtained from the
Department of Education's Federal Student Loan Programs Data Books and the
Department of Education's Quarterly Volume Updates.
** Not available.
Recovery Rates. A federal 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 by
dividing the aggregate amount recovered from borrowers by the federal guarantor
by the aggregate amount of default claims paid by the federal guarantor during
the applicable federal fiscal year with respect to borrowers.
Loan Loss Reserve. If a federal guarantor receives less than full
reimbursement of its guarantee obligations from the Department of Education (see
" -- Federal Reinsurance" above), the federal guarantor would be forced to look
to its existing assets to satisfy the guarantee obligations not reimbursed.
Because federal guarantors are no longer reinsured by the Department of
Education at 100% (98% for loans disbursed between October 1, 1993 and September
30, 1998 and 95% for loans disbursed on and after October 1, 1998), many federal
guarantors have begun to maintain reserves for the 2% to 5% "risk-sharing"
associated with these guarantees. In general, the federal guarantors use
historical default and recovery rates to attempt to predict the reserves that
should be maintained for this purpose.
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Claims Rate. For the past five federal fiscal years, none of [ASA's,
CSAC's, CSLF's, CSLP's, ECMC's, GLHEGC's, ISAC's, KHEAA's, MHEAA's, NSLP's,
NYHESC's, OSAC's, PHEAA's, TGSLC's, TSAC's or USAF's] claims rate has exceeded
5.0%, and as a result, all claims of [ASA, CSAC, CSLF, CSLP, ECMC, GLHEGC, ISAC,
KHEAA, MHEAA, NSLP, NYHESC, OSAC, PHEAA, TGSLC, TSAC and USAF] have been
reimbursed by the Department of Education at the maximum reinsurance rate
permitted by the Higher Education Act. See " -- Federal Reinsurance" above. The
most recent national cohort default rate reported by the Department of Education
was 5.4% for the federal fiscal year 2001. As recently as federal fiscal year
1990, the national default rate was over 22.4%. This trend, coupled with the
claims and recovery information listed in this section, shows improvement in the
repayment of student loans by borrowers. While the depositor and the seller are
not currently aware of any circumstances which would cause the reimbursement
levels for these federal guarantors to be less than the maximum levels
permitted, nevertheless, we can give you no assurance that any federal guarantor
will continue to receive the maximum reimbursement for such claims.
We have set forth below certain current and historical information
about [ ], [ ] and [ ] as of the statistical cutoff date. This information was
provided by [ ], [ ] and [ ], respectively, for insertion herein. We have
provided no information about any of the other federal guarantors because the
aggregate principal amount of student loans guaranteed by each such federal
guarantor is less than 5% of the sum of the group I initial student loans.
[DESCRIPTION OF AND FINANCIAL STATISTICS REGARDING EACH FEDERAL
GUARANTOR GUARANTEEING 5% OR MORE OF THE GROUP I STUDENT LOANS TO BE INSERTED IN
EACH PROSPECTUS SUPPLEMENT]
GUARANTORS FOR THE GUARANTEED PRIVATE LOANS.
All of the guaranteed private loans will be group II student loans. The
eligible lender trustee has entered into a guarantee agreement with [TERI], and
the seller will assign to the eligible lender trustee, on behalf of the trust,
its rights under surety bonds issued by [HICA] applicable to the group II
student loans insured by HICA. As a result [TERI and HICA], respectively, will
each guarantee or insure a portion of the guaranteed private loans.
Under its guarantee agreement or surety bond, each of [TERI and HICA]
guarantees or insures payment of [ ]% of the principal (including any interest
or fees capitalized from time to time) and accrued interest for each guaranteed
private loan guaranteed or insured by it as to which any one of the following
events has occurred:
- failure by the borrower to make monthly principal or
interest payments on the guaranteed private loan when due,
provided such failure continues for a period of 120 days
(150 days for [HICA]);
- with respect to [HICA], any filing by or against the
borrower of a petition, and with respect to [TERI], the
discharge of the related student loan debt of a borrower as
part of any proceedings, in bankruptcy pursuant to any
chapter of the Bankruptcy Code, (in the case of [HICA]
insured guaranteed private loans, subject to the
restrictions contained in the [HICA] surety bonds);
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- the death of the borrower; or
- the total and permanent disability of the borrower to be
employed on a full-time basis, as certified by two qualified
physicians, (in the case of [HICA] insured guaranteed
private loans, subject to the restrictions contained in the
[HICA] surety bonds).
[TERI's and HICA]'s guarantee/insurance obligation with respect to any
guaranteed private loan is conditioned upon the satisfaction of all the
conditions in its respective guarantee agreement or surety bond. These
conditions include, but are not limited to, the following:
- the origination and servicing of such guaranteed private loan
being performed in accordance with the programs and other
applicable requirements,
- the timely payment to [TERI or HICA] of all required guarantee
fees or premiums,
- the timely submission to [TERI or HICA] of all required pre-claim
delinquency status notifications and of the claim with respect to
the guaranteed private loan, and
- the transfer and endorsement of the promissory note evidencing
the guaranteed private loan to [TERI or HICA] at the time of a
claim to receive guarantee payments thereon.
Failure to comply with any of the applicable conditions, including the
conditions described above, may result in the refusal of [TERI or HICA] to honor
its guarantee agreement or surety bond with respect to the guaranteed private
loan. Also, if any guaranteed private loan is determined to be unenforceable
because the terms of such guaranteed private loan or the forms of the
application or promissory note related thereto violate any provision of
applicable state law (other than Massachusetts law) [TERI]'s guarantee
obligation is terminated and [HICA]'s insurance obligation is reduced to 0% of
principal (including capitalized interest and fees) and accrued interest on such
guaranteed private loan. Under the sale and servicing agreement, such failure to
comply or such unenforceability would constitute a breach of the master
servicer's covenants or the depositor's representations and warranties (with
respect to the student loans) and would create an obligation of the depositor to
repurchase the guaranteed private loan or of the master servicer to purchase the
guaranteed private loan. See "Description of the Transfer and Servicing
Agreements -- Sale of Student Loans; Representations and Warranties" and" --
Master Servicer Covenants" herein.
[TERI and HICA], as guarantors of private loans, are not entitled to
any federal reinsurance or assistance from the Department of Education or any
other governmental entity. Although each private guarantor maintains a loan loss
reserve intended to absorb losses arising from its guarantee/insurance
commitments, we can give you no assurance that the amount of such reserve will
be sufficient to cover the obligations of [TERI or HICA] over the term of the
guaranteed private loan.
We have provided certain organizational and summary financial
information about each of [TERI and HICA] in its capacity as a guarantor below.
We do not guarantee the accuracy or completeness of the information set forth
below about [TERI and HICA] and none of the seller,
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the depositor, the master servicer, any of the underwriters, or any of their
respective affiliates make any representation regarding it:
[DESCRIPTION OF GUARANTORS GUARANTEEING MORE THAN 5% OF GROUP II
STUDENT LOANS TO BE INSERTED IN EACH PROSPECTUS SUPPLEMENT]
UNGUARANTEED PRIVATE LOANS
As of the statistical cutoff date, approximately [ ]% of the group II
initial student loans are, and none of the group I student loans are or will be,
unguaranteed private loans. The unguaranteed private loans were originated in
accordance with the criteria described in the prospectus under "The Student Loan
Financing Business -- Description of Private Loans Under the Programs." See also
the discussion of the Key Alternative Loan Program in the prospectus under "The
Student Loan Financing Business -- Description of Private Loans Under the
Programs" and "The Student Loan Pools -- Characteristics of the Key CareerLoan"
in this prospectus supplement.
KEYCORP STUDENT LOAN TRUSTS
The following tables contain the cumulative claims paid experience for
guaranteed student loans and charge-offs experience for unguaranteed student
loans for all of the student loans securitized by Key Bank USA, National
Association and its affiliates through the various securitization trusts
specified. The data includes substantially all student loans originated or
acquired by Key Bank USA, National Association and its affiliates during these
time periods, except FFELP loans for undergraduate education and one private
loan product whose primary use is for grade school and high school education.
The student loans selected for each student loan trust were generally selected
based on the expected graduation year of each student. While the trusts are
comprised predominately of one expected graduation year, there are borrowers in
each student loan trust who consolidated their loans, left school early or
graduated late and therefore did not graduate during the expected graduation
year but are included under that graduation year for purposes of the tables.
The tables below reflect only the past performance of each of the
securitization trusts indicated. The performance of a particular trust and the
student loans in that trust may be affected by a number of factors, including
the date when each borrower enters repayment, the number of loans in
forbearance, grace or deferment and the timing of when such loans entered
forbearance, grace or deferment, the particular mix of loan programs in that
trust, the underwriting standards at the time of origination of the related
student loans, the types of schools attended by the related borrowers, and
general economic conditions. As a result, potential investors in the notes
should be aware that the performance of the student loans owned by the trust
might be substantially different from that of prior securitization trusts. In
particular, the trust includes student loans that have no available prior
performance history, including rehabilitated student loans and Key CareerLoans.
As such, investors should not rely on these tables as predicators of expected
claims paying or charge-off rates, as the case may be, with respect to the
student loans owned by the trust.
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We have presented in the following table the cumulative claims paid
percentages by the related federal guarantors with respect to FFELP loans that
have been securitized. The claims paid percentage does not reflect the
charge-off of the [2]% of the principal balance of each defaulted student loan
originated after October 1, 1993 that is not payable by the related federal
guarantor.
CUMULATIVE CLAIMS PAID PERCENTAGES(1) BY SECURITIZATION TRUST AND ASSUMED
GRADUATION DATE FFELP STUDENT LOANS
TRUST
1993-A 1994-A 1994-B 1995-A 1995-B 1996-A 1997-1 1999-A 1999-B 2000-A 2000-B 2001-A 2002-A [ ]
------ ------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ---
CUT-OFF DATE
CUMULATIVE 5/12/93 1/1/94 9/1/94 1/1/95 10/1/95 9/1/96 9/1/97 1/1/99 9/1/99 6/1/00 9/1/00 9/1/01 9/1/02 [ ]
CLAIMS PAID GRADUATION DATE
THROUGH (ASSUMED)
FEB. 28, 1993 1993 1994 1994 1995 1996 1997 1998 1999 2000 2000 2001 2002 [ ]
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---
1994 0.514% 0.273%
1995 2.269% 1.811% 0.578% 0.576%
1996 4.748% 4.375% 2.877% 2.719% 0.322%
1997 9.434% 7.115% 6.162% 5.626% 2.392% 0.256%
1998 11.248% 9.208% 8.169% 7.971% 4.614% 2.396% 0.168%
1999 12.539% 10.817% 9.889% 9.382% 6.156% 4.206% 1.883% 0.056%
2000 13.114% 11.324% 10.427% 10.016% 6.927% 5.134% 2.869% 1.146% 0.039%
2001 13.699% 12.247% 11.311% 10.987% 7.945% 6.387% 4.282% 2.625% 1.093% 0.201% 0.065%
2002 14.164% 12.895% 12.029% 11.742% 8.858% 7.227% 5.542% 3.961% 2.405% 1.373% 1.190% 0.206%
2003 14.604% 13.277% 12.655% 12.228% 9.559% 7.712% 6.325% 4.979% 3.553% 2.248% 2.242% 1.272% 0.026%
2004 N/A [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
[ ]
(1) The cumulative claims paid percentage is calculated by dividing (x) the
total dollar amount of claims paid including accrued interest by the
related federal student loan guarantors on FFELP loans in the related trust
through the referenced February 28 of that year, by (y) the sum of (i) the
aggregate original principal balance of all FFELP loans in the related
trust, and (ii) related cumulative capitalized interest, related
consolidation and serial loan purchases, related guarantee fee
capitalization and other principal adjustments in each case through the
referenced February 28 of that year, less (iii) the outstanding principal
balance of all FFELP loans in the related trust repurchased by the seller
or servicer through the referenced February 28 of that year.
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The following table presents the percentages of cumulative claims paid
percentages by the related private guarantors with respect to guaranteed private
student loans that have been securitized.
CUMULATIVE CLAIMS PAID PERCENTAGES(1) BY SECURITIZATION TRUST AND ASSUMED
GRADUATION DATE PRIVATE GUARANTEED STUDENT LOANS
TRUST
1993-A 1994-A 1994-B 1995-A 1995-B 1996-A 1997-1 1999-A 1999-B 2000-A 2000-B 2001-A 2002-A [ ]
------ ------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ---
CUT-OFF DATE
CUMULATIVE 5/12/93 1/1/94 9/1/94 1/1/95 10/1/95 9/1/96 9/1/97 1/1/99 9/1/99 6/1/00 9/1/00 9/1/01 9/1/02 [ ]
CLAIMS PAID GRADUATION DATE
THROUGH (ASSUMED)
FEB. 28, 1993 1993 1994 1994 1995 1996 1997 1998 1999 2000 2000 2001 2002 [ ]
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---
1994 0.117% 0.120%
1995 3.956% 3.305% 0.327% 0.204%
1996 7.678% 6.453% 3.401% 3.186% 0.149%
1997 12.525% 9.544% 6.943% 7.623% 1.888% 0.100%
1998 14.671% 11.653% 10.067% 10.474% 5.562% 2.307% 0.082%
1999 16.198% 13.142% 12.146% 12.560% 8.491% 5.797% 2.247% 0.017%
2000 16.912% 14.552% 13.477% 13.796% 10.234% 8.719% 6.118% 1.362% 0.057%
2001 17.491% 15.342% 14.291% 14.608% 11.343% 10.016% 8.423% 4.465% 1.282% 0.397% 0.014%
2002 17.808% 15.783% 14.800% 15.281% 11.951% 11.029% 9.809% 6.197% 3.618% 2.147% 1.302% 0.864%
2003 17.930% 15.937% 15.105% 15.617% 12.266% 11.293% 10.672% 6.995% 4.643% 3.085% 2.857% 2.074% 0.162%
2004 N/A [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
[ ]
(1) The cumulative claims paid percentage is calculated by dividing (x) the
total dollar amount of claims paid including accrued interest by the
related private student loan guarantors on guaranteed private student
loans in the related trust through the referenced February 28 of that
year, by (y) the sum of (i) the aggregate original principal balance of
all guaranteed private student loans in the related trust, and (ii)
related cumulative capitalized interest, related consolidation and serial
loan purchases, related guarantee fee capitalization and other principal
adjustments in each case through the referenced February 28 of that year,
less (iii) the outstanding principal balance of all guaranteed private
student loans in the related trust repurchased by the seller or servicer
through the referenced February 28 of that year.
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The following table presents the cumulative gross charge-off
percentages (without regard to any subsequent recoveries) with respect to
unguaranteed private student loans that have been securitized. An unguaranteed
private student loan is generally charged-off after such student loan has become
120 or more days delinquent(1).
CUMULATIVE GROSS CHARGE-OFF PERCENTAGES(2) BY SECURITIZATION TRUST AND ASSUMED
GRADUATION DATE UNGUARANTEED PRIVATE STUDENT LOANS
TRUST
1999-B 2000-A 2000-B 2001-A 2002-A [ ]
------ ------ ------ ------ ------ ---
CUT-OFF DATE
CUMULATIVE 9/1/99 6/1/00 9/1/00 9/1/01 9/1/02 [ ]
GROSS CHARGE- GRADUATION DATE
OFFS THROUGH (assumed)
FEB. 28, 1999 2000 2000 2001 2002 [ ]
-------- ---- ---- ---- ---- ---- ---
2000(3) 0.473%
2001(3) 1.896% 0.620% 0.326%
2002(3) 3.435% 1.872% 4.311% 0.698%
2003(3) 4.476% 2.832% 6.762% 2.600% 0.616%
2004 [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
[ ]
(1) Prior to January 1, 2004, the policy was to charge-off student loans after
they became 180 days or more delinquent.
(2) The cumulative gross charge-off percentage is calculated by dividing (x)
the total dollar amount of unguaranteed private student loans charged-off
in the related trust (not including for such purpose any subsequent
recoveries on the related unguaranteed private student loans) through the
referenced February 28 of that year, by (y) the sum of (i) the aggregate
original principal balance of all unguaranteed private student loans in the
related trust, and (ii) related cumulative capitalized interest, related
consolidation and serial loan purchases, and other principal adjustments in
each case through the referenced February 28 of that year, less (iii) the
outstanding principal balance of all unguaranteed private student loans in
the related trust repurchased by the seller or servicer through the
referenced February 28 of that year.
(3) Calculated based on student loans that were charged-off after becoming 180
days or more delinquent, the generally accepted standard at the time of
initial calculation.
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The following table presents the cumulative net charge-off percentages
(which reflects all subsequent recoveries) for unguaranteed private student
loans that have been securitized. Recoveries are sums received by a trust from
borrowers after the related student loans have been charged-off. An unguaranteed
private student loan is generally charged-off after such student loan has become
120 or more days delinquent(1).
CUMULATIVE NET CHARGE-OFF PERCENTAGES(2) BY SECURITIZATION TRUST AND ASSUMED
GRADUATION DATE UNGUARANTEED PRIVATE STUDENT LOANS
TRUST
1999-B 2000-A 2000-B 2001-A 2002-A [ ]
------ ------ ------ ------ ------ ---
CUT-OFF DATE
CUMULATIVE NET 9/1/99 6/1/00 9/1/00 9/1/01 9/1/02 [ ]
CHARGE-OFFS GRADUATION DATE
THROUGH (assumed)
FEB. 28, 1999 2000 2000 2001 2002 [ ]
-------- ---- ---- ---- ---- ---- ---
2000(3) 0.467%
2001(3) 1.827% 0.615% 0.323%
2002(3) 3.181% 1.770% 3.813% 0.697%
2003(3) 4.118% 2.574% 6.125% 2.584% 0.615%
2004 [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
[ ]
(1) Prior to January 1, 2004, the policy was to charge-off student loans after
they became 180 days or more delinquent.
(2) The cumulative net charge-off percentage is calculated by dividing (x) (i)
the total dollar amount of unguaranteed private student loans charged-off
in the related trust, less (ii) any subsequent recoveries on the related
unguaranteed private student loans, in each case through the referenced
February 28 of that year, by (y) the sum of (i) the aggregate original
principal balance of all unguaranteed private student loans in the related
trust, and (ii) related cumulative capitalized interest, related
consolidation and serial loan purchases, and other principal adjustments in
each case through the referenced February 28 of that year, less (iii) the
outstanding principal balance of all unguaranteed private student loans in
the related trust repurchased by the seller or servicer through the
referenced February 28 of that year.
(3) Calculated based on student loans that were charged-off after becoming 180
days or more delinquent, the generally accepted standard at the time of
initial calculation.
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DESCRIPTION OF THE SECURITIES
GENERAL
The notes will be issued under the indenture, dated as of [ ], between
the trust and the indenture trustee. The certificates will be issued to the
depositor, or its designated affiliate, under the trust agreement. The following
information supplements the summary of the material terms of the notes, the
certificates, the indenture and the trust agreement set forth in the prospectus.
The summary does not cover every detail and is subject to the provisions of the
notes, the certificates, the indenture and the trust agreement. Only the notes
are offered by this prospectus supplement. Any information about the
certificates in this prospectus supplement is for informational purposes only to
provide for a better understanding of the notes.
The notes will initially be represented by one or more notes registered
in the name of Cede & Co., the nominee of DTC, except as described below. The
notes (other than the class [ ] notes) will be available for purchase in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof, and
the class [ ] notes will be available for purchase in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof, in each case in
book-entry form only. Cede & Co. is expected to be the holder of record of the
notes. Unless and until definitive notes are issued under the limited
circumstances described herein, no noteholder will be entitled to receive a
physical certificate representing a note. All references in this prospectus
supplement to actions by noteholders refer to actions taken by DTC upon
instructions from its participating organizations, or participants, and all
references in this prospectus supplement to distributions, notices, reports and
statements to noteholders refer to distributions, notices, reports and
statements to DTC or Cede & Co., as the registered holder of the notes, for
distribution to noteholders in accordance with DTC's procedures. See "Certain
Information Regarding the Securities -- Book-Entry Registration" and " --
Definitive Securities" in the prospectus.
THE NOTES
Distributions of Interest. Interest will accrue on the principal
balance of each class of notes (other than the class [ ] notes) and on the
notional amount of the class [ ] notes (which is equal to the outstanding
principal balance of the class [ ] notes on any distribution date) at their
respective interest rates. The interest rates for the classes of notes other
than the class [ ] notes will equal the lesser of THREE MONTH LIBOR (determined
as described under " -- Determination of LIBOR" below) plus the margin for the
class of notes and the STUDENT LOAN RATE for the related group of student loans.
The margin for each class of notes, other than the class [ ] notes, is [ ]% for
the class [ ] notes, [ ]% for the class [ ] notes, [ ]% for the class [ ] notes,
[ ] % for the class [ ] notes, [ ]% for the class [ ] notes, [ ]% for the class
[ ] notes and [ ]% for the class [ ] notes. The interest rate for the class [ ]
notes will be [ ] % per annum.
Interest will accrue during each interest period, which is the period
from and including the closing date or from the most recent distribution date on
which interest has been paid to, but excluding, the current distribution date.
With respect to each class of notes, other than the class [ ] notes during the
initial interest period, interest will accrue from the closing date to, but
excluding, [ ], based on a blended rate of LIBOR as determined on the initial
LIBOR
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Determination Date and for the period from [ ] to but excluding [ ] based on
THREE-MONTH LIBOR as determined on the second business day prior to [ ]. See "
- -- Determination of LIBOR" below.
Interest will be payable to the 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 interest on that
amount at the applicable interest rate. Interest payments on the notes for any
distribution date will generally be funded from AVAILABLE FUNDS related to each
group of notes and amounts on deposit in the related reserve account and, under
certain limited circumstances, the related pre-funding account remaining after
the distribution of the portion of the master servicing fee allocated to the
related group of student loans for each of the two immediately preceding monthly
servicing payment dates and of the portion of the master servicing fee and the
administration fee allocated to the related group of student loans, and, with
respect to the group II insured notes, the quarterly premium owing to the
securities insurer. If these sources are also insufficient to pay the sum of the
related NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT with respect to the related
class [ ] notes of either group of notes for that distribution date and any
trust swap payment amount with respect to the group I interest rate swap, the
shortfall will be allocated pro rata (x) to the related class [ ] noteholders
(based upon the total amount of interest then due on each class of class [ ]
notes of that group) and (y) to the swap counterparty (based on the trust swap
payment amount due to the swap counterparty with respect to the related interest
rate swap on that distribution date). If these sources are insufficient to pay
the sum of the related Noteholders' Interest Distribution Amount with respect to
the class [ ] notes or the class [ ] notes for that distribution date, the
shortfall will be allocated to the related class [ ] noteholders. With respect
to the group II insured notes, the group II insured notes guaranty insurance
policy will unconditionally guarantee the payment of the related Noteholders'
Interest Distribution Amount to the applicable group II noteholders on each
distribution date.
In addition, a SUBORDINATE NOTE INTEREST TRIGGER may occur on the last
day of any collection period. The effect of the occurrence and continuance of a
Subordinate Note Interest Trigger is that on each related distribution date, the
PRINCIPAL DISTRIBUTION AMOUNT with respect to the group I or group II notes, as
applicable, must be paid in full to the related senior noteholders before any
payments of interest are made to the related subordinate noteholders.
To the extent Three Month LIBOR plus the applicable margin for any
class of notes (other than the class [ ] notes) during any interest period
exceeds the related Student Loan Rate, the cap provider will be obligated under
the related basis risk cap to pay the amount of the applicable NOTEHOLDERS'
INTEREST INDEX CARRYOVER. If the cap provider defaults on its obligation under
either of the basis risk caps or if a basis risk cap is terminated in accordance
with its terms, any related Noteholders' Interest Index Carryover (together with
the unpaid portion of any such Noteholders' Interest Index Carryover from prior
distribution dates and interest accrued thereon (1) in the case of the class [ ]
notes of the applicable group of notes, at the weighted average of Three Month
LIBOR plus the applicable margin for the related class [ ] notes, and (2) with
respect to the class [ ] notes of the applicable group of notes, at Three Month
LIBOR plus the applicable margin for the class [ ] or class [ ] notes, as
applicable) will be paid on that distribution date or any subsequent
distribution date on a subordinated basis only to the extent funds are allocated
and available therefor after making all required prior allocations and
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distributions on that distribution date, as described under "Description of the
Transfer and Servicing Agreements -- Distributions" in this prospectus
supplement. Any group I or group II Noteholders' Interest Index Carryover due
with respect to the related class [ ] notes as a result of such default or
termination that may exist on any distribution date following a default by the
cap provider or a termination of the related basis risk cap will be payable to
holders of the applicable class [ ] notes in the related group of notes on that
distribution date on a pro rata basis, based on the amount of the group I or
group II Noteholders' Interest Index Carryover then owing with respect to the
related class A notes, and on any following distribution dates, solely out of
the amount of GROUP I or GROUP II AVAILABLE FUNDS, as applicable, remaining on
any such distribution date after distribution of the amounts having a more
senior payment priority as described under "Description of the Transfer and
Servicing Agreements -- Distributions" in this prospectus supplement. Any group
I or group II Noteholders' Interest Index Carryover due on the class [ ] notes
of the applicable group of notes that may exist on any distribution date
following a default by the cap provider with respect to the group I or group II
basis risk cap or termination of the group I or group II basis risk cap, as
applicable, will be payable to the holders of the class [ ] or class [ ] notes,
as applicable, on that distribution date and on any following distribution dates
solely out of the amount of Group I or Group II Available Funds, as applicable,
remaining on any such distribution date after distribution of any group I or
group II Noteholders' Interest Index Carryover, as applicable, on the group I or
group II class [ ] notes (other than the class [ ] notes), as applicable, on
such distribution date. No amounts on deposit in the related reserve account or
the related pre-funding account will be available to pay any Noteholders'
Interest Index Carryover. Any amount of Noteholders' Interest Index Carryover
due on the related notes remaining after distribution of all related Available
Funds on the applicable final maturity date will never become due and payable
and will be discharged on that date.
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY DOES NOT GUARANTEE
PAYMENT OF ANY GROUP II NOTEHOLDERS' INTEREST INDEX CARRYOVER OR THE OBLIGATIONS
OF THE CAP PROVIDER UNDER THE GROUP II BASIS RISK CAP.
Distributions of Principal. Principal payments will be made to the
holders of the notes, other than the class [ ] notes, of each group on each
distribution date in an amount generally equal to the related Principal
Distribution Amount for that distribution date, until the principal balance of
the related group of notes is reduced to zero. Principal payments on each group
of notes will generally be derived from related Available Funds remaining after
the distribution of the amounts set forth in "Description of the Transfer and
Servicing Agreements -- Distributions" in this prospectus supplement.
Also, with respect to each group of notes, if (1) there is a decision
by the related noteholders to exercise the related put option, but the indenture
trustee is unable to exercise that put option because the minimum acceptable put
option exercise price is greater than the put option exercise price (plus all
amounts then on the deposit in the group I or group II reserve account, as
applicable), or (2) the put option provider defaults on the related put option
and the related group of student loans is not sold pursuant to the auction
process described under "Description of the Transfer and Servicing Agreements --
The Put Options and Auction Sales," with respect to any distribution date
occurring on or after the [ ] [ ] distribution date, the SPECIFIED COLLATERAL
BALANCE with respect to that group of student loans will be reduced to zero and
all amounts on deposit in the related sub-account of the collection account
(after giving effect to all prior
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distributions on that distribution date including the reinstatement of the
balance of the related reserve account to the related SPECIFIED RESERVE ACCOUNT
BALANCE on that distribution date) will be distributed (x) with respect to the
group I notes, first to the class [ ] noteholders, second, to the class [ ]
noteholders, and third, to the class [ ] noteholders, and (y) with respect to
the group II notes, first to the class [ ] noteholders, second, to the class [ ]
noteholders, third, to the class [ ] noteholders and fourth, to the class [ ]
noteholders in each case as principal until the outstanding principal balance of
each such class of notes has been reduced to zero. See "Description of the
Transfer and Servicing Agreements -- Termination" in this prospectus supplement.
Except as described below, the group II insured notes guaranty insurance policy
does not guaranty payment of the group II Principal Distribution Amount on any
distribution date.
GROUP I NOTES. Principal payments on the group I notes will be applied
on each distribution date in the amount of the group I Principal Distribution
Amount: (a) prior to the stepdown date, or after the stepdown date if a
SUBORDINATE NOTE PRINCIPAL TRIGGER has occurred and is continuing, the Principal
Distribution Amount for the group I notes will be payable solely to the group I
senior notes in sequential order beginning with the class [ ] notes until paid
in full, then to the class [ ] notes until paid in full, and then to the class [
] notes; and (b) after the stepdown date and so long as no Subordinate Note
Principal Trigger has occurred and is continuing, the senior percentage of the
Principal Distribution Amount for the group I notes will be payable to the group
I senior notes (in the same order of priority as described in the preceding
sentence) and the subordinate percentage of the Principal Distribution Amount
for the group I notes will be payable to the class [ ] notes. The senior
percentage of the group I notes at any time equals the percentage equivalent of
a fraction, the numerator of which is the aggregate principal balance of the
group I senior notes and the denominator of which is the sum of the aggregate
principal balance of all the group I notes. The subordinate percentage for the
group I notes is equal to 100% minus the senior percentage of the group I notes.
The aggregate outstanding principal amount of each class of group I
notes will be payable in full on the final maturity date for that class of group
I notes. The final maturity date for each class of group I notes is as follows:
- class [ ] notes: the distribution date in [ ];
- class [ ] notes: the distribution date in [ ]; and
- class [ ] notes: the distribution date in [ ].
On the final maturity date for each class of group I notes, amounts on
deposit in the group I reserve account, if any, will be available, if necessary,
to be applied to reduce the principal balance of that class of group I notes to
zero. Although the maturity of certain of the group I student loans will extend
well beyond the final maturity date of the class [ ] notes, the actual date on
which the aggregate outstanding principal and accrued interest of any class of
group I notes are paid may be earlier than the final maturity date for the
related class of group I notes, based on a variety of factors. See "The Student
Loan Pools -- Maturity and Prepayment Assumptions" in this prospectus
supplement.
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Also, before the distribution date on which the principal balance of
the group I notes equals the sum of the GROUP I POOL BALANCE and amounts on
deposit in the group I pre-funding account as of the last day of the related
collection period, the amount on deposit in the group I reserve account will be
used to pay principal on the group I notes only to the extent the amount by
which the Group I Pool Balance as of the last day of the second preceding
collection period (or in the case of the first distribution date, as of the
cutoff date) minus the Group I Pool Balance as of the last day of the related
collection period exceeds the Group I Available Funds remaining to be
distributed on the group I notes as principal as described in "Description of
the Transfer and Servicing Agreements -- Distributions" in this prospectus
supplement. On and after the distribution date described in this paragraph
above, amounts on deposit in the group I reserve account will be used to pay
principal if the Group I Available Funds remaining to be distributed on the
group I notes as principal as described in "Description of the Transfer and
Servicing Agreements -- Distributions" in this prospectus supplement is less
than the NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT for the group I notes for
that distribution date.
However, after the occurrence of an event of default relating to the
group I notes (other than an event of default resulting from the breach of a
representation, warranty or other covenant of the trust) or an acceleration of
the group I notes, principal will be paid on the class [ ] and class [ ] notes
on a pro rata basis (based on their outstanding principal balances) and not
sequentially, and no principal will be paid to the holders of the class [ ]
notes until all group I senior notes have been paid in full.
GROUP II NOTES. Principal payments on the Group II Notes, other than
the class [ ] notes, will be applied on each distribution date in the amount of
the group II Principal Distribution Amount: (a) prior to the stepdown date, or
after the stepdown date if a Subordinate Note Principal Trigger has occurred and
is continuing, the Principal Distribution Amount for the group II notes, other
than the class [ ] notes, will be payable solely to the group II senior notes in
sequential order beginning with the class [ ] notes until paid in full, then to
the class [ ] notes until paid in full, then to the class [ ] notes until paid
in full and then to the class [ ] notes; and (b) after the stepdown date and so
long as no Subordinate Note Principal Trigger has occurred and is continuing,
the senior percentage of the Principal Distribution Amount for the group II
notes, other than the class [ ] notes, will be payable to the group II senior
notes, other than the class [ ] notes (in the same order of priority as
described in the preceding sentence), and the subordinate percentage of the
Principal Distribution Amount for the group II notes, other than the class [ ]
notes will be payable to the class [ ] notes. The senior percentage of the group
II notes at any time equals the percentage equivalent of a fraction, the
numerator of which is the aggregate principal balance of the group II senior
notes (other than the class [ ] notes) and the denominator of which is the sum
of the aggregate principal balance of all the group II notes. The subordinate
percentage for the group II notes is equal to 100% minus the senior percentage
of the group II notes.
The aggregate outstanding principal amount of each class of group II
notes, other than the class [ ] notes, will be payable in full on the final
maturity date for that class of group II notes. The final maturity date for each
class of group II notes (other than the class [ ] notes) is as follows:
- class [ ] notes: the distribution date in [ ];
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- class [ ] notes: the distribution date in [ ];
- class [ ] notes: the distribution date in [ ];
- class [ ] notes: the distribution date in [ ]; and
- class [ ] notes: the distribution date in [ ].
On the final maturity date for each class of group II notes, amounts on
deposit in the group II reserve account, if any, will be available, if
necessary, to be applied to reduce the principal balance of that class of group
II notes to zero. Although the maturity of certain of the group II student loans
will extend well beyond the final maturity date of the class [ ] notes, the
actual date on which the aggregate outstanding principal and/or accrued interest
of any class of group II notes are paid may be earlier than the final maturity
date for the related class of group II notes, based on a variety of factors. See
"The Student Loan Pools -- Maturity and Prepayment Assumptions" herein.
Also, before the distribution date on which the principal balance of
the group II notes, other than the class [ ] notes, equals the sum of the GROUP
II POOL BALANCE and amounts on deposit in the group II pre-funding account as of
the last day of the related collection period, the amount on deposit in the
group II reserve account will be used to pay principal on the group II notes,
other than the class [ ] notes only to the extent the amount by which the Group
II Pool Balance as of the last day of the second preceding collection period (or
in the case of the first distribution date, as of the cutoff date) minus the
Group II Pool Balance as of the last day of the related collection period
exceeds the Group II Available Funds remaining to be distributed on the group II
notes, other than the class [ ] notes, as principal as set forth in "Description
of the Transfer and Servicing Agreements -- Distributions" in this prospectus
supplement. On and after the distribution date described in this paragraph
above, amounts on deposit in the group II reserve account will be used to pay
principal if the Group II Available Funds remaining to be distributed on the
group II notes, other than the class [ ] notes, as principal as set forth in
"Description of the Transfer and Servicing Agreements -- Distributions" in this
prospectus supplement is less than the Noteholders' Principal Distribution
Amount for the group II notes, other than the class [ ] notes, for that
distribution date.
However, after the occurrence of an event of default relating to the
group II notes (other than an event of default resulting from the breach of a
representation, warranty or other covenant of the trust) or an acceleration of
the group II notes, principal will be paid on the class [ ], class [ ] and class
[ ] notes on a pro rata basis (based on their outstanding principal balances)
and not sequentially, and no principal will be paid to the holders of the class
[ ] notes until all group II senior notes have been paid in full.
If a Subordinate Note Principal Trigger is in effect, no principal
payments will be made with respect the group I or group II subordinate notes, as
applicable, until no group I or group II senior notes, respectively, remain
outstanding. Instead, all principal payments with respect to the group I or
group II notes (other than the class [ ] notes), as applicable, will be
allocated to the group I or group II senior notes (other than the class [ ]
notes), respectively but, if on a subsequent distribution date a Subordinate
Note Interest Trigger is no longer in effect and the
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CUMULATIVE DEFAULT PERCENTAGE for the group I or group II student loans, as
applicable, does not exceed [ ]% and [ ]%, respectively, then a Subordinate Note
Principal Trigger will no longer be in effect.
INDENTURE
The Indenture Trustee. [ ], a [ ] corporation, will be the
indenture trustee under the indenture. [Key Bank USA, National Association]
maintains normal commercial banking relations with the indenture trustee.
Events of Default; Rights upon Event of Default. Upon an event of
default under the indenture, (a) the holders of notes representing not less than
a majority of the outstanding principal balance of the group I senior notes
(until all group I senior notes have been paid in full, and then the holders of
notes representing not less than a majority of outstanding principal balance of
the group I subordinate notes) will have the right to exercise remedies on
behalf of all the group I noteholders and (b) the holders of notes representing
not less than a majority of outstanding principal balance of the group II senior
notes (until such time as all group II senior notes have been paid in full, and
then the holders of notes representing not less than a majority of outstanding
principal balance of the group II subordinate notes) will have the right to
exercise remedies on behalf of all the group II noteholders, except that the
securities insurer (unless a securities insurer default has occurred and is
continuing) as the deemed holder of 100% of the group II insured notes will have
the ability to exercise the rights of the holders of the group II insured notes
set forth in the prospectus under "Description of the Notes -- The Indenture --
Events of Default; Rights upon Event of Default". Also, the class [ ] notes will
not be entitled to exercise any voting rights and, until the class [ ] and class
[ ] notes are paid in full, the securities insurer (unless a securities insurer
default has occurred and is continuing) will also be able to exercise control
over decisions that otherwise might require the consent of a specified
percentage of the class [ ] notes. It is also expected that soon after the
issuance of the notes, the class [ ] notes will be repackaged in the secondary
market and the securities insurer will issue a policy for the benefit of the
purchasers of those securities. If that happens, for so long as the securities
insurer has not defaulted on the related policy and that policy is in full force
and effect, the securities insurer will possess all voting rights otherwise
exercisable by the holders of the class [ ] notes.
The occurrence and declaration of an event of default under the
insurance agreement relating to the group II insured notes guaranty insurance
policy will also be an event of default under the indenture, but only relating
to the group II notes. The indenture trustee at the direction of the noteholders
then exercising remedies on behalf of the group I notes or the securities
insurer (unless a securities insurer default has occurred and is continuing,
then the noteholders then otherwise entitled to exercise remedies on behalf of
the group II notes) may sell the group I or group II student loans, as
applicable, subject to certain conditions set forth in the indenture following
an event of default, including a default in the payment of any principal when
due or a default for three business days or more in the payment of any interest
on any note in either group of notes (to the extent described in the following
paragraph). See "Description of the Notes -- The Indenture -- Events of Default;
Rights upon Event of Default" in the prospectus.
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A securities insurer default will be a securities insurer payment
default, which is the failure and continuance of the securities insurer to make
a payment in accordance with the group II insured notes guaranty insurance
policy, or the occurrence of an insolvency event with respect to the securities
insurer as defined in the sale and servicing agreement.
IN ADDITION, THE FAILURE TO PAY THE RELATED NOTEHOLDERS' PRINCIPAL
DISTRIBUTION AMOUNT WITH RESPECT TO ANY CLASS OF NOTES ON ANY DISTRIBUTION DATE
WILL NOT BE AN EVENT OF DEFAULT UNTIL FINAL MATURITY DATE FOR THAT CLASS OF
NOTES. ALSO, THE FAILURE TO PAY ANY NOTEHOLDERS' INTEREST INDEX CARRYOVER AS A
RESULT OF INSUFFICIENT RELATED AVAILABLE FUNDS WILL NOT RESULT IN THE
DECLARATION OF AN EVENT OF DEFAULT.
DETERMINATION OF LIBOR
Under the sale and servicing agreement, the administrator, in its
capacity as calculation agent, will determine on each LIBOR determination date
Three-Month LIBOR and, with respect to the first part of the initial interest
period (from the closing date to but excluding [ ]), the blended rate
described in the next paragraph, for purposes of calculating the interest due on
each class of notes and any related Noteholders' Interest Index Carryover, for
each given interest period. A LIBOR determination date will occur on (x) the
second business day prior to the commencement of each interest period and (y)
with respect to the initial interest period, as determined pursuant to clause
(x) for the period from the closing date to, but excluding, [ ] and as
determined on the second business day prior to [ ] for the period from [ ]
to but excluding [ ]. For purposes of calculating Three-Month LIBOR, a
business day is any day on which banks in London and New York City are open for
the transaction of business. Interest due for any interest period will be
determined based on the actual number of days in such interest period over a
360-day year.
For the period of the initial interest period commencing on the closing
date, to but excluding [ ] only, the index used to calculate the interest rate
for each class of notes will be a blended rate of Two-Month LIBOR and
Three-Month LIBOR as determined as of the first LIBOR determination date.
CERTIFICATES
On the closing date, the trust will issue a single class of
certificates to the depositor or an affiliate of the depositor as its designee.
The certificates will represent the residual interest in the trust's assets. The
certificates will not have a principal balance and will not bear interest. On
each distribution date, the certificates will not be entitled to any
distributions with respect to Group I or Group II Available Funds, as
applicable, until all amounts owed to the group I noteholders, the group II
noteholders, the securities insurer, the swap counterparty and the cap provider
have been paid. Once a distribution has been made on the certificates, it will
not be available to pay any of the noteholders.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS, THE GROUP I SWAP
AGREEMENT, THE GROUP II CAP AGREEMENT, THE BASIS RISK CAPS AND THE PUT
OPTION AGREEMENTS
GENERAL
The information below supplements the summary in the prospectus of the
primary terms of the following transfer and servicing agreements:
- the sale and servicing agreement, under which the eligible
lender trustee on behalf of the trust will purchase, the
master servicer will service (or will cause the
sub-servicers to service) and the administrator will perform
certain administrative functions with respect to the student
loans;
- the administration agreement, dated as of [ ], among the
administrator, the trust and the indenture trustee, under
which the administrator will perform other administrative
duties with respect to the trust and the student loans;
- the student loan transfer agreement; and
- the trust agreement.
The summary does not cover every detail and is subject to the
provisions of these transfer and servicing agreements.
SALE OF STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
On or before the closing date, under the student loan transfer
agreement, the seller will sell and assign to the depositor, without recourse,
its entire interest in the initial student loans, all collections received and
to be received with respect to the initial student loans for the period on and
after the cutoff date and all the assigned rights, if any. As part of the
student loan transfer agreement, the seller will make certain representations
and warranties concerning the student loans.
On or before the closing date, under the sale and servicing agreement,
the depositor will sell and assign to the eligible lender trustee on behalf of
the trust, without recourse, its entire interest in the initial student loans,
all collections received and to be received with respect to the initial student
loans for the period on and after the cutoff date and all the assigned rights
relating to the initial student loans. Each initial student loan will be
identified in schedules appearing as an exhibit to the sale and servicing
agreement. The eligible lender trustee will, concurrently with the sale and
assignment, execute, authenticate and deliver the notes. The net proceeds
received from the sale of the notes and the certificates will be applied by the
depositor to the purchase of the student loans and the related assigned rights
from the seller, to the initial deposits into the pre-funding accounts and the
reserve accounts described in this prospectus supplement, and to pay certain
amounts owed to the securities insurer, the put option provider, the swap
counterparty and the cap provider. See "Use of Proceeds," and " -- Additional
Fundings" below for a description of the application of funds on deposit in each
of the pre-funding accounts during the Funding Period.
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In the sale and servicing agreement, the depositor will make certain
representations and warranties with respect to the student loans to the trust
for the benefit of the holders of the certificates and the notes and will have
certain cure, repurchase and reimbursement obligations with respect to any
breaches (or the depositor will cause Key Bank USA, National Association to
fulfill these obligations under the student loan transfer agreement). See
"Description of the Transfer and Servicing Agreements" in the prospectus.
To assure uniform quality in servicing and to reduce administrative
costs, each sub-servicer will be appointed custodian on behalf of the indenture
trustee and the trust of the promissory notes representing the student loans
which that sub-servicer is servicing on behalf of the master servicer. [ ]
will be appointed custodian on behalf of the indenture trustee and the trust of
the promissory notes representing the student loans that are Key CareerLoans
which the master servicer is servicing directly. The depositor's, the seller's,
the master servicer's and each sub-servicer's accounting and other records will
reflect the sale and assignment of the student loans to the eligible lender
trustee on behalf of the trust, and Uniform Commercial Code financing statements
reflecting this sale and assignment will be filed.
ACCOUNTS
The administrator will establish and maintain the following separate
segregated trust accounts:
- the collection account (which will have two sub-accounts (one for
each group of student loans) which on the closing date will have
at least $[ ] and $[ ], respectively, on deposit);
- the group I pre-funding account (which will consist of two
sub-accounts, the group I subsequent loan sub-account and the
group I other student loan sub-account);
- the group II pre-funding account (which will consist of two
sub-accounts, the group II subsequent loan sub-account and the
group II other student loan sub-account);
- the group I and group II escrow accounts;
- the group I and group II cap accounts; and
- the group I and group II reserve accounts.
Each of these accounts will be established in the name of the indenture
trustee on behalf of the noteholders and the trust.
Funds in the trust accounts will be invested as provided in the sale
and servicing agreement in eligible investments. Eligible investments are
generally limited to short-term U.S. government backed securities, certain
highly rated commercial paper and money market funds and other investments
acceptable to the securities insurer, and the nationally recognized statistical
rating agencies rating the Notes as being consistent with the rating of the
notes.
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Subject to certain conditions, eligible investments may include securities or
other obligations issued by Key Bank USA, National Association or its
affiliates, or trusts originated by Key Bank USA, National Association or its
affiliates, or shares of investment companies for which Key Bank USA, National
Association or its affiliates may serve as the investment advisor. Eligible
investments are limited to obligations or securities that mature not later than
the business day immediately preceding the next distribution date. Investment
earnings on funds deposited in the trust accounts, net of losses and investment
expenses, will be deposited in the applicable sub-account of the collection
account on each distribution date and will be treated as collections of interest
on the student loans.
The trust accounts will be maintained as ELIGIBLE DEPOSIT ACCOUNTS.
ADDITIONAL FUNDINGS
The trust may make additional fundings from the applicable sub-account
of the related pre-funding account and the related escrow account on subsequent
transfer dates during the Funding Period consisting of amounts paid to the
depositor to acquire subsequent student loans and other student loans from the
seller as of the applicable subsequent cutoff dates, to pay capitalized interest
on the related student loans, and to pay fee advances as provided in the sale
and servicing agreement.
On the closing date, the depositor will deposit a pre-funded amount of
approximately $[ ] with respect to the group I notes into the group I
pre-funding account from the proceeds of the sale of the group I notes, and a
pre-funded amount of approximately $[ ] with respect to the group II notes
into the group II pre-funding account from the proceeds of the sale of the group
II notes. Approximately $[ ] of the group I pre-funded amount will be
allocated to the group I subsequent loan sub-account to be used exclusively for
the purchase of group I subsequent student loans, and approximately $[ ] of
the group II pre-funded amount will be allocated to the group II subsequent loan
sub-account to be used exclusively for the purchase of group II subsequent
student loans. The trust intends to use the funds on deposit in the subsequent
student loan pre-funding sub-accounts to acquire subsequent student loans on or
prior to the special determination date. The remaining $[ ] and $[ ] will be
deposited into the group I other student loan sub-account and the group II other
student loan sub-account, respectively, to be used for the purchase of other
student loans during the Funding Period.
All additional student loans to be acquired by the depositor on each
subsequent transfer date will be purchased from the seller pursuant to the
student loan transfer agreement and the applicable subsequent transfer
agreement. Any additional student loan will be a group I student loan if it is a
federal loan or will be a group II student loan if it is a guaranteed or
unguaranteed private loan.
Funds on deposit in the other student loan pre-funding sub-account of
each related pre-funding account will be used from time to time during the
Funding Period, subject to certain limitations described below, together with
any amounts on deposit in the related escrow account, to purchase from the
depositor, for an amount equal to 100% of the aggregate principal balance
thereof plus accrued interest (to the extent capitalized or to be capitalized),
other student loans made by the seller to those eligible borrowers who have
student loans that are part of the related
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pool of initial student loans as of the statistical cutoff date, to pay
capitalized interest on any student loans and to pay fee advances. See "The
Student Loan Financing Business -- Description of Federal Loans Under the
Programs -- The Federal Consolidation Loan Program" and " -- Description of
Private Loans Under the Programs -- Private Consolidation Loans" in the
prospectus. The depositor will acquire these other student loans from the seller
under the student loan transfer agreement and the applicable subsequent transfer
agreement.
The depositor expects that the total amount of additional fundings from
the pre-funding accounts will approximate 100% of the initial pre-funded amounts
by the last day of the collection period preceding the [ ] distribution date;
however, we can provide you no assurance that a sufficient amount of additional
fundings will be made during this time. If, on the special determination date,
the amount on deposit in either the group I or group II subsequent loan
sub-account is $10,000,000 or less, the indenture trustee, or the administrator
on its behalf, will transfer these amounts to the group I or group II other
student loan sub-account, as applicable; or if the amount in either sub-account
is greater than $10,000,000, the indenture trustee, or the administrator on its
behalf, will distribute these amounts to each class of notes, pro rata, based on
the initial principal balance of each class of notes, other than the class [ ]
notes, in the related group of notes. Also, if the group I or group II
pre-funded amount has not been reduced to zero by the end of the Funding Period,
any amounts remaining in the group I or group II pre-funding account will be
deposited into the related sub-account of the collection account for
distribution on the immediately following distribution date. This reduction in
the group I or group II pre-funded amount will result in a corresponding
increase in the amount of principal distributable to the group I or group II
notes, other than the class [ ] notes, as applicable, on that distribution date.
The group I and group II pre-funded amounts will also be available on
each monthly servicing payment date to cover any shortfalls in payments of the
master servicing fee with respect to the group I and group II student loans, and
on each distribution date to fund any related interest and expense draws and
related realized loss draws, each with respect to the related group of notes, to
the extent funds on deposit in the group I or group II reserve account, as
applicable, are insufficient to cover these amounts. Amounts withdrawn from
either of the pre-funding accounts for the purposes described in this paragraph
will not be replenished with future available funds.
In addition to the conditions set forth under "The Student Loan Pools
- -- General" in this prospectus supplement, the obligation of the eligible lender
trustee to purchase any additional student loan on behalf of the trust is
subject to the following conditions, among others:
- the additional student loan must satisfy all applicable
origination requirements and all other requirements specified in
the sale and servicing agreement or related agreements;
- neither the depositor nor the seller will select the additional
student loan in a manner that it believes is adverse to the
interests of the related noteholders, the securities insurer
(with respect to additional student loans that will become group
II student loans) or the swap counterparty; and
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- the depositor and the seller will deliver certain opinions of
counsel to the indenture trustee, the securities insurer (with
respect to additional student loans that will become group II
student loans), the swap counterparty and the rating agencies
with respect to the validity of the conveyance of the additional
student loan.
In addition, (a) no consolidation loan will be transferred to the trust
after [ ] unless at least one underlying student loan was held by the eligible
lender trustee on behalf of the trust at the time of consolidation and (b) no
serial loan will be transferred to the trust unless the borrower of the loan is
the borrower for one or more student loans already owned by the trust.
On each subsequent transfer date, the seller will sell and assign,
without recourse, to the depositor, and the depositor will sell and assign,
without recourse, to the eligible lender trustee on behalf of the trust, its
respective entire interest in other student loans made or, with respect to
subsequent student loans, owned during the period preceding the applicable
subsequent transfer date, as of the subsequent cutoff date specified in the
applicable subsequent transfer agreements to be delivered on that subsequent
transfer date. Subsequent transfer dates may be the fifteenth day of each month
(or, if such day is not a business day, the next succeeding business day) or
certain other dates designated by the seller during the Funding Period.
Subject to the satisfaction of the conditions described in the
preceding paragraph, the seller will convey the additional student loans to the
depositor, and the depositor will convey the additional student loans to the
eligible lender trustee on behalf of the trust on each subsequent transfer date
under the student loan transfer agreement, the sale and servicing agreement and
the applicable subsequent transfer agreement (one between the seller and the
depositor, and the other between the depositor and the eligible lender trustee
on behalf of the trust) executed by the seller, the depositor, the master
servicer, the eligible lender trustee and the administrator, as applicable, on
the subsequent transfer date. Each subsequent transfer agreement will include as
an exhibit a schedule identifying each additional student loan transferred on
the subsequent transfer date. Upon the conveyance of additional student loans to
the eligible lender trustee on behalf of the trust, the related Pool Balance of
the group I or group II student loans will increase in an amount equal to the
aggregate principal balances of the additional student loans (less any existing
student loans being repaid pursuant to any consolidation loans included within
the additional student loans) and an amount equal to the purchase price of the
additional student loans will be withdrawn first from the group I or group II
escrow account, as applicable, to the extent amounts are available therein and
then with respect to subsequent student loans or other student loans, during the
Funding Period, from the applicable sub-account of the group I or group II
pre-funding account, as applicable, on that date and transferred to the
depositor, who will use the proceeds to pay the seller for the additional
student loans.
The purchase price of each subsequent student loan and each other
student loan will be an amount equal to [100]% with respect to each of the group
I student loans, or [100]%, with respect to each of the group II student loans,
respectively, in each case of the aggregate principal balance thereof as of its
related subsequent cutoff date. For purposes of these calculations, the
aggregate principal balance of each student loan includes accrued interest from
the date of origination to the related subsequent cutoff date, in each case
expected to be capitalized upon
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entry into repayment, and any lost interest subsidy payments and special
allowance payments with respect thereto.
With respect to any consolidation loan to be made by the seller to a
given borrower, the eligible lender trustee on behalf of the trust will convey
to the depositor and the depositor will convey to the seller all underlying
federal loans and underlying private loans, as applicable (each as described
under "The Student Loan Financing Business" in the prospectus) held by it with
respect to that borrower, as specified in a notice delivered by or on behalf of
the seller. In exchange for and simultaneously with this conveyance, the
depositor will or will cause the seller to deposit into the applicable escrow
account an amount of cash equal to the principal balances of all such underlying
federal loans and underlying private loans, plus accrued interest to the date of
the conveyance. Each purchase of a serial loan will be funded by means of a
transfer during the Funding Period, from the related sub-account of the group I
or group II funding account, as applicable, of an amount equal to the purchase
price of the serial loan.
Amounts on deposit in the escrow accounts will be invested in eligible
investments (see " -- Accounts" above) and will be used on succeeding subsequent
transfer dates, as described above, to purchase additional student loans from
the seller. Any amounts remaining in either the group I or group II escrow
account on the last possible subsequent transfer date after giving effect to the
conveyance of all such additional student loans on that subsequent transfer date
will be deposited into the related sub-account of the collection account and
distributed as Group I or Group II Available Funds, as applicable, on the
distribution date immediately following the final subsequent transfer date.
SERVICING PROCEDURES
Under the sale and servicing agreement, the master servicer has agreed
to service and perform all other related tasks (or to cause the sub-servicers to
service and perform all other related tasks) with respect to the student loans
acquired from time to time. So long as no claim is being made against a
guarantor for any student loan which a sub-servicer is servicing, the
sub-servicers will hold, as custodian on behalf of the trust and the indenture
trustee, the student loan notes (or copies of master promissory notes)
evidencing, and other documents relating to, that student loan. [ ] will hold,
as custodian on behalf of the trust, the student loan notes (or copies of master
promissory notes) evidencing, and other documents relating to, the student loans
that are Key CareerLoans. The master servicer is required under the sale and
servicing agreement (or must cause a sub-servicer) to perform all services and
duties customary to the servicing of student loans (including all collection
practices) with reasonable care, and in compliance with all standards and
procedures provided for in the Higher Education Act and the guarantee
agreements, as applicable, and in accordance with all other applicable federal
and state laws.
Without limiting the foregoing, the responsibilities of the master
servicer under the sale and servicing agreement (or of a sub-servicer pursuant
to a sub-servicing agreement) include, but are not limited to, the following:
collecting and depositing into the applicable sub-account of the collection
account (or, in the event that daily deposits into the collection account are
not required, paying to the administrator) all payments with respect to the
student loans the master servicer (or a sub-servicer) is servicing, including
claiming and obtaining any guarantee
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payments with respect thereto, but excluding such tasks with respect to interest
subsidy payments and special allowance payments (which the administrator and the
eligible lender trustee have agreed to perform, see " -- Administrator" below),
responding to inquiries from borrowers on those student loans, investigating
delinquencies and sending out statements, payment coupons and tax reporting
information to borrowers.
In addition, the master servicer will (or will cause each sub-servicer
to) keep ongoing records with respect to these student loans and collections
thereon and will furnish periodic statements to the administrator regarding this
information, in accordance with the master servicer's (or such sub-servicer's)
customary practices with respect to the seller and as otherwise required in the
sale and servicing agreement. Without being released from its obligations under
the sale and servicing agreement, the master servicer may cause the
sub-servicers to perform some or all of its duties listed above on its behalf
pursuant to the sub-servicing agreements, and in the event that any of these
duties require consents, approvals or licenses under the Higher Education Act or
otherwise, the master servicer will appoint one or more sub-servicers that
possess such consents, approvals and licenses to act on its behalf. However, the
master servicer will still be responsible for the failure of any sub-servicer to
perform these activities. In its capacity as a sub-servicer, each of PHEAA and
Great Lakes may from time to time be required on behalf of the trust to file
claims against, and pursue the receipt of guarantee payments from, itself as a
federal guarantor.
PAYMENTS ON STUDENT LOANS
Except as provided below, the master servicer or a sub-servicer, as
applicable, will deposit all payments on student loans (from whatever source),
and all proceeds of student loans collected by it during each collection period
into the related sub-account of the collection account with respect to the group
I or group II student loans, as applicable, within two business days of receipt.
Except as provided below, the eligible lender trustee will deposit all interest
subsidy payments and all special allowance payments with respect to the student
loans received by it during each collection period into the related sub-account
of the collection account within two business days of receipt.
However, for so long as Key Bank USA, National Association is the
administrator, and provided that (x) there exists no administrator default (as
described below), (y) each other condition to making quarterly deposits as may
be specified by the rating agencies is satisfied, and (z) the administrator
maintains certain minimum required ratings on its short-term and long-term debt
obligations, the master servicer, each sub-servicer and the eligible lender
trustee will pay all the amounts referred to in the preceding paragraph that
would otherwise be deposited into the collection account to the administrator,
and the administrator will not be required to deposit these amounts into the
collection account until on or before the business day immediately preceding
each monthly servicing payment date (to the extent of the master servicing fee
payable on that date) and on or before the business day immediately preceding
each distribution date (to the extent of the remainder of such amounts). In this
event, the administrator will deposit the aggregate purchase amounts of student
loans repurchased by the depositor (or Key Bank USA, National Association acting
on its behalf) or purchased by the master servicer into the related sub-account
of the collection account on or before the third business day preceding each
distribution date.
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The purchase amount is, as of the close of business on the last day of
a collection period, (1) [100] % of the amount required to repay in full a
federal loan, and (2) [100] % of the amount required to repay in full a
guaranteed or unguaranteed private loan, in each case under their terms
including all accrued interest expected to be capitalized upon entry into
repayment and, in the case of any group I student loan, any lost interest
subsidy payments and special allowance payments related thereto.
MASTER SERVICER COVENANTS
In the sale and servicing agreement, the master servicer covenants
that:
- it will or will cause each sub-servicer to duly satisfy all
obligations on its part to be fulfilled under or in connection
with the student loans the master servicer or a sub-servicer is
servicing, maintain in effect all qualifications required to
service these student loans and comply in all material respects
with all requirements of law in connection with servicing these
student loans, the failure to comply with which would have a
materially adverse effect on the securities insurer, the swap
counterparty or the noteholders;
- it will not permit nor permit a sub-servicer to permit any
rescission or cancellation of a student loan which the master
servicer or a sub-servicer is servicing except as ordered by a
court of competent jurisdiction or other government authority or
as otherwise consented to by the eligible lender trustee, the
securities insurer, the swap counterparty and the indenture
trustee;
- it will not and will not permit a sub-servicer to impair the
rights of the securities insurer (with respect to group II
student loans), the swap counterparty or the noteholders in those
student loans; and
- it will not nor permit a sub-servicer to reschedule, revise,
defer or otherwise compromise with respect to payments due on any
such student loan except pursuant to any applicable deferral or
forbearance periods or otherwise in accordance with its
guidelines for servicing student loans in general and those of
Key Bank USA, National Association in particular and any
applicable Program requirements.
Under the terms of the sale and servicing agreement, if the depositor
or the master servicer discovers, or receives written notice, that any covenant
of the master servicer (or covenants made by the master servicer relating to
either of the sub-servicers), set forth above has not been complied with by the
master servicer (or a sub-servicer) in all material respects and such
noncompliance has not been cured within 60 days and has a materially adverse
effect on the interest of the securities insurer (with respect to the group II
student loans), the swap counterparty, or the related noteholders in any student
loan (it being understood that in the case of any guaranteed student loan, any
breach that does not affect the related guarantor's obligation to guarantee or
insure payment of that student loan will not be considered to have a material
adverse effect), unless the breach is cured, the master servicer will purchase
the student loan as of the first day following the end of the 60-day period that
is the last day of a collection period. In that event, the master servicer will
be obligated to deposit into the related sub-account of the collection account
an amount equal to the purchase amount of the student loan and the trust's
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interest in that student loan will be automatically assigned to the master
servicer. In addition, the master servicer will reimburse the trust with respect
to any federal loan for any accrued interest amounts that a federal guarantor
refuses to pay under its guarantee agreement due to, or for any interest subsidy
payments and special allowance payments that are lost or that must be repaid to
the Department of Education as a result of, a breach of any such covenant of the
master servicer.
Upon the occurrence and continuance of a master servicer default, with
respect to the group I student loans, the group I noteholders then controlling
remedies under the indenture, and with respect to the group II student loans,
the securities insurer (unless a securities insurer default has occurred and is
continuing, then the group II noteholders otherwise entitled to control remedies
under the indenture), may direct the indenture trustee to terminate the master
servicer and appoint a successor master servicer with respect to that group of
student loans. In that event, a different master servicer may service each group
of student loans. See, "Description of the Transfer and Servicing Agreements --
Master Servicer Default; Administrator Default" and " -- Rights Upon Master
Servicer Default and Administrator Default" in the prospectus for a description
of the Master Servicer Defaults and the available remedies. See also "Risk
Factors" herein.
INCENTIVE PROGRAMS
Certain incentive programs currently or hereafter made available by Key
Bank USA, National Association to borrowers may also be made available by the
master servicer or a sub-servicer to borrowers with student loans. Except for
guaranteed and unguaranteed private loans eligible for the "Keys2Repay Program,"
which allows certain borrowers to choose repayment terms of 10, 15 or 25 years
at interest rates that vary in accordance with the selected term, any incentive
program that effectively reduces borrower payments on student loans and, with
respect to federal loans, is not required by the Higher Education Act will be
applicable to the student loans only if and to the extent that the master
servicer or a sub-servicer receives payment on behalf of the trust from Key Bank
USA, National Association in an amount sufficient to offset these effective
yield reductions. See "The Student Loan Financing Business -- Incentive
Programs" in the prospectus.
SERVICING COMPENSATION
The master servicer will be entitled to receive, subject to the
limitations set forth in the following paragraph, a master servicing fee monthly
in an amount equal to [ ]% on an annualized basis of the related Pool Balance of
each group of student loans as of the last day of the immediately preceding
calendar month together with applicable administrative fees, late fees and
similar charges, as compensation for performing the functions as master servicer
for the trust described above. The percentage of the Pool Balance payable to the
master servicer may be subject to reasonable increase agreed to by the
administrator, the eligible lender trustee, the securities insurer (with respect
to the group II student loans) and the master servicer to the extent that a
demonstrable and significant increase occurs in the costs incurred by the master
servicer in providing the services to be provided under the sale and servicing
agreement, whether due to changes in applicable governmental regulations,
guarantor program requirements or regulations, United States Postal Service
postal rates or some other identifiable cost increasing event with respect to
the master servicer or a sub-servicer. The master servicing fee (together with
any
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portion of the master servicing fee that remains unpaid from prior distribution
dates) will be payable on each monthly servicing payment date, which will be the
[25]th day of each month (or if that day is not a business day, the next
succeeding business day), and will be paid solely out of the Available Funds
with respect to each group of notes and amounts on deposit in the related
reserve account on such monthly servicing payment date. In return for receiving
the master servicing fee, the sub-servicers will be paid solely by the master
servicer under the sub-servicing agreements.
The master servicing fee will compensate the master servicer for
performing (or for arranging the performance by the sub-servicers of) the
functions of a third party servicer of student loans as agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of borrowers on the student loans, investigating delinquencies,
pursuing, filing and collecting any guarantee payments, accounting for
collections and furnishing monthly and annual statements to the administrator.
The master servicing fee also will reimburse the master servicer for accounting
fees, outside auditor fees, data processing costs and other costs incurred in
connection with administering the student loans.
DISTRIBUTIONS
Deposits to Collection Account. On each determination date, which will
be on or about the third business day prior to each distribution date, the
administrator will provide the indenture trustee with certain information
regarding the distributions to be made on that distribution date.
On or before the business day preceding each monthly servicing payment
date that is not a distribution date, the administrator will cause (or will
cause the master servicer and the eligible lender trustee to cause) a portion of
the amount of the Available Funds with respect to each of the group I and group
II notes equal to the master servicing fee allocated to the group I and group II
student loans, respectively, payable on that date to be deposited into the
applicable sub-account of the collection account for payment [to the seller in
the case of such excess guarantee payments (with respect to the group II student
loans only), and] to the master servicer [in the case of the master servicing
fee] (calculated separately for the group I and group II student loans). On or
before the business day prior to each distribution date, the administrator will
cause (or will cause the master servicer and the eligible lender trustee to
cause) the amount of Available Funds to be deposited into the collection
account.
Distributions from the Collection Account. On each monthly servicing
payment date that is not a distribution date, the administrator will instruct
the indenture trustee to pay to the master servicer the related master servicing
fee due on the group I and group II student loans for the period from and
including the preceding monthly servicing payment date from amounts on deposit
in the applicable sub-account of the collection account.
GROUP I NOTES. On each distribution date, the administrator will
instruct the indenture trustee to make the following deposits and distributions,
in the amounts and in the order of priority specified below, to the extent of
Group I Available Funds for the related collection period:
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1. to the master servicer, the master servicing fee with respect to the
group I student loans due on that distribution date and all prior
unpaid master servicing fees allocated to the group I student loans;
2. to the administrator, the portion of the administration fee allocated
to the group I notes and all unpaid administration fees from prior
collection periods allocated to the group I notes;
3. pro rata (x) to the holders of the group I class [ ] notes, the
Noteholders' Interest Distribution Amount for the group I class [ ]
notes, and (y) to the swap counterparty, the trust swap payment amount
with respect to the group I interest rate swap, if any, for that
distribution date plus in certain circumstances when the trust is the
defaulting party under the group I interest rate swap, the related
termination payment due the swap counterparty;
4. to the group I reserve account, an amount, up to the amount, if any,
necessary to reinstate the balance of the group I reserve account to
the related Specified Reserve Account Balance;
5. provided that a Subordinate Note Interest Trigger for the group I
notes is not in effect, to the holders of the class [ ] notes, the
Noteholders' Interest Distribution Amount for the class [ ] notes;
6. to the holders of the group I notes, the group I Principal
Distribution Amount in the following order of priority: (a) prior to
the stepdown date for the group I notes, or after the stepdown date if
a Subordinate Note Principal Trigger for the group I notes is in
effect, the group I Principal Distribution Amount for the group I
notes will be payable solely to the group I senior notes in sequential
order beginning with the class [ ] notes until paid in full, then to
the class [ ] notes until paid in full, and then to the class [ ]
notes; and (b) after the stepdown date and so long as no Subordinate
Note Principal Trigger is in effect, the senior percentage of the
Principal Distribution Amount for the group I notes will be payable to
the group I senior notes (in the same order of priority as described
in the preceding sentence) and the subordinate percentage of the group
I Principal Distribution Amount will be payable to the class [ ]
notes;
7. if a Subordinate Note Interest Trigger for the group I notes is in
effect, to the holders of the class [ ] notes, the Noteholders'
Interest Distribution Amount for the class [ ] notes;
8. to the holders of the group I class [ ] notes on a pro rata basis,
based on the amount of any Noteholders' Interest Index Carryover owing
on each such class of group I class [ ] notes, the aggregate unpaid
amount of such Noteholders' Interest Index Carryover, if any, but only
to the extent not paid by the cap provider under the group I basis
risk cap;
9. to the holders of the class [ ] notes, the aggregate unpaid amount of
Noteholders' Interest Index Carryover with respect to the class [ ]
notes, if any, but only to the extent not paid by the cap provider
under the group I basis risk cap;
10. to the swap counterparty, all other amounts due and owing to the swap
counterparty under the group I interest rate swap not reimbursed
pursuant to clause (3) above;
11. to the cap provider, an amount sufficient to reimburse the cap
provider for all previous payments under the group I basis risk cap
and any other amounts due to the cap provider under the group I basis
risk cap;
12. after all payments shown above are made, and if Group II Available
Funds are insufficient to make all required payments pursuant to
clauses (1) through (13) below
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under " -- Group II Notes," any remaining amounts will be paid to the
group II noteholders, the master servicer, the administrator, the
securities insurer and/or the cap provider, as applicable, in the
order and for the purposes set forth in such clauses (1) through (13),
inclusive, up to the amount of such deficiency in Group II Available
Funds; and
13. to the certificateholder, any remaining amounts after application of
clauses (1) through (12).
GROUP II NOTES. On each distribution date, the administrator will
instruct the indenture trustee to make the following deposits and distributions,
in the amounts and in the order of priority specified below, to the extent of
Group II Available Funds for the related collection period:
1. to the master servicer, the master servicing fee with respect to the
group II student loans due on that distribution date and all prior
unpaid master servicing fees allocated to the group II student loans;
2. to the administrator, the portion of the administration fee allocated
to the group II notes and all unpaid administration fees from prior
collection periods allocated to the group II notes;
3. to the securities insurer, provided that no securities insurer payment
default has occurred and is continuing, the amount of all insurance
premiums due under the group II insured notes guaranty insurance
policy;
4. to the holders of the class [ ] notes, the class [ ] notes, the class
[ ] notes and the class [ ] notes on a pro rata basis, the
Noteholders' Interest Distribution Amount for the group II class [ ]
notes;
5. provided that a Subordinate Note Interest Trigger is not in effect, to
the holders of the class [ ] notes, the Noteholders' Interest
Distribution Amount for the class [ ] notes;
6. to the securities insurer, provided that no securities insurer payment
default has occurred and is continuing, reimbursement for all amounts
owed pursuant to draws with respect to any payments of interest under
any of the group II insured notes guaranty insurance policy, plus
interest thereon;
7. to the group II reserve account, an amount, up to the amount, if any,
necessary to reinstate the balance of the group II reserve account to
the related Specified Reserve Account Balance;
8. to the holders of the group II notes, other than the class [ ] notes,
the group II Principal Distribution Amount in the following order of
priority: (a) prior to the stepdown date for the group II notes, or
after the stepdown date if a Subordinate Note Principal Trigger for
the group II notes is in effect, the group II Principal Distribution
Amount for the group II notes, other than the class [ ] notes, will be
payable to the group II senior notes (other than the class [ ] notes)
and the securities insurer, in the following sequential order (i) to
the class [ ] notes until paid in full, then (ii) to the class [ ]
notes until paid in full, then (iii) to the class [ ] notes until paid
in full, then (iv) to the securities insurer, provided that no
securities insurer payment default has occurred and is continuing,
reimbursement for all amounts owed pursuant to draws with respect to
any payments of principal under the group II insured notes guaranty
insurance policy made to the holders of the class [ ] or class [ ]
notes, plus interest thereon, then (v) to the class [ ] notes, and
finally (vi) to the securities insurer,
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provided no securities insurer payment default has occurred and is
continuing, reimbursement for all amounts owed pursuant to draws under
the group II insured notes guaranty insurance policy made to the
holders of the class [ ] notes, plus interest thereon; and (b) after
the related stepdown date and so long as no Subordinate Note Principal
Trigger for the group II notes is in effect, the applicable senior
percentage of the Principal Distribution Amount for the group II
notes, other than the class [ ] notes, will be payable to the group II
senior notes, other than the class [ ] notes, and the securities
insurer (in the same order of priority as described in clause (a)
above) and the subordinate percentage of the group II Principal
Distribution Amount will be payable to the class [ ] notes, and the
securities insurer, if applicable;
9. if a Subordinate Note Interest Trigger is in effect for the group II
notes, to the holders of the class [ ] notes, the Noteholders'
Interest Distribution Amount for the class [ ] notes;
10. to the securities insurer, an amount equal to all unreimbursed INSURED
PAYMENTS made on prior distribution dates, together with accrued
interest thereon, as provided, not previously reimbursed above, and
all other amounts owed to the securities insurer under the Insurance
Agreement, including all unpaid insurance premiums;
11. to the holders of the group II notes, other than the class [ ] notes,
on a pro rata basis, based on the amount of any Noteholders' Interest
Index Carryover owing on each such class of group II notes, the
aggregate unpaid amount of such Noteholders' Interest Index Carryover,
if any, but only to the extent not paid by the cap provider under the
group II basis risk cap;
12. to the holders of the class [ ] notes, the aggregate unpaid amount of
Noteholders' Interest Index Carryover with respect to the class [ ]
notes, if any, but only to the extent not paid by the cap provider
under the group II basis risk cap;
13. to the cap provider, an amount sufficient to reimburse the cap
provider for all previous payments under the group II basis risk cap
and any other amounts due to the cap provider under the group II basis
risk cap;
14. after all payments shown above are made, and if Group I Available
Funds are insufficient to make all required payments pursuant to
clauses (1) through (11) above under " -- Group I Notes," any
remaining amounts will be paid to the Group I Noteholders, the master
servicer, the administrator, the swap counterparty and/or the cap
provider, as applicable, in the order and for the purposes set forth
in such clauses (1) through (11), inclusive, up to the amount of such
deficiency in Group I Available Funds; and
15. to the certificateholder, any remaining amounts after application of
clauses (1) through (14).
The noteholders will not have any further rights to Available Funds
distributed to the certificateholder as described above.
Also, if as of the special determination date (after giving effect to
all purchases of subsequent student loans on that date) either the group I or
group II subsequent loan sub-account of the group I or group II pre-funding
account, as the case may be, has not been reduced to zero, the indenture trustee
will withdraw all remaining sums on the distribution date corresponding to the
special redemption date and, (x) if the amount in either subsequent loan
sub-account is greater than $10,000,000, distribute those amounts pro rata to
each class of group I notes or
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group II notes, as applicable, based on the initial principal balance of each
class of notes in the related group of notes, as a payment of principal, and (y)
if the amount in either subsequent loan sub-account is $10,000,000 or less,
transfer those amounts to the group I or group II other student loan
sub-account, as applicable.
CREDIT ENHANCEMENT
Excess Interest. Excess interest is created with respect to the group I
or group II student loans when interest collections on the group I or group II
student loans, respectively, received during a collection period (including,
with respect to the group I student loans, related interest subsidy payments and
special allowance payments), related investment earnings and trust swap receipt
amounts from the group I interest rate swap exceeds the following:
- the interest on the group I or group II notes, respectively, at
the related interest rates;
- fees allocated to the group I or group II student loans,
respectively, due under the program;
- the master servicing fee with respect to the group I or group II
student loans;
- the related allocated portion of the administration fee;
- the quarterly premium payable to the securities insurer (with
respect to the group II notes); and
- any trust swap payment amounts with respect to the group I
interest rate swap payable to the swap counterparty in respect of
the related distribution date.
Trust swap receipt amounts will equal on any distribution date the sum
of (i) the net trust swap receipt (calculated as described under " -- Interest
Rate Swap" below) under the group I interest rate swap for that distribution
date and (ii) the excess of the trust swap receipt amount on the preceding
distribution date over the amount actually paid by the swap counterparty on that
preceding distribution date plus interest on that excess from such preceding
distribution date to the current distribution date at the rate of Three-Month
LIBOR for the related interest period.
Trust swap payment amounts will equal on any distribution date the sum
of (i) the net trust swap payment (calculated as described under " -- Interest
Rate Swap" below) under the group I interest rate swap for that distribution
date and (ii) the excess of the trust swap payment amount on the preceding
distribution date over the amount actually paid to the swap counterparty on that
preceding distribution date plus interest on that excess from such preceding
distribution date to the current distribution date at the rate of Three-Month
LIBOR for the related interest period.
Excess interest with respect to the group I or group II student loans,
as the case may be, is intended to provide "first loss" protection for the
related class of notes. Excess interest will first be deposited in the group I
or group II reserve account, as applicable, until the related Specified Reserve
Account Balance is met. Excess interest with respect to the group I or group II
student
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loans, as the case may be, to the extent available after any required deposits
to the group I or group II reserve account, as applicable, will be applied on
each distribution date to cover realized losses on the group I or group II
student loans, as applicable, incurred during the related collection period.
Also, before the distribution date on which the principal balance of
the group I or group II notes equals the sum of the Group I or Group II Pool
Balance and amounts on deposit in the related pre-funding account as of the last
day of the related collection period, excess interest will be applied as an
accelerated payment of principal on each applicable class of the related group
of notes in sequential order until the principal balance of the group I or group
II student loans, as applicable, equals the outstanding principal balance of the
group I or group II notes (other than the class [ ] notes), as applicable. If a
Trigger Event occurs with respect to the group II notes, or a decision by the
related noteholders to exercise the group I or group II put option, followed
either by (1) an inability of the indenture trustee to exercise the related put
option due to the minimum acceptable put option exercise price being greater
than the put option exercise price (plus all amounts then on the deposit in the
group I or group II reserve account, as applicable), or (2) both a default by
the put option provider and a failed auction with respect to the related group
of student loans, following the [ ] distribution date, all excess interest
will be applied as an accelerated payment of principal on each class of notes
(other than the class [ ] notes) in the related group of notes, in sequential
order, until the principal balance of the group I or group II notes (other than
the class [ ] notes), as applicable, has been reduced to zero.
We can give you no assurance about the rate, timing or amount, if any,
of excess interest. The application of excess interest to the payment of
principal on your notes (other than the class [ ] notes) will affect the
weighted average life and yield on your investment. To the extent excess
interest is not sufficient to cover realized losses on the student loans or to
achieve the parity of the principal balance of the group I or group II notes
with the sum of the Group I or Group II Pool Balance and amounts on deposit in
the related pre-funding account, you will rely solely on amounts in the group I
or group II reserve account, as applicable, payments under the group II insured
notes guaranty insurance policy (with respect to the group II insured notes
only) and other collections on the group I or group II student loans, as
applicable, for payments on your notes. Excess interest not applied to make
required distributions on any distribution date will be paid to the
certificateholder and will not be available on subsequent distribution dates to
make payments on any class of the notes.
Reserve Accounts. Under the sale and servicing agreement, the group I
reserve account and the group II reserve account will be created with initial
deposits by the depositor on the closing date of cash or eligible investments in
an amount equal to approximately $[ ] and $[ ], respectively. On the closing
date, the group I and group II reserve account initial deposit will equal the
related Specified Reserve Account Balance as of the closing date. The amounts on
deposit in each reserve account to the extent used will be replenished up to the
related Specified Reserve Account Balance on each distribution date by deposit
of the amount, if any, necessary to reinstate the balance of that reserve
account to the related Specified Reserve Account Balance from the amount of
related Available Funds remaining after payment of the prior amounts set forth
under " -- Distributions" above with respect to the related group of notes, all
for that distribution date.
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Funds will be withdrawn from the group I or the group II reserve
account, as the case may be, to the extent that the amount of Group I or Group
II Available Funds, as applicable, is insufficient to pay the master servicing
fee with respect to the group I and group II student loans, respectively, on any
monthly servicing payment date, and the related interest and expense draw on any
distribution date. The interest and expense draw with respect to the group I
notes will consist of the items specified in clauses (1), (2), (3) and (5) under
" -- Distributions -- Distributions from the Collection Account -- Group I
Notes" above, and the interest and expense draw with respect to the group II
notes will consist of the items specified in clauses (2) through (6) under " --
Distributions -- Distributions from the Collection Account -- Group II Notes"
above. The funds will be paid from the group I or group II reserve account, as
applicable, to the master servicer on a monthly servicing payment date, and to
the persons and in the order of priority specified for distributions out of the
related sub-account of the collection account in clauses (1), (2), (3) and (5)
above with respect to the group I notes, or clauses (2) through (6) above with
respect to the group II notes, on a distribution date. In addition, on the final
maturity dates for each class of notes (other than the class [ ] notes), amounts
on deposit in the applicable reserve account, if any, will be available, if
necessary, to be applied to reduce the principal balance of that class of the
notes to zero. Amounts on deposit in the reserve accounts will not be available
to cover any reimbursement for Noteholders' Interest Index Carryover.
Also, to the extent that realized losses occur with respect to the
group I or group II student loans, a realized loss draw may be made from the
related reserve account as described in the following two paragraphs. A realized
loss will be the excess of the principal balance of a liquidated student loan
over the LIQUIDATION PROCEEDS for the related group of student loans to the
extent allocable to principal.
If on any distribution date before the parity of the principal balance
of the group I or group II notes with the sum of the Group I or Group II Pool
Balance and amounts on deposit in the related pre-funding account, the amount by
which the applicable Pool Balance as of the last day of the second preceding
collection period (or in the case of the first distribution date, as of the
cutoff date) minus the related Pool Balance as of the last day of the related
collection period exceeds the amount remaining to be distributed as the related
Noteholders' Principal Distribution Amount will be withdrawn from the applicable
reserve account as a realized loss draw and deposited in the related sub-account
of the collection account and distributed by the indenture trustee as a payment
in respect of the related Noteholders' Principal Distribution Amount (and
distributed in the order of priority as set forth under " -- Distributions --
Distributions from the Collection Account -- Group I Notes," or " --
Distributions -- Distributions from the Collection Account -- Group II Notes,"
as applicable).
If on any distribution date on or after the parity of the principal
balance of the group I or group II notes with the sum of the Group I or Group II
Pool Balance and amounts on deposit in the related pre-funding account is
achieved, the amount available to be distributed as the related Noteholders'
Principal Distribution Amount is less than the related Noteholders' Principal
Distribution Amount for that distribution date, the difference will be withdrawn
from the applicable reserve account as a realized loss draw and deposited in the
related sub-account of the collection account and distributed as a payment in
respect of the related Noteholders' Principal Distribution Amount (and
distributed in the order of priority as set forth under " -- Distributions
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- -- Distributions from the Collection Account -- Group I Notes," or " --
Distributions -- Distributions from the Collection Account -- Group II Notes,"
as applicable).
If the amount on deposit in the group I or group II reserve account on
any distribution date (after giving effect to all deposits or withdrawals on
that distribution date) is greater than the related Specified Reserve Account
Balance for that distribution date, subject to certain limitations, the
administrator will instruct the indenture trustee to deposit the amount of the
excess into the collection account for distribution to the certificateholder as
Group I or Group II Available Funds, as applicable, on such distribution date.
The noteholders will not have any further rights to Available Funds distributed
to the certificateholder as described above. Subject to the limitation described
in the preceding sentence, amounts held from time to time in the reserve
accounts will continue to be held for the benefit of the trust.
The reserve accounts are intended to enhance the likelihood of timely
receipt by the noteholders in each group of notes of the full amount of interest
due them and to decrease the likelihood that such holders will experience
losses. In certain circumstances, however, either or both reserve accounts could
be depleted.
Subordination of the Subordinate Notes. The rights of the holders of
the group I and group II subordinate notes to receive payments of interest are
subordinated to the rights of the holders of the group I and group II senior
notes, respectively, to receive payments of interest (and, if a Subordinate Note
Interest Trigger has occurred and is continuing, payments of principal on the
applicable classes of notes as well) and the rights of the holders of the group
I and group II subordinate notes to receive payments of principal are
subordinated to the rights of the holders of the group I and group II senior
notes (other than the class [ ] notes), respectively, to receive payments of
interest and principal and the class [ ] notes to receive payments of interest.
Consequently, amounts on deposit in the related sub-account of the collection
account and to the extent necessary, the related reserve account and, during the
Funding Period, the related pre-funding account, will be applied to the payment
of interest on the group I and group II senior notes before payment of interest
on the group I and group II subordinate notes, respectively. Also, for so long
as the group I and group II senior notes are outstanding, the holders of the
group I and group II subordinate notes, respectively, will not be entitled to
any payments of principal until the stepdown date, and after the stepdown date,
the holders of the group I and group II subordinate notes will be entitled to
payments of principal only if a related Subordinate Note Principal Trigger is
not in effect.
Group II Insured Notes Guaranty Insurance Policy. On the closing date,
the securities insurer will issue the group II insured notes guaranty insurance
policy, which will be available as credit enhancement to the holders of the
group II notes (other than the class [ ] notes and the class [ ] notes) only
under the terms described herein. The group II insured notes guaranty insurance
policy will unconditionally and irrevocably guarantee the timely payment of the
Noteholders' Interest Distribution Amount on each distribution date for the
group II insured notes and the aggregate unpaid principal balance of those
classes of notes on their respective final maturity dates. See "The Group II
Insured Notes Guaranty Insurance Policy and the Securities Insurer."
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Cross-Collateralization. With respect to the Group I Available Funds,
on each distribution date, after all payments are made to the group I
noteholders and all amounts then due and owing to the master servicer, the swap
counterparty and the cap provider, that are payable from the Group I Available
Funds, are paid in full, any remaining amounts will become part of the Group II
Available Funds for that distribution date. With respect to the Group II
Available Funds, on each distribution date, after all payments are made to the
group II noteholders and all amounts then due and owing to the securities
insurer, the master servicer, the swap counterparty and the cap provider, that
are payable from the Group II Available Funds, are paid in full, if the Group I
Available Funds on that distribution date are not enough to pay (1) the related
Noteholders' Interest Distribution Amount to the group I noteholders, or (2)
amounts owed to the swap counterparty and/or the cap provider with respect to
the group I notes, any remaining Group II Available Funds may be used to pay
these deficiencies to the affected group I noteholders, the swap counterparty
and/or the cap provider, as applicable. To the extent these Available Funds are
not used for these purposes, all remaining sums will be distributed to the
holder of the certificates and will not be available to the noteholders on
subsequent distribution dates. We can give you no assurance that on any
distribution date there ever will be sufficient Group I Available Funds to make
payments to the group II noteholders nor that there will be sufficient Group II
Available Funds to make payments to the group I noteholders.
GROUP I INTEREST RATE SWAP
Payments Under the Interest Rate Swap. On the closing date, the trust
will enter into the group I interest rate swap with Key Bank USA, National
Association, as the swap counterparty. The group I interest rate swap will be
documented according to a 1992 ISDA Master Agreement (Multicurrency-Cross
Border), or ISDA master agreement, modified to reflect the terms of the group I
notes, the certificates, the indenture, the sale and servicing agreement and the
group I interest rate swap. The group I interest rate swap will terminate on the
earliest to occur of (i) full payment of the group I notes, (ii) full re-payment
of all of the commercial paper rate loans, (iii) the liquidation of the group I
student loans as a result of the occurrence and continuation of an event of
default under the indenture, and (iv) the early termination of the group I
interest rate swap in accordance with its terms.
Under the group I interest rate swap, on each distribution date, the
trust will owe the swap counterparty a net trust swap payment calculated as
follows for each of the monthly periods in the related collection period,
beginning with the monthly period commencing [ ]:
(I) the product of:
- the commercial paper rate as determined as of the first day of
the related monthly period;
- the aggregate principal balance of the commercial paper rate
loans as determined as of the first day of the related monthly
period; and
- a fraction, the numerator of which is the actual number of days
in the related monthly period and the denominator of which is
360.
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And, under the group I interest rate swap, on each distribution date,
the swap counterparty will owe the trust a net trust swap receipt calculated as
follows for each of the monthly periods in the related collection period
beginning with the monthly period commencing [ ]:
(II) the product of:
- Three-Month LIBOR (calculated in the same manner and on such
dates as such index is calculated for the notes for the related
interest period) less [ ]%;
- the aggregate principal balance of the commercial paper rate
loans as determined as of the first day of the related monthly
period; and
- a fraction, the numerator of which is the actual number of days
in the related monthly period and the denominator of which is
360.
Payments will be made on a net basis with respect to the group I
interest rate swap between the trust and the swap counterparty, in an amount
equal to the excess of (I) over (II) above for the related collection period, in
the case of a net trust swap payment, or the excess of (II) over (I) above for
the related collection period, in the case of a net trust swap receipt.
The swap counterparty will be entitled to an upfront fee on the closing
date and to all trust swap payment amounts, in accordance with the payment
priorities set forth above under " -- Distributions -- Distributions from the
Collection Account."
Conditions Precedent. The obligations of the swap counterparty and the
trust to pay certain amounts due under the group I interest rate swap will be
subject to the following conditions precedent: (i) no swap default or event that
with the giving of notice or lapse of time or both would become a swap default
shall have occurred and be continuing and (ii) no termination event under the
group I interest rate swap has occurred or been effectively designated, except
that the swap counterparty's obligation to pay these amounts will not be subject
to these conditions unless principal of the related group of the notes has been
accelerated following an event of default under the indenture.
Defaults Under the Group I Interest Rate Swap. Events of default under
the group I interest rate swap are limited to:
- failure of the swap counterparty or the trust to pay any amount
when due under the group I interest rate swap after giving effect
to the applicable grace period but, in the case of the trust,
only if the trust has sufficient Group I Available Funds
remaining to pay these obligations on any distribution date after
making all other required distributions with more senior payment
priorities in accordance with the priorities set forth above
under " -- Distributions -- Distributions from the Collection
Account;"
- the occurrence of certain events of insolvency or bankruptcy of
the trust or the swap counterparty;
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- an acceleration of the principal of the group I notes following
an event of default under the indenture; and
- the following other standard events of default under ISDA master
agreements: "Breach of Agreement" (not applicable to the trust),
"Credit Support Default" (not applicable to the trust),
"Misrepresentation" (not applicable to the trust), and "Merger
Without Assumption" (not applicable to the trust), as described
in Sections 5(a) (ii), 5(a) (iii), 5(a) (iv) and 5(a) (viii) of
the ISDA master agreement.
Termination Events. A termination event under the group I interest rate
swap consists of the following events under the ISDA master agreement:
"Illegality" (which generally relates to changes in law causing it to become
unlawful for a party to perform its obligations under the group I interest rate
swap), and "Tax Event" (which generally relates to either party to the group I
interest rate swap receiving a payment under the group I interest rate swap from
which an amount has been deducted or withheld for or on account of taxes), as
described in Sections 5(b) (i) and 5(b) (ii) of the ISDA master agreement. The
occurrence of a rating agency downgrade will also be a Termination Event under
the group I interest rate swap.
Early Termination of the Interest Rate Swap. Upon the occurrence of any
event of default under the group I interest rate swap, the non-defaulting party
will have the right to designate an early termination date. With respect to
termination events, an early termination date may be designated by one of the
parties (as specified in the group I interest rate swap) and will occur only
upon notice and, in certain circumstances, after any "Affected Party" (as
defined in the group I interest rate swap) has used reasonable efforts to
transfer its rights and obligations under the group I interest rate swap to a
related entity within a limited period after notice has been given of the
termination event, all as set forth in each of the group I interest rate swap.
Upon any early termination date of the group I interest rate swap, the
trust or the swap counterparty, as the case may be, may be liable to make a
termination payment to the other (regardless, if applicable, of which of the
parties has caused such termination). The amount of this termination payment
will be based on the value of the group I interest rate swap computed in
accordance with the procedures set forth in the group I interest rate swap. Any
such payment could be substantial. In the event that the trust is required to
make such a termination payment and the trust is the defaulting party (other
than as a result of a failure to pay), the payment will be payable in the same
order of priority as any trust swap payment amount payable to the swap
counterparty (which is payable pari passu with the related Noteholders' Interest
Distribution Amount for the Group I Notes). However, if a termination payment is
owed to the swap counterparty following an event of default resulting from a
default of the swap counterparty or a termination event, the termination payment
will be subordinate to the right of the group I noteholders to receive full
payment of principal and/or interest, as applicable, on the group I notes.
Accordingly, termination payments, if required to be made by the trust, could
result in shortfalls to the group I noteholders.
If, following an early termination date with respect to the group I
interest rate swap, a termination payment is owed by the trust to the swap
counterparty and the trust receives an assumption payment from a successor swap
counterparty to assume the position of the swap counterparty, the portion of the
assumption payment that does not exceed the amount of the
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termination payment owed by the trust to the swap counterparty will be paid by
the trust to the swap counterparty and will not be available to make
distributions to the group I noteholders. Following this payment, the amount of
the termination payment owed by the trust to the swap counterparty will be
reduced by the amount of this payment.
BASIS RISK CAPS
Payments Under the Basis Risk Caps. On the closing date, the trust will
enter into the group I basis risk cap and the group II basis risk cap, each with
[Key Bank USA, National Association] as the cap provider. Each of the basis risk
caps will be documented according to an ISDA master agreement, modified to
reflect the terms of the group I notes or the group II notes (other than the
class [ ] notes), as applicable, the certificates, the indenture, the sale and
servicing agreement and the group I or group II basis risk cap, as applicable.
Each of the basis risk caps will terminate on the date that is the earliest to
occur of the distribution date in [ ], the date on which the group I or group
II notes, as applicable, have been paid in full, the occurrence and continuation
of an event of default under the indenture resulting in a liquidation of the
group I or group II student loans, as applicable, and the date on which each of
the basis risk caps is terminated in accordance with its terms through an early
termination.
Under each of the basis risk caps, the cap provider will pay to the
trust on each distribution date any related Noteholders' Interest Index
Carryover with respect to either the group I or group II notes (other than the
class [ ] notes), as applicable, created on that distribution date. The cap
provider will be entitled to an upfront fee on the closing date and to
reimbursement for all sums paid to either the group I or group II noteholders
(other than the class [ ] noteholders), as applicable, as related Noteholders'
Interest Index Carryover but on a subordinated basis and only if sufficient
Group I or Group II Available Funds are available on subsequent distribution
dates after making all related prior distributions on those distribution dates
in accordance with the payment priorities set forth above under " --
Distributions -- Distributions from the Collection Account."
Defaults Under the Basis Risk Caps. Events of default under each of the
basis risk caps are limited to:
- failure of the cap provider or the trust to pay any amount when
due under the group I or group II basis risk cap, as applicable
but, in the case of the Trust, only if the trust has either Group
I or Group II Available Funds, as applicable, remaining to pay
these obligations on any distribution date after making all other
required distributions with more senior payment priorities in
accordance with the priorities set forth above under " --
Distributions -- Distributions from the Collection Account;" and
- certain events of insolvency or bankruptcy of the cap provider.
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY DOES NOT PROVIDE
ANY INSURANCE COVERAGE IN THE EVENT OF A DEFAULT BY THE CAP PROVIDER.
Termination Event. A termination event under each of the basis risk
caps consists of the following event under the ISDA master agreements:
"Illegality," which generally relates to
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changes in law causing it to become unlawful for a party to perform its
obligations under the basis risk caps.
Payments Upon Termination. If either of the basis risk caps is
terminated due to a termination event or an event of default, the cap provider
will pay to the trust as liquidated damages an amount equal to the fee it
received on the closing date with respect to the group I or group II basis risk
cap, as applicable. The amount of liquidated damages is not expected to be
sufficient to find a replacement cap provider and there is no obligation of the
trust, the depositor, the seller, the indenture trustee, the administrator, the
cap provider or any other person to find a replacement cap provider if either
basis risk cap is terminated. You should note that the amount of this fee may be
insufficient to offset any resulting Noteholders' Interest Index Carryover on
future distribution dates. If either basis risk cap is terminated and the cap
provider is owed any sums for amounts previously paid to the trust under the
basis risk cap, the cap provider will be entitled to reimbursement from the
trust for all of these sums, but only if Group I or Group II Available Funds, as
applicable, are available on subsequent distribution dates after making all
other required distributions with more senior priorities in accordance with the
payment priorities set forth above under " -- Distributions -- Distributions
from the Collection Account."
THE SWAP COUNTERPARTY AND CAP PROVIDER
Key Bank USA, National Association is a national banking association, a
wholly owned subsidiary of KeyCorp, and the parent of the depositor. Key Bank
USA, National Association is engaged in consumer loan activities nationally,
including, automobile lending, home equity financing of both first- and
second-home mortgages, education lending, and marine and recreational vehicle
financing. As of [ ], Key Bank USA, National Association had total assets of
approximately $[ ] billion, total liabilities of approximately $[ ] billion and
approximately $[ ] million in stockholders' equity. Key Bank USA, National
Association's business is subject to examination and regulation by federal
banking authorities and its primary federal bank regulatory authority is the
Office of the Comptroller of the Currency. The principal executive offices of
Key Bank USA, National Association are located at Key Center, 127 Public Square,
Cleveland, Ohio 44114 and its telephone number is (216) 689-6300. Additional
information regarding Key Bank USA, National Association, in any of its
capacities as described herein, including call reports, are available upon
written request from the administrator at the above address.
KeyCorp is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (or SEC). These reports, proxy statements and other information can
be inspected and copied at the public reference facilities of the SEC, at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 233 Broadway, New York, New York 10279. Copies of these
materials can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material is
also available on the SEC's internet site on the world wide web located at
http://www.sec.gov. In addition, such reports, proxy statements and other
information concerning KeyCorp can be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
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As of [ ], Key Bank USA, National Association had long-term, senior
unsecured debt ratings of ["A1"] and ["A"] by MOODY'S and S&P, respectively. The
obligations of the swap counterparty are not guaranteed by the securities
insurer. If (1) the short-term debt rating of the swap counterparty (or any
successor credit support provider) is withdrawn, suspended or reduced below
["A-1"] by S&P, or (2) the long-term debt rating of the swap counterparty (or
any successor credit support provider) is withdrawn, suspended or reduced below
["A1"] by Moody's, this will constitute a rating agency downgrade and the swap
counterparty is required, no later than the 30th day following the rating agency
downgrade, at the swap counterparty's expense, either to (i) obtain a substitute
swap counterparty, which does not cause any rating agency to lower its then
current rating of any class of group I notes (with respect to the group I
interest rate swap) or (ii) enter into arrangements reasonably satisfactory to
the indenture trustee and each of the rating agencies, including collateral
arrangements, guarantees or letters of credit, which arrangements in the view of
the rating agency will result in the total negation of the effect or impact of
the rating agency downgrade on the respective noteholders and the securities
insurer. The swap counterparty will have the right to consent to any amendments,
supplements or modifications to each of the transfer and servicing agreements.
THE OBLIGATIONS OF KEY BANK USA, NATIONAL ASSOCIATION, IN ITS
CAPACITIES AS SWAP COUNTERPARTY AND CAP PROVIDER, ARE NOT GUARANTEED BY KEYCORP
OR KEYBANK NATIONAL ASSOCIATION OR ANY OF THEIR AFFILIATES.
GROUP II CAP AGREEMENT
On the closing date, the trust will enter into the group II cap
agreement with [Key Bank USA, National Association] as cap counterparty with
respect to the group II notes. The group II cap agreement will be documented
under an ISDA master agreement modified to reflect the terms of the group II
notes, the indenture and the trust agreement.
The group II cap agreement will terminate on the earlier of the [ ] [ ]
distribution date and the date on which the group II cap agreement terminates in
accordance with its terms due to an early termination.
Under the terms of the group II cap agreement, the trust will pay the
cap counterparty, from the net proceeds from the sale of the notes an upfront
fair market value payment. On the third business day before each distribution
date to and including the [ ] distribution date, the cap counterparty will pay
to the trust for deposit into the group II reserve account an amount, calculated
on a quarterly basis, equal to the product of (a) the excess, if any, of (i)
Three-Month LIBOR, except for the first interest period, as determined for the
interest period related to the applicable distribution date over (ii) [ ]% and
(b) the lesser of (i) a notional amount equal to $[ ] and (ii) the aggregate
principal balance of the group II notes, other than the class [ ] notes.
For this purpose, LIBOR for the first interest period and Three-Month
LIBOR for each subsequent interest period will be determined as of the LIBOR
determination date for the applicable interest period in the same manner as
applies to the notes, as described in "Description of the Securities -
Determination of LIBOR."
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Modifications and Amendment of the Group II Cap Agreement. The trust
agreement and the indenture will contain provisions permitting the eligible
lender trustee, with the consent of the indenture trustee, to enter into an
amendment to the group II cap agreement to cure any ambiguity in, or correct or
supplement any provision of, the group II cap agreement, so long as the eligible
lender trustee determines, and the indenture trustee agrees in writing, that the
amendment will not adversely affect the interests of the group II noteholders.
Default Under the Group II Cap Agreement. Events of default under the
group II cap agreement are limited to:
- the failure of the cap counterparty to pay any amount when due
under the group II cap agreement after giving effect to the
applicable grace period;
- the occurrence of events of insolvency or bankruptcy of the trust
or the cap counterparty;
- an acceleration of the principal of the group II notes following
an event of default relating to the group II notes under the
indenture; and
- the following other standard events of default under the ISDA
master agreement: "Credit Support Default" (not applicable to the
trust) and "Merger Without Assumption" (not applicable to the
trust), as described in Sections 5(a)(iii) and 5(a)(viii) of the
ISDA master agreement.
Additional Termination Event. The group II cap agreement will
contain usual and customary termination events and will also include an
additional termination event relating to withdrawal or downgrade of the cap
counterparty's credit rating. This additional termination event will occur
if:
- (1) the short-term debt rating of the cap counterparty or its
credit support provider, as the case may be, is withdrawn or
downgraded below "[ ]" (or in the absence of a short-term debt
rating, the long-term senior or counterparty debt rating is
withdrawn or downgraded below "[ ] ") by [ ] or any successor
rating agency; or (2) (a) the long-term senior debt rating or
counterparty rating of the cap counterparty or its credit support
provider, as the case may be, is withdrawn, downgraded or put on
watch for downgrade by [ ] or any successor rating agency below
"[ ] " where the cap counterparty or its credit support provider,
as the case may be, has only a long-term debt rating or
counterparty rating, or (b) the long-term senior debt rating and
the short-term debt rating of the cap counterparty or its credit
support provider, as the case may be, is withdrawn, downgraded or
put on watch for downgrade by [ ] or any successor rating agency
below "[ ] " and "[ ] ", respectively, where the cap counterparty
or its credit support provider, as the case may be, has both
long-term and short-term debt ratings; and
- the cap counterparty has not, within 30 days of the withdrawal or
downgrade, procured a collateral arrangement, a replacement
transaction or a rating affirmation.
For purposes of this additional termination event:
A collateral arrangement will be any of:
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- a collateral agreement executed between the parties naming a
third-party collateral agent, providing for the collateralization
of the cap counterparty's obligations under the group II cap
agreement as measured by the net present value of the cap
counterparty's marked-to-market obligations, together with a
rating reaffirmation from the applicable rating agency; or
- a letter of credit, guaranty or surety bond or insurance policy
covering the cap counterparty's obligations under the group II
cap agreement from a bank, guarantor or insurer having a
short-term debt, long-term debt, counterparty or claims paying
rating equal to or above the ratings described above.
A replacement transaction will be a transaction with a replacement
counterparty (which replacement counterparty shall meet the ratings criteria
described in the preceding paragraph) who assumes the cap counterparty's
position under the group II cap agreement on substantially the same terms or
with such other amendments to the terms of the group II cap agreement as may be
approved by the parties and a rating affirmation is obtained from each of the
rating agencies.
A rating affirmation will be a written acknowledgement from the rating
agency whose rating was lowered or withdrawn that, notwithstanding the
withdrawal or downgrade, the then-current ratings of the applicable notes will
not be lowered.
Early Termination of the Group II Cap Agreement. Upon the occurrence of
any event of default or termination event under the group II cap agreement, the
non-defaulting party or the non-affected party, as the case may be, will have
the right to designate an early termination date.
Upon an early termination of the group II cap agreement, either the
trust or the cap counterparty may be liable to make a termination payment to the
other, regardless of which party has caused that termination. The amount of that
termination payment will be based on the value of the transaction computed in
accordance with the procedures in the group II cap agreement. If the trust is
required to make a termination payment, the termination payment will be
subordinate to the right of the group II noteholders to receive full payment of
principal of and/or interest on the group II notes and to the replenishment of
the group II reserve account to the related Specified Reserve Account Balance.
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY DOES NOT PROVIDE
INSURANCE COVERAGE IN THE EVENT OF A DEFAULT BY THE CAP COUNTERPARTY.
THE PUT OPTION PROVIDER
[KeyBank National Association] will act as the put option provider to
the trust. KeyBank National Association is a national banking association, a
wholly owned subsidiary of KeyCorp, and an affiliate of Key Bank USA, National
Association. KeyBank National Association is engaged in a general banking
business providing: (1) retail and private banking services to consumers; (2)
commercial banking services to small businesses, middle market and large
corporate customers; (3) capital market services; and (4) trust and asset
management services.
As of [ ], KeyBank National Association had total assets of
approximately $[ ] billion, total liabilities (including minority interest in
consolidated subsidiaries) of approximately
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$[ ] billion, and approximately $[ ] billion in stockholders' equity. KeyBank
National Association's business is subject to examination and regulation by
federal banking authorities and its primary federal bank regulatory authority is
the Office of the Comptroller of the Currency. The principal executive offices
of KeyBank National Association are located at Key Center, 127 Public Square,
Cleveland, Ohio 44114 and its telephone number is (216) 689-6300. Additional
information regarding KeyBank National Association, in its capacity as the put
option provider as described in this prospectus supplement, including call
reports, are available upon written request from the administrator. As of [ ],
KeyBank National Association had long-term, senior unsecured debt ratings of
[A], [A1] and [A] by Fitch Ratings, Moody's and S&P, respectively. The
obligations of the put option provider are not guaranteed by the securities
insurer.
THE OBLIGATIONS OF KEYBANK NATIONAL ASSOCIATION, IN ITS CAPACITY AS THE
PUT OPTION PROVIDER, ARE NOT GUARANTEED BY KEYCORP OR KEY BANK USA, NATIONAL
ASSOCIATION OR ANY OF THEIR AFFILIATES.
THE SECURITIES INSURER
Under the transfer and servicing agreements and indenture, the
securities insurer will be deemed to be treated as a [100]% holder of the group
II insured notes for all purposes unless a securities insurer default has
occurred and is continuing. As a result, the securities insurer will have the
right to exercise all of the rights of the holders of the group II insured notes
set forth in the prospectus, which (together with the rights of the class [ ]
and class [ ] noteholders) include the right to declare an event of default with
respect to the group II notes under the indenture, accelerate the group II
notes, direct the indenture trustee to liquidate the group II student loans,
remove the administrator following an administrator default, and remove the
master servicer (but only for the group II student loans) following a master
servicer default, and will have the right to consent to the appointment of any
successor master servicer (for the group II student loans) or administrator and
to consent to all amendments and actions that require group II noteholder
consent, on behalf of the group II noteholders, except for certain amendments
and consents that could affect the amount or timing of distributions required to
be made.
BY ACCEPTING ITS GROUP II NOTE, EACH APPLICABLE NOTEHOLDER WILL AGREE
THAT UNLESS A SECURITIES INSURER DEFAULT HAS OCCURRED AND IS CONTINUING, THE
SECURITIES INSURER WILL HAVE THE RIGHT TO EXERCISE ALL RIGHTS OF THOSE
NOTEHOLDERS AS SPECIFIED IN THE TRANSFER AND SERVICING AGREEMENTS AND THE
INDENTURE WITHOUT ANY FURTHER CONSENT OF ANY OF THOSE NOTEHOLDERS (UNLESS
OTHERWISE SPECIFIED THEREIN). ANY RIGHT CONFERRED TO THE SECURITIES INSURER TO
ACT OR CONSENT ON BEHALF OF THE APPLICABLE NOTEHOLDERS WILL BE SUSPENDED AND
WILL BE RETURNED TO THE HOLDERS OF THE GROUP II NOTES THEN OTHERWISE ENTITLED TO
CONTROL REMEDIES UNDER THE INDENTURE DURING ANY PERIOD IN WHICH A SECURITIES
INSURER DEFAULT HAS OCCURRED AND IS CONTINUING, EXCEPT THAT, DURING THE
CONTINUANCE OF A SECURITIES INSURER DEFAULT, THE CONSENT OF THE SECURITIES
INSURER MUST STILL BE OBTAINED WITH RESPECT TO CERTAIN ACTIONS AND ANY
AMENDMENTS THAT MAY MATERIALLY ADVERSELY AFFECT THE SECURITIES INSURER.
In the event of a downgrade in the ratings of the securities insurer
below ["A3"] or ["A-"] by Moody's and S&P, respectively, the administrator may,
but is not required to, substitute a new guaranty insurance policy with another
insurer having a rating of ["Aaa"] and ["AAA"] by each
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rating agency; provided that the securities insurer is reimbursed for all
amounts due and owing at the time of such substitution or replacement.
STATEMENTS TO INDENTURE TRUSTEE AND TRUST
Prior to each distribution date, the administrator (based on the
periodic statements and other information provided to it by the master servicer
or the sub-servicers) will provide to the indenture trustee, the trust, and to
the securities insurer upon request, as of the close of business on the last day
of the preceding collection period, a statement which will include the following
information with respect to such distribution date or the preceding collection
period as to the notes and the certificates, to the extent applicable:
- the amount of the distribution allocable to principal of each
class of securities;
- the amount of the distribution allocable to interest on each
class of securities, together with the interest rates applicable
with respect thereto (indicating whether the interest rates are
based on Three Month LIBOR plus the applicable margin or on the
related Student Loan Rate and specifying what each interest rate
would have been if it had been calculated using the alternate
basis; provided that no such calculation of the related Student
Loan Rate will be required to be made unless Three Month LIBOR
for that interest period is 100 basis points greater than Three
Month LIBOR of the preceding determination date);
- the amount of the distribution, if any, allocable to any group I
or group II Noteholders' Interest Index Carryover, as applicable,
together with the outstanding amount, if any, of each after
giving effect to that distribution;
- the Group I and Group II Pool Balance as of the close of business
on the last day of the preceding collection period, after giving
effect to the related payments allocated to principal reported
above;
- the aggregate outstanding principal balance of each class of
notes, and each pool factor (as described under "Pool Factors and
Trading Information" in the prospectus) as of that distribution
date, after giving effect to related payments allocated to
principal reported above;
- the amount of the master servicing fee paid to the master
servicer and the amount of the administration fee paid to the
administrator with respect to that collection period, in each
case as allocated to the group I and group II notes, and the
amount, if any, of the master servicing fee remaining unpaid
after giving effect to those payments;
- the amount of the aggregate realized losses for each of the group
I and group II student loans, if any, for that collection period
and the balance of student loans in each of the group I and group
II student loans that are delinquent in each delinquency period
as of the end of that collection period;
- the balance of the reserve accounts on that distribution date,
after giving effect to changes on that distribution date;
- the amount of any interest and expense draw on that distribution
date and the amount of any realized loss draw on that
distribution date, in each case with respect to both the group I
and group II notes;
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- for distribution dates during the Funding Period, the remaining
group I pre-funded amount and group II pre-funded amount on that
distribution date, after giving effect to changes during the
related collection period;
- with respect to the special redemption date, the amount of any
sums remaining on deposit in the group I or group II subsequent
loan sub-account that are either being transferred to the group I
or group II other student loan sub-account, as applicable, or are
being distributed to the applicable noteholders as a payment of
principal on that distribution date;
- for the first distribution date on or following the end of the
Funding Period, the amount of any remaining group I pre-funded
amount and group II pre-funded amount that has not been used to
make additional fundings with respect to the group I or group II
student loans and is being paid out to the related noteholders;
- the amount of any payments made under the group I basis risk cap
or the group II basis risk cap on that distribution date and the
aggregate amount, if any, owing to the cap provider for previous
payments under each of the basis risk caps;
- the amount of any payments made under the group II cap agreement
on that distribution date, and the aggregate of all amounts
received thereunder;
- the amount of any payments received or made by the trust under
the group I interest rate swap on that distribution date, and the
aggregate amount, if any, either owed to or owed by the swap
counterparty under the group I interest rate swap with respect to
amounts not paid or received by the trust on previous
distribution dates; and
- the amount of any draws on that distribution date made with
respect to each applicable class on the group II insured notes
guaranty insurance policy, the amount, if any, paid to the
securities insurer for Insured Payments on that distribution
date, and the aggregate amount, if any, owing to the securities
insurer for all unreimbursed Insured Payments made to the trust.
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TERMINATION
The obligations of the master servicer, the depositor, the
administrator, the eligible lender trustee, the seller and the indenture trustee
under the transfer and servicing agreements will terminate upon:
- the maturity or other liquidation of the last student loan and
the disposition of any amount received upon liquidation of any
remaining student loans;
- the payment to the holders of notes of all amounts required to
be paid to them under the transfer and servicing agreements;
and
- the payment of all amounts due and owing to the securities
insurer, the swap counterparty and the cap provider.
To avoid excessive administrative expense, the master servicer is
permitted at its option to repurchase from the eligible lender trustee, as of
the end of any collection period immediately preceding a distribution date, if
the then outstanding aggregate Pool Balance is 10% or less than the aggregate
group I and group II initial student loan Pool Balance plus the initial
principal balance of all subsequent student loans, all remaining student loans
at a price sufficient to retire the notes (including the repayment of any group
I and group II Noteholders' Interest Index Carryover) and pay all amounts due
and owing to the securities insurer, the swap counterparty and the cap provider.
Upon termination of the trust, all right, title and interest in the student
loans and other funds of the trust, after giving effect to any final
distributions to holders of notes, the securities insurer, the swap counterparty
and cap provider from the student loans, will be conveyed and transferred to the
certificateholder.
THE PUT OPTIONS AND AUCTION SALES
The Put Options. On the closing date the trust and the put option
provider will enter into the two put option agreements, one with respect to the
group I student loans and the other with respect to the group II student loans.
Under each of the put option agreements, any group I and group II student loans
remaining in the trust as of the end of the collection period immediately
preceding the [ ] distribution date are subject to the exercise of the group I
and group II put option, as applicable. With respect to the group I student
loans, the group I noteholders then entitled to exercise remedies under the
indenture (excluding for such purpose all group I notes owned by Key Bank USA,
National Association and its affiliates or agents appointed for that purpose),
may instruct the indenture trustee to exercise the group I put option on the
distribution date in [ ]. With respect to the group II student loans, the group
II noteholders then entitled to exercise remedies under the indenture (excluding
for such purpose all group II notes owned by Key Bank USA, National Association
and its affiliates or agents appointed for that purpose), may instruct the
indenture trustee to exercise the group II put option on the distribution date
in [ ]. On or before the distribution date that is three months prior to the
applicable put option exercise date, the indenture trustee (or the administrator
acting on its behalf) will contact the applicable noteholders to inform them of
the approach of the applicable put option exercise date, and request written
instructions from those noteholders as to whether they want the indenture
trustee to exercise the related put option on such date. If a majority of
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the applicable noteholders deliver written instructions to exercise the related
put option, the indenture trustee will exercise that put option, but only if the
put option exercise price (plus all amounts then on deposit in the group I or
group II reserve account, as applicable) is no less than the minimum acceptable
put option exercise price, as further described in the next two paragraphs. If
exercised, each put option will require the put option provider to purchase all
student loans remaining in the related group of student loans. The proceeds from
the exercise of the group I or group II put option will be used to redeem the
group I or group II notes, as applicable.
The minimum acceptable put option exercise price will be the aggregate
outstanding principal balance of the group I or group II notes (plus accrued and
unpaid interest payable on the applicable distribution date including any
related Noteholders' Interest Index Carryover) plus any amounts then owed to the
swap counterparty, the cap provider or the securities insurer, with respect to
the group I or group II notes, as applicable.
The put option exercise price for each of the put options is equal to
the fair market value of the group I or group II student loans on the applicable
put option exercise date, plus accrued interest thereon. For purposes of
determining the put option exercise price, fair market value will be determined
by the administrator (acting on behalf of the trust and the indenture trustee)
soliciting no fewer than three bids from dealers (which shall not include Key
Bank USA, National Association or any of its affiliates) then active in the
market for whole loan purchases of student loans for the group I or the group II
loans, as applicable (and for both the group I and group II loans as a single
sale if both put options are exercised and the administrator is able to obtain
higher aggregate prices by soliciting bids for the two groups together); after
the solicitation of these bids, the applicable determination of fair market
value will equal the lowest bid received that is at least equal to the minimum
acceptable put option exercise price minus all sums on deposit in the related
reserve account. However, if none of the three bids is equal to or greater than
the minimum acceptable put option exercise price minus all sums on deposit in
the related reserve account, fair market value will equal the highest of the
three bids received.
If the put option exercise price (plus all amounts then on deposit in
the related reserve account) is less than the minimum acceptable put option
exercise price, the indenture trustee will not be permitted to exercise the
related put option. In that event, the applicable noteholders may direct the
indenture trustee in writing to conduct one or more auction sales of the related
group of student loans on any subsequent distribution dates upon terms similar
to those described under " -- Auction Sales" below.
With respect to either group of notes, the likelihood of the put option
exercise price (plus all amounts then on deposit in related reserve account)
being at least equal to the minimum acceptable put option exercise price will be
reduced to the extent any substantial termination payment is owed to the swap
counterparty (with respect to the group I interest rate swap) or significant
amounts are owed to the cap provider (with respect to the related basis risk
cap) or to the securities insurer (with respect to the group II notes only).
If the indenture trustee is not directed by a majority of the requisite
noteholders to exercise the group I or group II put option, all distributions on
the group I or group II notes, as applicable, will continue to be made on each
succeeding distribution date in the manner provided
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above under "Description of the Securities -- Distributions -- Distributions
from the Collection Account." However, if the indenture trustee was directed to
exercise the related put option but, due to the related minimum acceptable put
option exercise price being greater than the related put option exercise price
(plus all amounts then on deposit in related reserve account), was not able to
exercise that put option, the Specified Collateral Balance for the related group
of notes will be reduced to zero for all subsequent distribution dates and all
Available Funds related to each group of notes remaining after applying such
amounts to pay the related portion of the master servicing fee, the related
portion of the administration fee, fees due to the securities insurer (with
respect to the group II notes only), and the related Noteholders' Interest
Distribution Amount, will be paid as principal to the holders of the related
group of notes, sequentially, until the outstanding principal balances of each
class of the notes of such group have been reduced to zero.
IF EITHER THE GROUP I OR GROUP II PUT OPTION IS NOT EXERCISED ON THE
RELATED PUT OPTION EXERCISE DATE (EITHER AS A RESULT OF THE FAILURE OF A
MAJORITY OF THE REQUISITE NOTEHOLDERS TO PROVIDE WRITTEN INSTRUCTIONS TO THE
INDENTURE TRUSTEE OR BECAUSE THE RELATED PUT OPTION EXERCISE PRICE (PLUS ALL
AMOUNTS THEN ON DEPOSIT IN THE GROUP I OR GROUP II RESERVE ACCOUNT, AS
APPLICABLE) IS LESS THAN THE MINIMUM ACCEPTABLE PUT OPTION EXERCISE PRICE)), THE
NON-EXERCISED GROUP I OR GROUP II PUT OPTION, AS APPLICABLE, WILL BECOME NULL
AND VOID AND MAY NOT BE EXERCISED ON ANY SUBSEQUENT DATE BY ANY PARTY.
Auction Sales. If either the group I or group II put option is
defaulted on by the put option provider or if the related put option exercise
price (plus all amounts then on deposit in the group I or group II reserve
account, as applicable) is less than the minimum acceptable put option exercise
price and the applicable noteholders direct the indenture trustee in writing to
do so, the related group of student loans will be offered for sale to
third-party bidders by the indenture trustee on or before the next succeeding
distribution date. In that event, neither Key Bank USA, National Association nor
any of its affiliates or agents appointed for that purpose may offer bids to
purchase the student loans. The indenture trustee will auction the student loans
in the aggregate as one pool (if both put options were exercised) and also as
separate pools of student loans. We can give you no assurance that one bid for
all the student loans, a combination of bids for two separate pools, or one bid
for any separate pool comprising the student loans, will be equal to or greater
than the related minimum purchase amounts described below. If at least two bids
are received either for the combined pool or any separate pool of group I and/or
group II student loans, the indenture trustee will solicit and resolicit bids
from all participating bidders until only one bid for each such pool remains or
the remaining bidders decline to resubmit bids. The indenture trustee will
accept the highest of the remaining bids (or the combination of the highest bid
for each pool if two pools of student loans are being sold separately), if any
single bid (or the sum of the two highest bids) are equal to or in excess of the
applicable minimum purchase amount.
The minimum purchase amount for each group of student loans is equal to
the greatest of:
- the aggregate unpaid principal balance owed by the applicable
borrowers on the group of student loans plus accrued interest
to the date of purchase less the amount on deposit in the
applicable reserve account as of that date;
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- the fair market value of the student loans as of the end of
the collection period immediately preceding the applicable
distribution date; and
- the sum of (a) the aggregate unpaid principal amount of the
related group of notes plus accrued and unpaid interest
thereon payable on such distribution date plus any related
Noteholders' Interest Index Carryover and (b) the amounts due
and owing to the securities insurer, the swap counterparty
(including any termination payments) and the cap provider.
If at least two bids are not received or the highest bid for all the
student loans (or combination of the two highest bids for two separate groups of
student loans) after the resolicitation process is completed is not equal to or
in excess of the related minimum purchase amounts, the indenture trustee will
not consummate the sale. However, if the minimum purchase amount with respect to
either the group I or group II student loans, as applicable, is bid, the
indenture trustee will accept the bid and sell only that group of student loans.
In addition, the indenture trustee will not accept any bid from a prospective
purchaser, unless the prospective purchaser agrees to pay all, if any,
deconversion fees owed to a sub-servicer if the purchaser's bid is accepted and
it chooses to replace a sub-servicer as the servicer of the student loans it is
purchasing.
In connection with the determination of the minimum purchase amount,
the indenture trustee may consult and, with respect to the group II student
loans only, at the direction of the securities insurer, provided a securities
insurer default has not occurred and is continuing, will consult with a
financial advisor, including the underwriters, to determine if the fair market
value of the student loans has been offered. The net proceeds of any sale will
be used to redeem any outstanding notes of the related group on the applicable
distribution date. If the sale is not consummated, the indenture trustee, at the
direction the holders of the related group of notes then entitled to exercise
remedies under the indenture (excluding notes held by Key Bank USA, National
Association or its affiliates), will solicit bids to purchase the applicable
group of student loans on future distribution dates on terms similar to those
described above. We can give you no assurance as to whether the indenture
trustee will be successful in soliciting acceptable bids to purchase the student
loans on either the [ ] distribution date or any subsequent distribution date.
If an auction sale fails and a group of student loans are not sold as
described above, on each distribution date on and after the [ ] distribution
date, the Specified Collateral Balance for the related group of notes will be
reduced to zero and all Available Funds related to each group of notes remaining
after applying such amounts to pay the related portion of the master servicing
fee, the related portion of the administration fee, fees due to the securities
insurer (with respect to the group II notes only), and the related Noteholders'
Interest Distribution Amount, will be paid as principal to the holders of the
related group of notes, sequentially, until the outstanding principal balances
of each class of the notes of that group have been reduced to zero. The group I
interest rate swap will terminate upon the consummation of a successful auction
and the swap counterparty may be owed a termination payment with respect to the
group I interest rate swap that may be substantial. The likelihood of receiving
a bid at least equal to the related minimum purchase amount will be reduced to
the extent any substantial termination payment is owed to the swap counterparty
(with respect to the group I student loans only) or
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significant amounts are owed to the cap provider (with respect to either basis
risk cap) or to the securities insurer (with respect to the group II student
loans only).
ADMINISTRATOR
Key Bank USA, National Association, in its capacity as administrator,
will enter into the administration agreement with the trust and the indenture
trustee, and the sale and servicing agreement with the trust, the depositor, the
master servicer and the eligible lender trustee. For a description of the
administrator's duties, see "Description of the Transfer and Servicing
Agreements -- Administrator" in the prospectus.
As compensation for the performance of the administrator's obligations
under the administration agreement and the sale and servicing agreement and as
reimbursement for its related expenses, the administrator will be entitled to an
administration fee in an amount equal to $[ ] per quarter, to be allocated pro
rata between the group I and group II notes based on their aggregate outstanding
principal balances on each related distribution date.
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY
AND THE SECURITIES INSURER
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY
The following information has been supplied by [ ] for inclusion in
this prospectus supplement. The securities insurer does not accept any
responsibility for the accuracy or completeness of this prospectus supplement or
the accompanying prospectus or any information or disclosure contained herein,
or omitted herefrom, other than with respect to the accuracy of the information
regarding the group II insured notes guaranty insurance policy and the
securities insurer set forth under the heading "The Group II Insured Notes
Guaranty Insurance Policy and the Securities Insurer" herein. Additionally, the
securities insurer makes no representation regarding the group II notes or the
advisability of investing in any class of group II notes.
The securities insurer, in consideration of the payment of a premium
and subject to the terms of the group II insured notes guaranty insurance
policy, thereby unconditionally and irrevocably guarantees to any holder of a
group II insured note that an amount equal to each full and complete Insured
Payment will be received from the securities insurer by the indenture trustee or
its successors, as trustee for the holder of a group II insured note, on behalf
of the holder of a group II insured note, for distribution by the indenture
trustee to each holder of a group II insured note of such holder's proportionate
share of the Insured Payment.
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY DOES NOT INSURE
ANY PAYMENTS WHATSOEVER WITH RESPECT TO THE GROUP I NOTES, THE CLASS [ ] NOTES,
OR THE CLASS [ ] NOTES. ONLY THE HOLDERS OF THE GROUP II INSURED NOTES ARE
ENTITLED TO THE BENEFITS OF THE GROUP II INSURED NOTES GUARANTY INSURANCE
POLICY.
The securities insurer's obligations under the group II insured notes
guaranty insurance policy, with respect to a particular Insured Payment, will be
discharged to the extent funds equal
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to the applicable Insured Payment are received by the indenture trustee whether
or not those funds are properly applied by the indenture trustee. Insured
Payments will be made only at the time set forth in the group II insured notes
guaranty insurance policy and no accelerated Insured Payments will be made
regardless of any acceleration of any class of group II notes, unless such
acceleration is at the sole option of the securities insurer.
Notwithstanding the foregoing paragraph, the group II insured notes
guaranty insurance policy does not cover shortfalls, if any, attributable to the
liability of the trust, or the indenture trustee, for withholding taxes, if any
(including interest and penalties in respect of any liability for withholding
taxes). The group II insured notes guaranty insurance policy does not cover, and
Insured Payments will not include, any group II Noteholders' Interest Index
Carryover.
The securities insurer will pay any Insured Payment that is a
PREFERENCE AMOUNT on the business day following receipt on a business day by the
securities insurer's fiscal agent of the following:
- a certified copy of the order requiring the return of a
preference payment;
- an opinion of counsel satisfactory to the securities insurer
that the order is final and not subject to appeal;
- an assignment in a form reasonably required by the securities
insurer, irrevocably assigning to the securities insurer all
rights and claims of the holder of a group II insured note,
relating to or arising under the group II insured notes,
against the debtor which made the preference payment or
otherwise with respect to the preference payment; and
- appropriate instruments to effect the appointment of the
securities insurer as agent for the holder of a group II
insured note, in any legal proceeding related to the
preference payment, which instruments are in a form
satisfactory to the securities insurer;
provided that if these documents are received after 12:00 p.m., New York time,
on that business day, they will be deemed to be received on the following
business day. Payments by the securities insurer will be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the holder of a group II insured note, and
not to any holder of a group II insured note directly, unless the holder of a
group II insured note has returned principal or interest paid on the group II
insured notes to the receiver or trustee in bankruptcy, in which case that
payment will be disbursed to the related holder of a group II insured note.
The securities insurer will pay any other amount payable under the
group II insured notes guaranty insurance policy no later than 12:00 p.m. New
York time, on the later of the distribution date on which the related DEFICIENCY
AMOUNT is due or the third business day following receipt in New York, New York
on a business day by [U.S. Bank Trust National Association], as fiscal agent for
the securities insurer, or any successor fiscal agent appointed by the
securities insurer of a notice from the indenture trustee, specifying the
Insured Payment which is due and owing on the applicable distribution date;
provided that if the notice is received after 12:00 p.m., New York time, on that
business day, it will be deemed to be received on the
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following business day. If any notice received by the securities insurer's
fiscal agent is not in proper form or is otherwise insufficient for the purpose
of making a claim under the group II insured notes guaranty insurance policy, it
will be deemed not to have been received by the securities insurer's fiscal
agent for purposes of this paragraph, and the securities insurer or the fiscal
agent, as the case may be, will promptly so advise the indenture trustee, and
the indenture trustee may submit an amended notice.
Insured Payments due under the group II insured notes guaranty
insurance policy, unless otherwise stated therein, will be disbursed by the
securities insurer's fiscal agent to the indenture trustee, on behalf of the
holder of a group II insured note, by wire transfer of immediately available
funds in the amount of the Insured Payment less, in respect of Insured Payments
related to Preference Amounts, any amounts held by the indenture trustee for the
payment of the Insured Payment and legally available therefor.
The fiscal agent is the agent of the securities insurer only and the
fiscal agent will in no event be liable to a holder of a group II insured note
for any acts of the fiscal agent or any failure of the securities insurer to
deposit, or cause to be deposited, sufficient funds to make payments due under
the group II insured notes guaranty insurance policy.
Subject to the terms of the indenture, the securities insurer will be
subrogated to the rights of each holder of a group II insured note to receive
payments under the group II insured notes to the extent of any payment by the
securities insurer under the group II insured notes guaranty insurance policy.
Capitalized terms used in the group II insured notes guaranty insurance
policy and not otherwise defined in the group II insured notes guaranty
insurance policy will have the meanings set forth in the sale and servicing
agreement, as of the date of execution of the group II insured notes guaranty
insurance policy, without giving effect to any subsequent amendment to or
modification of the sale and servicing agreement, unless such amendment or
modification has been approved in writing by the securities insurer.
The group II insured notes guaranty insurance policy is not cancelable
for any reason, except by delivery to the indenture trustee of a replacement
policy in accordance with the indenture and provided that the group II insured
notes guaranty insurance policy will remain in effect with respect to any claims
for Insured Payments relating to Preference Amounts resulting from distributions
made on the group II insured notes prior to the effective date of the
cancellation of the group II insured notes guaranty insurance policy. The
premium on the group II insured notes guaranty insurance policy is not
refundable for any reason, including payment, or provision being made for
payment, prior to maturity of the group II insured notes.
THE GROUP II INSURED NOTES GUARANTY INSURANCE POLICY IS BEING ISSUED
UNDER AND PURSUANT TO, AND WILL BE CONSTRUED UNDER, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
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The insurance provided by the group II insured notes guaranty insurance
policy is not covered by the Property/Casualty Insurance Security Fund specified
in Article 76 of the New York Insurance Law.
DESCRIPTION OF THE SECURITIES INSURER
[DESCRIPTION OF SECURITIES INSURER TO BE INSERTED IN EACH PROSPECTUS
SUPPLEMENT]
FINANCIAL STRENGTH RATINGS OF THE SECURITIES INSURER
Moody's rates the financial strength of the securities insurer "[ ]."
S&P rates the financial strength of the securities insurer "[ ]."
Fitch Ratings rates the financial strength of the securities insurer
"[ ]."
Each rating of the securities insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the securities insurer and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold any
class of the group II insured notes, and the ratings may be subject to revision
or withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of any of the above ratings may have an adverse effect on the market
price of the group II insured notes. The securities insurer does not guaranty
the market price of any class of the group II insured notes nor does it guaranty
that the ratings on any class of the group II insured notes will not be revised
or withdrawn.]
INCOME TAX CONSEQUENCES
Thompson Hine LLP, federal tax counsel to the trust ("Federal Tax
Counsel"), is of the opinion that, for federal income tax purposes: (i) the
trust will not be classified as an association (or publicly traded partnership)
taxable as a corporation; (ii) the class [ ] notes, class [ ] notes, class [ ]
notes, class [ ] notes, class [ ] notes and class [ ] notes, will be
characterized as debt; and (iii) the class [ ] notes and class [ ] notes will be
characterized as a single debt obligation. Federal Tax Counsel's opinion in
clause (iii) in the immediately preceding sentence is based on the understanding
that one person will acquire at original issuance both the class [ ] notes and
the class [ ] notes in their entirety, that such person intends to hold
beneficial ownership of each such class of notes indefinitely for investment,
that such person has agreed that it will subsequently sell its interest in such
notes only through a sale of a pro-rata share of its interest in each such
Class, and such person and the trustee have agreed to treat the two classes of
notes as a single debt obligation for all federal tax purposes.
Kirkpatrick & Lockhart LLP, Pennsylvania tax counsel ("Pennsylvania Tax
Counsel") is of the opinion that, assuming the notes are debt for federal income
tax purposes, the notes will be debt for Pennsylvania income tax purposes.
Moreover, Pennsylvania Tax Counsel is of the opinion that the entity
classification of the trust for Pennsylvania state income
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tax purposes would be the same as the entity classification of the trust for
federal income tax purposes.
The depositor, Key Bank USA, National Association, the master servicer
and the certificateholder will agree to treat the trust as a division of Key
Bank USA, National Association (or the certificateholder) for purposes of
federal, state and local income and franchise tax with the assets of the trust
being held by Key Bank USA, National Association (or the certificateholder), the
notes being debt of Key Bank USA, National Association (or the
certificateholder), and the trust being disregarded as an entity separate from
Key Bank USA, National Association (or the certificateholder).
If the trust were held to be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes, rather
than a disregarded entity, the trust would be subject to a corporate level
income tax. Any such corporate income tax could materially reduce or eliminate
cash that would otherwise be available to make payments on the notes.
We recommend that investors carefully review the information under the
caption "Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and/or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), prohibit a pension, profit-sharing or other employee
benefit plan, as well as individual retirement accounts, and certain types of
Keogh Plans, and other plans subject to Section 4975 of the Code (each a
"Benefit Plan") from engaging in certain transactions with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code with
respect to such Benefit Plan. A violation of these "prohibited transaction"
rules may result in an excise tax or other penalties and liabilities under ERISA
and the Code for such persons. Title I of ERISA also requires that fiduciaries
of a Benefit Plan subject to ERISA make investments that are prudent,
diversified (except if prudent not to do so) and in accordance with governing
plan documents.
Certain transactions involving the purchase, holding or transfer of the
notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the trust were deemed to be assets of a Benefit Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined under
the Plan Assets Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. The notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. However, 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 Benefit Plan could be
considered to give rise to a prohibited transaction if the trust, the trustee or
the indenture trustee, the seller, the depositor, the owner of collateral, or
any of their respective affiliates is or becomes a party in interest or a
disqualified person with respect to such Benefit Plan. In such case, certain
exemptions from the prohibited
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transaction rules could be applicable depending on the type and circumstances of
the plan fiduciary making the decision to acquire a note. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 96-23, regarding
transactions effected by in-house asset managers; and PTCE 84-14, regarding
transactions effected by "qualified professional asset managers."
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
The purchaser of notes is deemed to have represented that either: (A)
the purchaser is not acquiring the notes directly or indirectly for, or on
behalf of, a Benefit Plan or any entity whose underlying assets are deemed to be
plan assets of such Benefit 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 some other
applicable exemption.
A plan fiduciary considering the purchase of notes should consult its
tax and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement
relating to the notes, the depositor has agreed to cause the trust to sell to
the underwriters named below, and each of the underwriters has severally agreed
to purchase, the principal or notional amount, as applicable, of class [ ]
notes, class [ ] notes, class [ ] notes, class [ ] notes, class [ ] notes, class
[ ] notes, class [ ] notes and class [ ] notes set forth opposite its name:
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS [ ] CLASS [ ] CLASS [ ]
UNDERWRITER NOTES NOTES NOTES TOTAL
- ----------- ----- ----- ----- -----
[ ] $[ ] $[ ] $[ ] $[ ]
[ ] $[ ] $[ ] $[ ] $[ ]
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PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF PRINCIPAL NOTIONAL AMOUNT PRINCIPAL
CLASS [ ] CLASS [ ] AMOUNT OF OF CLASS AMOUNT OF CLASS
UNDERWRITER NOTES NOTES CLASS [ ] NOTES [ ] NOTES [ ] NOTES TOTAL
- ----------- ----- ----- --------------- --------- --------- -----
[ ] $[ ] $[ ] $[ ] (1) $[ ] $[ ]
[ ] $[ ] $[ ] $[ ] $[ ] $[ ] $[ ]
- ----------------
(1) Initial notional principal amount equal to $[ ].
In the underwriting agreement, the underwriters have agreed, subject to
its terms and conditions, to purchase all the notes offered by this prospectus
supplement if any of the notes are purchased. The depositor has been advised by
the underwriters that the underwriters propose initially to offer the notes to
the public at the respective public offering prices set forth on the cover page
of this prospectus supplement, and to certain dealers at such prices less a
concession not in excess of [ ]% per class [ ] note, [ ]% per class [ ] note, [
]% per class [ ] note, [ ]% per class [ ] note, [ ]% per class [ ] note, [ ]%
per class [ ] note and [ ]% per class [ ] note. The Underwriters may allow and
such dealers may reallow to other dealers a discount not in excess of [ ]% per
class [ ] note, [ ]% per class [ ] note, [ ]% per class [ ] note, [ ]% per class
[ ] note, [ ]% per class [ ] note, [ ]% per class [ ] note and [ ]% per class [
] note. After the initial public offering, such public offering prices,
concessions and reallowances may be changed.
Distribution of the class [ ] notes will be made by [ ] from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to the seller from the sale of the class [ ] notes
are expected to be approximately $[ ]. In connection with the purchase and sale
of the class [ ] notes, [ ] may be deemed to have received compensation in the
form of underwriting discounts.
With respect to the notes, other than the class [ ] notes, the
representative, on behalf of the underwriters, may engage in over-allotment,
stabilizing transactions, syndicate covering transactions and penalty bids in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the representative to
reclaim a selling concession from a syndicate member when the notes originally
sold by such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions. These over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the notes, other than the class [ ] notes, to be higher than it would
otherwise be in the absence of these transactions. These transactions, if
commenced, may be discontinued at any time.
Out of pocket expenses for this offering are estimated to be
approximately $[ ].
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The notes are a new issue of securities with no established trading
market. Neither the depositor nor Key Bank USA, National Association intends to
apply for listing of any class of the notes on a national securities exchange,
but each has been advised by [ ] that it intends to, and by [ ] ("[ ]") that it
may, make a market in the notes. The underwriters are not obligated, however, to
make a market in any class of the notes and may discontinue market-making at any
time without notice. We can give you no assurance as to the liquidity of the
trading market for any class of the notes.
The underwriting agreement provides that the depositor and Key Bank
USA, National Association will indemnify the underwriters against certain
liabilities, including liabilities under applicable securities laws, or
contribute to payments the underwriters may be required to make in respect
thereof.
The trust may, from time to time, invest the funds in the trust
accounts in eligible investments acquired from the underwriters.
[ ] is engaged from time to time by KeyCorp, the parent corporation of
Key Bank USA, National Association, to provide investment banking services.
After the initial distribution of the notes by the underwriters, this
prospectus supplement may be used by [ ], or its successors, in connection with
offers and sales relating to market-making transactions in the notes. [ ] may
act as principal or agent in such transactions, but has no obligation to do so.
[ ] is a member of the New York Stock Exchange, Inc. Such transactions will be
at prices related to prevailing market prices at the time of sale.
Key Bank USA, National Association has also agreed to pay the
underwriters a structuring fee equal to $[ ].
EXPERTS
The balance sheet of KeyCorp Student Loan Trust [ ], as of [ ],
appearing as part of Appendix A in this prospectus supplement, and incorporated
by reference into the registration statement, has been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing as
part of Appendix A to this prospectus supplement, and incorporated by reference
into the registration statement. Such financial statement is included herein,
and incorporated by reference into the registration statement, in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The consolidated balance sheets of [securities insurer] and its
subsidiaries as of [December 31, 2003], [December 31, 2002] and [December 31,
2001] and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended [December 31, 2003] incorporated by reference in this prospectus
supplement have been incorporated herein in reliance on the report of [ ],
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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LEGAL MATTERS
Certain legal matters relating to the securities will be passed upon
for the trust, the seller and the administrator by Forrest F. Stanley, Esq.,
Associate General Counsel and Senior Vice President of KeyBank National
Association, as counsel for the seller, and by Thompson Hine LLP, Cleveland,
Ohio and for the underwriters by McKee Nelson LLP, New York, New York. Certain
federal income tax and other matters will be passed upon for the trust by
Thompson Hine LLP. Certain Pennsylvania state income tax matters will be passed
upon for the trust by [Kirkpatrick & Lockhart LLP]. In addition, certain
Delaware law and other matters will be passed upon for the trust by [Pepper
Hamilton LLP].
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GLOSSARY
"AVAILABLE FUNDS" means, with respect to each of the group I and group
II notes (referred to as "GROUP I AVAILABLE FUNDS" and "GROUP II AVAILABLE
FUNDS," respectively), and any distribution date or any 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 thereof) and allocated to either the Group I Available
Funds or the Group II Available Funds (but not both), to the extent not
previously distributed:
- all collections received by the master servicer (or the
sub-servicers) on the group I or group II student loans, as
the case may be, but net of (x) with respect to the group I
student loans only, any federal origination fee and federal
consolidation loan rebate payable to the Department of
Education on federal consolidation loans disbursed after
October 1, 1993, (y) any applicable administrative fees, late
fees or similar fees received from a borrower, and (z) any
collections in respect of principal on the group I or group
II student loans, as the case may be, applied by the trust to
repurchase guaranteed loans from the guarantors in accordance
with the guarantee agreements;
- any interest subsidy payments and special allowance payments
received by the eligible lender trustee during the then
elapsed portion of such collection period with respect to
group I student loans;
- all Liquidation Proceeds and all RECOVERIES in respect of
liquidated student loans which were written off in prior
collection periods or prior months of such collection period;
- the aggregate purchase amounts received for those group I or
group II student loans repurchased by the depositor (or Key
Bank USA, National Association on its behalf) or purchased by
the master servicer under an obligation which arose during
the elapsed portion of such collection period;
- the aggregate amounts, if any, received from the depositor
(or Key Bank USA, National Association on its behalf) or the
master servicer (or a sub-servicer), as the case may be, as
reimbursement of unguaranteed interest amounts, or lost
interest subsidy payments and special allowance payments,
with respect to the group I student loans;
- amounts deposited by the depositor (or Key Bank USA, National
Association on its behalf) into the collection account in
connection with the making of consolidation loans;
- with respect to the first distribution date, the closing date
deposit into each sub-account of the collection account;
- investment earnings for that distribution date with respect
to each of the trust accounts relating to the group I and
group II student loans;
- amounts withdrawn from the group I or group II reserve
account in excess of the related Specified Reserve Account
Balance and deposited into the applicable sub-account of the
collection account;
- amounts withdrawn from the group I or group II escrow account
and deposited into the applicable sub-account of the
collection account;
- with respect to the distribution date on or immediately after
the end of the Funding Period with respect to either the
group I or group II student loans, the
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amount transferred from the group I or group II pre-funding
account, as the case may be, to the applicable sub-account of
the collection account; and
- any trust swap receipt amount received from the swap
counterparty with respect to the related interest period and
any termination payment with respect to the group I interest
rate swap made by the swap counterparty to the trust.
Group I and Group II Available Funds will exclude all payments and
proceeds (including Liquidation Proceeds) of any student loans, the related
purchase amounts of which have been included in the Group I and Group II
Available Funds, as applicable, for a prior distribution date. If on any
distribution date there would not be sufficient funds, after application of
Group I and Group II Available Funds, as the case may be, plus amounts available
from the applicable reserve account and the applicable pre-funding account to
pay any of the items specified in clauses (1) and (2), or clauses (1) through
(4), respectively, under " -- Distributions from the Collection Account -- Group
I Notes" or " -- Group II Notes," respectively, for that distribution date, then
Group I or Group II Available Funds, as the case may be, for that distribution
date will also include, in addition to the related Available Funds on deposit in
the applicable sub-account of the collection account on the determination date
relating to that distribution date, Group I or Group II Available Funds, as
applicable, which would have constituted Group I and Group II Available Funds
for the distribution date succeeding that distribution date (up to the amount
necessary to pay such items specified in clauses (1) and (2), or clauses (1)
through (4), respectively, under " -- Distributions from the Collection Account
- -- Group I Notes" or " -- Group II Notes," respectively, below).
In addition, if there is any Noteholders' Interest Index Carryover
relating to the group I notes or the group II notes, other than the class [ ]
notes, as the case may be, with respect to any interest period, the cap provider
will be obligated under the group I basis risk cap or the group II basis risk
cap, as applicable, to pay to the indenture trustee an amount equal to such
Noteholders' Interest Index Carryover for distribution to the applicable group I
or group II noteholders on the related distribution date.
The "CUMULATIVE DEFAULT PERCENTAGE" of (1) the group I student loans is
calculated by dividing (x) the aggregate total dollar amount of claims paid,
including accrued interest, with respect to the group I student loans, by (y)
the sum of (i) the original Group I Pool Balance and (ii) the original principal
balance of all additional student loans that are group I student loans and, if
applicable, any related cumulative capitalized interest, and other principal
adjustments with respect to the group I student loans, less (iii) the
outstanding principal balance of all group I student loans repurchased by the
seller, the master servicer or the related sub-servicer, and (2) the group II
student loans is calculated by dividing (x) the sum of (A) the aggregate total
dollar amount of claims paid on guaranteed private loans, including accrued
interest thereon, plus (B) the aggregate total dollar amount of charge-offs on
unguaranteed private loans (not including for such purpose any subsequent
recoveries on those unguaranteed private loans), by (y) the sum of (i) the
original Group II Pool Balance and (ii) the original principal balance of all
additional student loans that are group II student loans and, if applicable, any
related cumulative capitalized interest, and other principal adjustments with
respect to the group II student loans, less (iii) the outstanding principal
balance of all group II student loans, as applicable, repurchased by the seller,
the master servicer or the related sub-servicer.
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"DEFICIENCY AMOUNT" means (a) as of any distribution date, the excess,
if any, of (1) the aggregate Noteholders' Interest Distribution Amount for the
group II insured notes on that distribution date, over (2) Group II Available
Funds allocated and distributable to the group II insured notes for payment of
the related Noteholders' Interest Distribution Amount on that distribution date,
plus the application of any amounts available on that distribution date to cover
such payments from amounts on deposit in the group II reserve account and the
group II pre-funding account, and (b) on the final maturity date for the class [
] notes, the class [ ] notes or the class [ ] notes, as applicable, the class [
] outstanding principal amount, the class [ ] outstanding principal amount or
the class [ ] outstanding principal amount, as applicable, in each case after
giving effect to any distributions on that date and the application of any
amounts available on that distribution date to cover such payments, including
but not limited to amounts on deposit in the group II reserve account.
"DTC" means the Depository Trust Company.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated account with
an ELIGIBLE INSTITUTION or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution have a credit rating from each
rating agency in one of its generic rating categories which signifies investment
grade and is acceptable to the securities insurer, (c) an account or accounts
maintained with KeyBank National Association, so long as KeyBank National
Association's long-term unsecured debt rating shall be at least "[ ]" from S&P
and "[ ] " from Moody's, and KeyBank National Association's short-term deposit
or short-term unsecured debt rating shall be at least "[ ] " from S&P and "[ ] "
from Moody's, or (d) any other account that is acceptable to the rating agencies
and the securities insurer. Any such accounts may be maintained with Key Bank
USA, National Association or any of its affiliates, if those accounts qualify
under the preceding sentence, but at all times when any of these accounts are
held at Key Bank USA, National Association or any of its affiliates, these
accounts will be segregated accounts.
"ELIGIBLE INSTITUTION" means a depository institution (which may be,
without limitation, Key Bank USA, National Association or its affiliate (but
only if all rights of set-off have been waived), the eligible lender trustee, or
an affiliate thereof, or the indenture trustee or an affiliate thereof)
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia (or any domestic branch of a foreign
bank) which has a long-term unsecured debt rating and/or a short-term unsecured
debt rating acceptable to the securities insurer and the rating agencies and the
deposits of which are insured by the Federal Deposit Insurance Corporation (or
FDIC).
"EXPECTED INTEREST COLLECTIONS" means, with respect to each group of
student loans and any collection period, the sum of
- the amount of interest accrued, net (in the case of the group
I student loans) of amounts required by the Higher Education
Act to be paid to the Department of
S-135
Education or to be repaid to borrowers, with respect to the
student loans for that collection period (whether or not such
interest is actually paid);
- all interest subsidy payments and special allowance payments
expected to be received by the eligible lender trustee for
that collection period (whether or not actually received)
with respect to the group I student loans only; and
- investment earnings for such collection period.
"FUNDING PERIOD" for each group of student loans means the period from
the closing date until the first to occur of:
- an event of default occurring under the indenture, a master
servicer default occurring under the sale and servicing
agreement or an administrator default occurring under the sale
and servicing agreement or the administration agreement;
- certain events of insolvency with respect to the seller or the
depositor;
- the (i) date on which the amounts on deposit in the group I or
group II pre-funding account, as applicable, would be reduced
to zero after giving effect to purchases of other student
loans on such date or (ii) business day prior to the earliest
effective date of any amendment to FASB 140 (Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities) or any other relevant or
related accounting literature that is issued, the effect of
which would amend the criteria defining a qualifying special
purpose entity or its permitted activities; or
- the last day of the collection period preceding the [ ]
distribution date.
"GROUP I POOL BALANCE" means, at any time and with respect to the group
I student loans, and the "GROUP II POOL BALANCE" means, at any time and with
respect to the group II student loans, the aggregate principal balance of the
group I or group II student loans, respectively, at the end of the preceding
collection period (including accrued interest thereon for such collection period
to the extent such interest will be capitalized upon commencement of repayment),
after giving effect to the following without duplication:
- all payments received by the trust related to the group I or
group II student loans, as applicable, during such collection
period from or on behalf of borrowers, guarantors and, with
respect to group I student loans, certain payments on certain
federal loans by the Department of Education;
- all purchase amounts received by the trust related to the
group I or group II student loans, as applicable for such
collection period from the depositor (or Key Bank USA,
National Association on its behalf), the master servicer or
the sub-servicers;
- all additional fundings made from the group I or group II
escrow account, as applicable, and the group I or group II
pre-funding account, as applicable, with respect to such
collection period; and
- all losses realized on the group I or group II student loans,
as applicable, liquidated during such collection period.
S-136
"INSURED PAYMENT" means (a) as of any distribution date, any Deficiency
Amount and (b) any Preference Amount.
"KEY CAREERLOAN" means a student loan originated by Key Bank USA,
National Association, under its Key CareerLoan program.
"LIQUIDATION PROCEEDS" means all proceeds of the group I or group II
student loans, as the case may be, which were liquidated during the then elapsed
portion of the collection period in accordance with the master servicer's (or
the sub-servicers') respective customary servicing procedures, net of expenses
incurred by the master servicer (or the sub-servicers) in connection with the
liquidation and any amounts required by law to be remitted to the borrower on
those liquidated student loans (and not including any guarantee payments
received with respect thereto).
"MOODY'S" means Moody's Investors Service, Inc.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to any
distribution date and any class of notes, the excess of (x) the sum of the
Noteholders' Interest Distribution Amount for that class of notes on the
preceding distribution date over (y) the amount of interest actually distributed
to the holders of such class of notes on that preceding distribution date, plus
interest on the amount of such excess interest due to the holders of that class
of notes, to the extent permitted by law, at (1) the weighted average of the
applicable interest rates, in the case of the class [ ] notes of each group of
notes, and (2) the interest rate for each class of the class [ ] notes, in the
case of the class [ ] notes of each group of notes, in each case from such
preceding distribution date to the current distribution date; but with respect
to the group II insured notes, any Noteholders' Interest Carryover Shortfall
shall be less all amounts paid to the holder of such class or classes for
payments of interest by the securities insurer under the group II insured notes
guaranty insurance policy.
"NOTEHOLDERS' INTEREST DISTRIBUTION AMOUNT" means, with respect to any
distribution date and any class of notes, the sum of (a) the aggregate amount of
interest accrued at the respective interest rate for the related interest period
on the outstanding principal balance or notional amount, as applicable, of such
class of the notes on the immediately preceding distribution date after giving
effect to all principal distributions, or allocations, as applicable, to such
noteholders on such date (or, in the case of the first distribution date, on the
closing date) and (b) any NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL for such
class and that distribution date, except that the Noteholders' Interest
Distribution Amount will not include any Noteholders' Interest Index Carryover
for that class with respect to each class of notes other than the class [ ]
notes.
"NOTEHOLDERS' INTEREST INDEX CARRYOVER" means, with respect to any
class of notes (other than the class [ ] notes), the excess of Three Month LIBOR
plus the applicable margin during any interest period over the related Student
Loan Rate.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTION AMOUNT" for each group of notes
means, with respect to any distribution date, the Principal Distribution Amount
for that group of notes and that distribution date; provided, however, that the
Noteholders' Principal Distribution Amount for the group I notes or the group II
notes (other than the class [ ] notes) will not exceed the outstanding
S-137
principal balance of the group I notes or the group II notes (other than the
class [ ] notes), respectively. In addition, (a) on the final maturity date for
each class of notes (other than the class [ ] notes), the principal required to
be distributed to such class of notes will include the amount required to reduce
the outstanding principal balance of such class of notes to zero, and (b) on the
related distribution date following either an exercise of the applicable put
option or, upon a default by the put option provider, a sale of the related
group I or group II student loans, as applicable, in the manner described under
"Description of the Transfer and Servicing Agreements -- The Put Options and
Auction Sales", the principal required to be distributed to the holders of the
group I or group II notes (other than the class [ ] notes), as applicable, will
include the amount required to reduce the outstanding principal balance of all
outstanding group I notes or the group II notes (other than the class [ ]
notes), as applicable to zero.
A "NOTE PARITY TRIGGER" will have occurred, on the last day of any
collection period relating to and after the stepdown date for the group I or
group II notes, as the case may be, if the outstanding principal amount of the
group I notes or the group II notes, as applicable, exceeds the sum of the Group
I or Group II Pool Balance, as the case may be, plus in either case the balance
of the related reserve account. A Note Parity Trigger will remain in effect for
so long as the outstanding principal amount of the group I notes or the group II
notes, as applicable, exceeds the sum of the Group I or Group II Pool Balance,
as the case may be, plus in either case the balance of the related reserve
account.
"POOL BALANCE" means the Group I Pool Balance and the Group II Pool
Balance, collectively.
"PREFERENCE AMOUNT" means any amount previously distributed to a holder
of a group II insured note that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to the group I
notes or the group II notes, other than the class [ ] notes, and any
distribution date, the amount by which the sum of the outstanding principal
balance of the group I notes or the group II notes, other than the class [ ]
notes, as the case may be, exceeds the related Specified Collateral Balance for
that distribution date.
A "PRIVATE GRADUATE LOAN TRIGGER EVENT" will have occurred with respect
to the group II student loans on any distribution date when: (1) a [TERI TRIGGER
EVENT] or (2) an UNGUARANTEED PRIVATE GRADUATE LOAN TRIGGER EVENT has occurred.
"RECOVERIES" means, with respect to any liquidated student loan, moneys
collected in respect thereof, from whatever source, during any collection period
following the collection period in which the student loan was liquidated, net of
the sum of any amounts expended by the master servicer (or any sub-servicer
acting on its behalf) for the account of any related borrower on the student
loan and any amounts required by law to be remitted to the borrower on the
student loan.
S-138
"REFERENCE BANK" means a leading bank (a) engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, (b) not
controlling, controlled by or under common control with the administrator and
(c) having an established place of business in London.
"S&P" means Standard and Poor's, a division of The McGraw-Hill
Companies Inc.
"SPECIFIED COLLATERAL BALANCE" means, with respect to the group I
student loans or group II student loans and any distribution date, the sum of
(a) the Group I Pool Balance or the Group II Pool Balance, as applicable, as of
the last day of the related collection period plus (b) the group I pre-funded
amount or the group II pre-funded amount, as applicable, as of the last day of
the related collection period for that distribution date if (1) there is a
decision by the related noteholders to exercise the group I or group II put
option followed by (x) an inability of the indenture trustee to exercise the
related put option due to the minimum acceptable put option exercise price being
greater than the put option exercise price (plus all amounts then on deposit in
the applicable reserve account), or (y) the put option provider defaults and the
group I or group II student loans, as applicable, are not sold pursuant to the
auction process described under " Description of the Transfer and Servicing
Agreements -- The Put Options and Auction Sales", with respect to such group of
student loans any distribution date occurring on or after the [ ] distribution
date, or (2) with respect to the group II student loans only, a Trigger Event
has occurred and is continuing, the Specified Collateral Balance will be zero.
"SPECIFIED RESERVE ACCOUNT BALANCE" means, with respect to any
distribution date: (1) with respect to the group I reserve account, an amount
equal to the greater of (x) [ ]% of the aggregate outstanding principal amount
of the group I notes on that distribution date before giving effect to any
distribution on that distribution date, and (y) $[ ]; and (2) with respect to
the group II reserve account, an amount equal to the sum of (i) the greater of
(x) [ ]% of the aggregate outstanding principal amount of the group II notes on
that distribution date before giving effect to any distribution on that
distribution date, and (y) $[ ] and (ii) payments, if any, under the group II
cap agreement; provided, however, in each case, in no event will such balance
exceed the sum of the outstanding principal amount of the related group of
notes.
"STUDENT LOAN RATE" means, for any class of notes for any interest
period, the product of (a) the quotient obtained by dividing (x) 365 (or 366 in
a leap year) by (y) the actual number of days elapsed in such interest period
and (b) the percentage equivalent of a fraction, (i) the numerator of which is
equal to EXPECTED INTEREST COLLECTIONS with respect to the related group of
student loans for the collection period relating to such interest period, plus
any net trust swap receipt actually received by the trust with respect to the
group I interest rate swap (with respect to the group I student loans only) and
the related collection period, less the sum of the related master servicing
fees, the related administration fees, and the premiums due to the securities
insurer (with respect to the group II student loans only) and payable on the
related distribution date and any related master servicing fees paid on the two
preceding monthly servicing payment dates during the related collection period,
minus any net trust swap payment due to the swap counterparty with respect to
the group I interest rate swap (with respect to the group I student loans only)
for the related collection period, and (ii) the denominator of which is the
outstanding principal balance of the related group of notes as of the first day
of that interest period.
S-139
A "SUBORDINATE NOTE INTEREST TRIGGER" will have occurred on the last
day of any collection period if the outstanding principal amount of the group I
or group II senior notes, as applicable, exceeds the sum of the Group I or Group
II Pool Balance, as the case may be, plus in either case the balance of the
related pre-funding account and the related reserve account. A Subordinate Note
Interest Trigger will remain in effect for so long as the outstanding principal
amount of the group I or group II senior notes, as applicable, exceeds the sum
of the Group I or Group II Pool Balance, as the case may be, plus in either case
the balance of the related pre-funding account and the related reserve account.
A "SUBORDINATE NOTE PRINCIPAL TRIGGER" with respect to the group I or
group II subordinate notes, as applicable, will occur and be continuing if a
related NOTE PARITY TRIGGER occurs and is continuing with respect to the group I
or group II notes, as applicable. In addition, a Subordinate Note Principal
Trigger with respect to the group I or group II subordinate notes, as
applicable, will occur if the CUMULATIVE DEFAULT PERCENTAGE for the group I or
group II student loans exceeds [ ]% or [ ]%, respectively, as of the end of the
related collection period.
[A "TERI TRIGGER EVENT" shall have occurred with respect to the group
II student loans on any distribution date when the cumulative realized losses on
any of the guaranteed private loans that are guaranteed by TERI exceed [ ]% of
the group II initial student loan Pool Balance consisting of all guaranteed
private loans that are guaranteed by TERI; provided, however, that a TERI
Trigger Event will not have occurred if TERI is continuing to pay claims with
respect to all guaranteed private loans guaranteed by TERI.]
"TELERATE PAGE 3750" means the display page so designated on the Bridge
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices) or such comparable
page on a comparable service.
"THREE-MONTH LIBOR" means the London interbank offered rate (or LIBOR)
for deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR determination date (the "INDEX MATURITY") which appears on
TELERATE PAGE 3750 as of 11:00 a.m., London time, on that LIBOR determination
date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in U.S. dollars,
having the INDEX 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 of such Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for that day will be the arithmetic mean
of the quotations. If fewer than two quotations are provided, 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 City
time, on that LIBOR determination date for loans in U.S. dollars to leading
European banks having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000; provided that if the banks selected as aforesaid are not
quoting as mentioned in this sentence, Three-Month LIBOR in effect for the
applicable reset period will be Three-Month LIBOR in effect for the previous
reset period.
A "TRIGGER EVENT" with respect to the group II student loans will
occur, on any distribution date, when: (1) an UNGUARANTEED PRIVATE UNDERGRADUATE
LOAN TRIGGER EVENT has
S-140
occurred, or (2) a PRIVATE GRADUATE LOAN TRIGGER EVENT has occurred; provided,
however, that if the securities insurer and all ratings agencies consent in
writing, no Trigger Event will have occurred with respect to that distribution
date.
An "UNGUARANTEED PRIVATE GRADUATE LOAN TRIGGER EVENT" will have
occurred with respect to the group II student loans on any distribution date
when the cumulative realized losses on the unguaranteed student loans made to
graduate students exceeds [ ]% of the group II initial student loan Pool Balance
consisting of all unguaranteed private loans made to graduate students.
An "UNGUARANTEED PRIVATE UNDERGRADUATE LOAN TRIGGER EVENT" will have
occurred, on any distribution date, when cumulative realized losses with respect
to the group II student loans, net of subsequent Recoveries with respect to the
unguaranteed private loans made to undergraduate students, exceeds [ ]% of the
group II initial student loan Pool Balance consisting of all unguaranteed
private loans made to undergraduate students.
S-141
APPENDIX A
REPORT OF INDEPENDENT AUDITORS
[ ], and
[ ], Inc.
as Trustees of the KeyCorp Student Loan Trust [ ]
We have audited the accompanying balance sheet of KeyCorp Student Loan Trust [ ]
(the "Trust") as of [ ]. This balance sheet is the responsibility of the
Trustees for the Trust. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by the Trustees on behalf of the trust, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Trust at [ ], in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
[Cleveland, Ohio]
[ ]
A-1
KEYCORP STUDENT LOAN TRUST [ ]
BALANCE SHEET
[ ]
ASSETS
Cash $ [ ]
--------
Total Assets $ [ ]
========
EQUITY
Equity of the Trust $ [ ]
--------
Total Equity $ [ ]
========
See accompanying notes to the balance sheet
A-2
KEYCORP STUDENT LOAN TRUST [ ]
NOTES TO BALANCE SHEET
[ ]
ORGANIZATION AND OPERATION
KeyCorp Student Loan Trust [ ] (the "Trust"), is a Delaware statutory trust
formed on [ ], with [ ] as Eligible Lender Trustee and [ ] as [Delaware]
Trustee. The Trust was organized to exclusively acquire certain graduate and
undergraduate student loans; to issue and sell securities collateralized by such
loans; and to engage in other transactions, including entering into agreements
that are incidental and necessary, suitable and convenient to the foregoing and
permitted under Delaware law.
At [ ], the Trust had not commenced operations except for the conduct of
organizational matters and activities relating to the public offering of notes.
Key Bank USA, National Association, as Initial Beneficiary of the Trust, bears
administrative expenses on its behalf.
ACCOUNTING POLICIES
Cash, the only asset of the Trust at [ ] is stated as the amount held on
behalf of the Trust by [ ].
A-3
[ALTERNATE PAGE]
[PRINTER TO INSERT KEY SYMBOL]
$[ ]
KEYCORP STUDENT LOAN TRUST [ ]
KEY CONSUMER RECEIVABLES LLC
Depositor
KEY BANK USA, NATIONAL ASSOCIATION
Master Servicer
ASSET-BACKED NOTES
SECURITIES OFFERED
- classes of notes listed in the table below
ASSETS
- group I student loans: FFELP program student loans
- group II student loans: privately guaranteed student loans and
unguaranteed student loans
CREDIT ENHANCEMENT
- subordination of the group I and group II subordinate notes to the
group I and group II senior notes, respectively
- guaranty insurance policy (class [ ] notes, class [ ] notes and class
[ ] notes only)
- reserve account with respect to each group of notes
- excess interest on the student loans of the related group
- limited cross-collateralization
- interest rate swap with respect to the group I notes
- cap agreement with respect to the group II notes
You should carefully consider the risk factors beginning on page S-[ ] of this
prospectus supplement and page [ ] of the prospectus.
The notes are obligations only of the trust and are payable solely from the
student loans and other assets of the trust. The initial principal balance of
the student loans will be less than the initial principal balance of the notes.
The notes are not guaranteed by any person. The notes are not bank deposits.
The class [ ] notes will have the benefit of an irrevocable and unconditional
guaranty insurance policy issued by [ ], as securities insurer, guaranteeing
timely payment of interest and ultimate payment of principal to the holders of
those classes of notes.
[PRINTER TO INSERT [INSURER] LOGO]
[ALTERNATE PAGE]
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
[ALTERNATE PAGE]
INITIAL CLASS INTEREST RATE PRICE TO PUBLIC UNDERWRITING PROCEEDS TO THE
NOTE BALANCE (PER ANNUM)(1) FINAL MATURITY DATE (2) DISCOUNT SELLER
------------ -------------- ------------------- --- -------- ------
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
[ ] $[ ] [ ]% [ ] [ ]% [ ]% [ ]%
Total $[ ] $[ ](3)
- -------------------------
(1) [Subject to a maximum rate of interest described herein with respect to
each class of notes other than the class [ ] notes.
(2) Plus accrued interest, if any, from [ ].
(3) Before deducting expenses estimated to be $[ ], plus accrued interest
in the case of the class [ ] notes.
(4) Initial notional principal amount equal to $[ ].]
Proceeds to the seller from the sale of the class [ ] notes are
expected to be approximately $[ ] plus accrued interest, before deducting a
portion of the total expenses payable by the seller which total is estimated to
be $[ ].
Delivery of the notes will be made on or about [ ]against payment in
immediately available funds.
This prospectus supplement and the prospectus to which it relates are
to be used by KeyBanc Capital Markets, a Division of McDonald Investments Inc.,
a wholly-owned subsidiary of KeyCorp and an affiliate of the seller, in
connection with offers and sales related to market-making transactions in the
securities in which it acts as principal and/or agent. Sales will be made at
prices related to the prevailing prices at the time of the sale.
JOINT LEAD MANAGER AND GLOBAL BOOKRUNNER JOINT LEAD MANAGER
[ ] [ ]
Prospectus Supplement dated [ ]
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This prospectus supplement and the prospectus to which it relates are
to be used by KeyBanc Capital Markets, a Division of McDonald Investments Inc.,
a wholly-owned subsidiary of KeyCorp and an affiliate of the seller, in
connection with offers and sales related to market-making transactions in the
notes in which it acts as principal. KeyBanc Capital Markets may also act as
agent in these transactions. Sales will be made at prices related to prevailing
prices at the time of sale. Any obligations of KeyBanc Capital Markets are its
sole obligations and do not create any obligations on the part of any of its
affiliates.
In connection with the offering, KeyBanc Capital Markets may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, it may overallot the offering, creating a short position in
the notes for its own account, and it may bid for and purchase notes in the open
market to cover these short positions. In addition, it may bid for and purchase
notes in the open market to stabilize the price of the notes above independent
market levels. KeyBanc Capital Markets is not required to engage in these
activities, and may end these activities at any time.
SUBJECT TO COMPLETION, DATED MAY 14, 2004
PROSPECTUS
KEYCORP STUDENT LOAN TRUSTS
Issuer
KEY BANK USA, NATIONAL ASSOCIATION
Seller and Master Servicer
KEY CONSUMER RECEIVABLES LLC
Depositor
Asset Backed Notes
Asset Backed Certificates
SECURITIES OFFERED
- asset backed notes and asset backed certificates
- rated in one of four highest rating categories by at least one
nationally recognized rating organization
- not listed on any trading exchange
- obligations only of the related trust
ASSETS
- student loans
- may include one or more forms of credit enhancement
You should carefully consider the risk factors beginning on page 6.
The securities are not bank deposits and are not insured by the Federal Deposit
Insurance Corporation.
This prospectus must be accompanied by a prospectus supplement for the
particular series.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. MAKING ANY CONTRARY REPRESENTATION IS A
CRIMINAL OFFENSE.
The seller and/or the depositor may offer securities through underwriters or by
other methods described under the caption "Plan of Distribution."
The date of this Prospectus is [ ], 2004
TABLE OF CONTENTS
RISK FACTORS.......................................................................................... 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................... 15
FORMATION OF THE TRUSTS............................................................................... 15
The Trusts....................................................................................... 15
Eligible Lender Trustee.......................................................................... 16
USE OF PROCEEDS....................................................................................... 16
THE SELLER, THE DEPOSITOR, THE ADMINISTRATOR, THE MASTER SERVICER AND THE SUB-SERVICERS............... 17
The Seller, Depositor, Administrator and Master Servicer......................................... 17
General...................................................................................... 17
Services and Fees of Administrator........................................................... 17
Master Servicer.............................................................................. 18
The Sub-Servicers................................................................................ 18
THE STUDENT LOAN POOLS................................................................................ 18
General.......................................................................................... 18
THE STUDENT LOAN FINANCING BUSINESS................................................................... 20
Programs Offered by the Seller................................................................... 20
Description of Federal Loans Under the Programs.................................................. 21
General...................................................................................... 21
The Stafford Loan Program.................................................................... 21
(1) Eligibility Requirements................................................................. 22
(2) Loan Limits.............................................................................. 23
(3) Interest................................................................................. 24
(4) Repayment................................................................................ 24
(5) Grace Periods, Deferral Periods, Forbearance Periods..................................... 25
(6) Interest Subsidy Payments................................................................ 25
(7) Special Allowance Payments............................................................... 26
The SLS Loan Program......................................................................... 27
The PLUS Loan Program........................................................................ 27
The Federal Consolidation Loan Program....................................................... 29
Undergraduate Federal Loans.................................................................. 31
Graduate Federal Loans....................................................................... 32
Description of Private Loans Under the Programs.................................................. 32
General...................................................................................... 32
Private Undergraduate Loans.................................................................. 33
Key Alternative Loans........................................................................ 33
(1) Eligibility Requirements................................................................. 33
(2) Loan Limits.............................................................................. 34
(3) Interest................................................................................. 34
(4) Repayment................................................................................ 35
(5) Grace Periods, Deferral Periods, Forbearance Periods..................................... 35
Private Graduate Loans....................................................................... 35
(1) Loan Limits.............................................................................. 36
(2) Interest................................................................................. 37
(3) Repayment................................................................................ 39
2
(4) Grace Periods, Deferral Periods, Forbearance Periods..................................... 39
(5) Loan Fees................................................................................ 39
(6) Incentive Programs....................................................................... 39
Key CareerLoans.............................................................................. 39
(1) Eligibility Requirements................................................................. 40
(2) Loan Limits.............................................................................. 41
(3) Interest................................................................................. 41
(4) Repayment................................................................................ 41
(5) Grace Periods, Dererment and Forbearance................................................. 41
Guaranteed Private Consolidation Loans....................................................... 41
Unguaranteed Private Consolidation Loans..................................................... 42
(1) Eligibility Requirements................................................................. 42
(2) Loan Limits.............................................................................. 43
(3) Interest................................................................................. 43
(4) Repayment................................................................................ 43
(5) Grace Periods, Deferral Periods, Forbearance Periods..................................... 43
(6) Loan Fees................................................................................ 43
Federal Guarantors of Student Loans.............................................................. 43
Federal Insurance and Reinsurance of Federal Guarantors...................................... 44
Private Guarantors of Student Loans.............................................................. 47
Claims and Recovery Rates........................................................................ 47
Origination Process.............................................................................. 47
Servicing and Collections Process................................................................ 49
Incentive Programs............................................................................... 50
WEIGHTED AVERAGE LIVES OF THE SECURITIES.............................................................. 50
POOL FACTORS AND TRADING INFORMATION.................................................................. 52
DESCRIPTION OF THE NOTES.............................................................................. 53
General.......................................................................................... 53
Principal of and Interest on the Notes........................................................... 54
The Indenture.................................................................................... 55
Modification of Indenture.................................................................... 55
Events of Default; Rights upon Event of Default.............................................. 56
Certain Covenants............................................................................ 59
Annual Compliance Statement.................................................................. 60
Indenture Trustee's Annual Report............................................................ 60
Satisfaction and Discharge of Indenture...................................................... 61
The Indenture Trustee........................................................................ 61
DESCRIPTION OF THE CERTIFICATES....................................................................... 61
General.......................................................................................... 61
Principal and Interest in Respect of the Certificates............................................ 62
CERTAIN INFORMATION REGARDING THE SECURITIES.......................................................... 63
Fixed Rate Securities............................................................................ 63
Floating Rate Securities......................................................................... 63
Book-Entry Registration.......................................................................... 64
Definitive Securities............................................................................ 67
List of Securityholders.......................................................................... 68
3
Reports to Securityholders....................................................................... 69
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS.................................................. 69
General.......................................................................................... 69
Sale of Student Loans; Representations and Warranties............................................ 70
Additional Fundings.............................................................................. 71
Accounts......................................................................................... 72
Servicing Procedures............................................................................. 73
Payments on Student Loans........................................................................ 74
Master Servicer Covenants........................................................................ 74
Master Servicing Compensation.................................................................... 75
Distributions.................................................................................... 76
Credit and Cash Flow Enhancement................................................................. 77
General...................................................................................... 77
Reserve Account.............................................................................. 77
Statements to Indenture Trustee and Trust........................................................ 78
Evidence as to Compliance........................................................................ 79
Certain Matters Regarding the Master Servicer and the Sub-Servicers.............................. 80
Master Servicer Default; Administrator Default................................................... 81
Rights Upon Master Servicer Default and Administrator Default.................................... 82
Waiver of Past Defaults.......................................................................... 83
Insolvency Event................................................................................. 83
Amendment........................................................................................ 84
Payment of Notes................................................................................. 85
Termination...................................................................................... 85
Administrator.................................................................................... 86
Student Loan Transfer Agreement.................................................................. 87
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS............................................................ 87
Transfer of Student Loans........................................................................ 87
Certain Matters Relating to Receivership......................................................... 89
Consumer Protection Laws......................................................................... 89
Loan Origination and Servicing Procedures Applicable to Student Loans............................ 90
Failure to Comply with Third-Party Servicer Regulations May Adversely Affect Loan Servicing...... 91
Bankruptcy Considerations........................................................................ 92
Other Applicable Legislation..................................................................... 92
Emergency Student Loan Consolidation Act of 1997............................................. 92
FY 1998 Budget............................................................................... 93
Student Loan Provisions in the Intermodal Surface Transportation Efficiency Act of 1998...... 93
1998 Reauthorization Bill.................................................................... 93
Departments of Labor, Health and Human Services, and Education, and Related Agencies
Appropriations Act, 2001..................................................................... 95
Electronic Signatures in Global and National Commerce Act.................................... 95
2002 Student Loan Interest Rate Legislation.................................................. 95
INCOME TAX CONSEQUENCES............................................................................... 95
4
FEDERAL TAX CONSEQUENCES FOR TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE.......................... 96
Tax Characterization of the Trust................................................................ 96
Possible Alternative Treatment of the Trust.................................................. 97
Tax Consequences to Holders of the Notes......................................................... 97
Treatment of the Notes as Indebtedness....................................................... 97
Original Issue Discount...................................................................... 97
Interest Income on the Notes................................................................. 97
Sale or Other Disposition.................................................................... 98
Foreign Holders.............................................................................. 98
Backup Withholding........................................................................... 99
Possible Alternative Treatments of the Notes................................................. 100
Tax Consequences to Holders of the Certificates.................................................. 100
Classification as a Partnership.................................................................. 100
Treatment of the Trust as a Partnership...................................................... 100
Partnership Taxation......................................................................... 101
Guaranteed Payments.......................................................................... 101
Allocation of Tax Items...................................................................... 101
Computation of Income........................................................................ 102
Section 708 Termination...................................................................... 102
Discount and Premium......................................................................... 103
Disposition of Certificates.................................................................. 103
Allocations Between Transferors and Transferees.............................................. 104
Section 754 Election......................................................................... 104
Administrative Matters....................................................................... 104
Tax Consequences to Foreign Certificateholders............................................... 105
Backup Withholding........................................................................... 106
FEDERAL TAX CONSEQUENCES FOR TRUSTS IN WHICH ALL CERTIFICATES ARE RETAINED BY THE SELLER,
THE DEPOSITOR OR A THIRD PARTY ORIGINATOR............................................................. 106
Tax Characterization of the Trust................................................................ 106
Tax Consequences to Holders of the Notes......................................................... 107
Treatment of the Notes as Indebtedness....................................................... 107
PENNSYLVANIA STATE TAX CONSEQUENCES................................................................... 107
Pennsylvania Income and Franchise Tax Consequences with Respect to the Notes..................... 107
Pennsylvania Income and Franchise Tax Consequences with Respect to the Certificates.............. 107
ERISA CONSIDERATIONS.................................................................................. 108
The Notes........................................................................................ 109
The Certificates................................................................................. 110
PLAN OF DISTRIBUTION.................................................................................. 110
LEGAL MATTERS......................................................................................... 112
5
RISK FACTORS
We recommend that you consider the following factors and the additional
factors described under "Risk Factors" in the related prospectus supplement
before purchasing the securities.
CREDIT ENHANCEMENT MAY NOT
PROTECT YOU FROM ALL LOSSES Although every trust will include some form of
credit enhancement, that credit enhancement
may not cover every class of securities issued
by a trust. In addition, every form of credit
enhancement will have certain limitations on,
and exclusions from coverage. As a result,
there is always a risk that you may not
recover the full amount of your investment.
GUARANTEES OF STUDENT LOANS
MAY NOT PREVENT LOSSES A significant number of the student loans in a
trust may be guaranteed by either a federal or
a private guarantor. However, those guarantees
may not protect you against all losses for
several reasons, including:
- federal guarantees are generally limited to
98% of the principal amount of the student
loan;
- if Key Bank USA, National Association or the
applicable originator fails to follow
prescribed origination procedures or if the
master servicer or any sub-servicers fail to
follow required servicing procedures, the
applicable guarantors may refuse to make
guarantee payments to the applicable trust
and if the loans are federally insured, the
Department of Education may refuse to make
reinsurance payments to the applicable
federal guarantors or to make interest
subsidy or special allowance payments to the
trust; and
- private guarantors are not reinsured by or
entitled to any assistance from the
Department of Education. If the financial
strength, including loan loss reserves, of a
private guarantor is not sufficient, that
private guarantor may not be able to honor
its obligations to make guarantee payments.
6
DEFAULTS ON STUDENT LOANS
WITHOUT GUARANTEES MAY
RESULT IN LOSSES A trust may include a significant number of
student loans that are not guaranteed by any
federal or private guarantor, or by any other
party or governmental agency. Repayment of
those student loans is dependent on the
creditworthiness of the borrowers.
ALL STUDENT LOANS UNSECURED Since all student loans, whether guaranteed or
not, are unsecured, if a borrower under one of
these student loans defaults, the applicable
trust and you may suffer a loss.
THE FINANCIAL CONDITION OF
FEDERAL GUARANTORS MAY BE
ADVERSELY AFFECTED BY SEVERAL
FACTORS The financial condition of the federal
guarantors may be adversely affected by a
number of factors including:
- the amount of claims made against such
federal guarantor as a result of borrower
defaults;
- the amount of claims reimbursed to such
federal guarantor from the Department of
Education;
- changes in legislation that may reduce
expenditures from the Department of
Education that support federal guarantors or
that may require federal guarantors to pay
more of their reserves to the Department of
Education;
- loss of reinsurance benefits due to the
master servicer's or a sub-servicer's
failure to follow required servicing
procedures; and
- expansion of the federal direct student loan
program.
If the financial status of the guarantors
deteriorates, the guarantors may fail to make
7
guarantee payments to the trustee. In such
event, you may suffer delays or shortfalls in
the payment of principal and interest on your
securities.
REINSURANCE OF FEDERAL
GUARANTORS MAY NOT
PREVENT DELAYS OR LOSSES If a federal guarantor fails to make guarantee
payments, the applicable trust may submit
claims directly to the Department of
Education. However, the Department of
Education may determine that the federal
guarantor is able to meet its obligations, and
the Department of Education will not make
those payments. Even if the Department of
Education determines to make those payments,
there may be delays in making the necessary
determination. Loss or delay of any such
guarantee payments, interest subsidy payments
or special allowance payments could adversely
affect the related trust's ability to pay
timely interest and principal. In such event,
you may suffer a loss on your investment.
THE TRUST IS DEPENDENT UPON
THE PERFORMANCE BY VARIOUS
PARTIES OF THEIR OBLIGATIONS The trust is relying, and the performance of
the securities depends, on the performance of
the seller, the depositor, the master servicer
and the sub-servicers of their respective
obligations. Any failure to perform could have
material adverse consequences as follows:
- FAILURE TO HONOR PURCHASE OBLIGATIONS MAY
CAUSE LOSSES. Key Bank USA, National
Association, as seller and master servicer,
Key Consumer Receivables LLC, as depositor,
or the applicable sub-servicer, will be
obligated to purchase student loans from a
trust with respect to which it materially
breaches representations, warranties or
covenants. We can give you no assurance,
however, that Key Bank USA, National
Association, Key Consumer Receivables LLC,
or the applicable sub-servicer, will have
the financial resources to purchase such
student loans. The failure to so purchase a
student loan would not constitute an event
of
8
default under the related indenture or
permit the exercise of remedies thereunder.
However, any such failure to purchase a
student loan may cause you to suffer a loss
on your investment.
- FAILURE TO COMPLY WITH THIRD-PARTY SERVICER
REGULATIONS MAY ADVERSELY AFFECT LOAN
SERVICING. The Department of Education
regulates each servicer of federal student
loans. Under certain of these regulations, a
third-party servicer (such as one of the
sub-servicers) is jointly and severally
liable with its client lenders for
liabilities to the Department of Education
arising from the sub-servicer's violation of
applicable requirements. In addition, if a
sub-servicer fails to meet standards of
financial responsibility or administrative
capability included in the regulations, or
violates other requirements, the Department
of Education may fine the sub-servicer
and/or limit, suspend, or terminate such
sub-servicer's eligibility to contract to
service federal student loans. If a
sub-servicer were so fined or held liable,
or its eligibility were limited, suspended,
or terminated, its ability to properly
service the federal loans and to satisfy its
obligation to purchase federal loans with
respect to which it breaches its
representations, warranties or covenants
could be adversely affected. Moreover, if
the Department of Education terminates a
sub-servicer's eligibility, a servicing
transfer will take place and there will
likely be delays in collections and
temporary disruptions in servicing. Any such
servicing transfer could temporarily
adversely affect payments to you.
- THE TRUST'S INTEREST IN ITS STUDENT LOANS
COULD BE DEFEATED BY ACTIONS OF THE
SUB-SERVICERS AS CUSTODIANS. The applicable
sub-servicer, as custodian on behalf of the
master servicer with respect to each trust,
will have custody of the promissory notes,
in physical or electronic form, evidencing
the student loans it services (provided,
however, that in
9
the case of electronically originated
promissory notes, a custodian may not be
utilized if custody is not necessary for
perfection of a security interest in the
notes under the UCC). Although the accounts
of the seller and/or the depositor, as
applicable, will be marked to indicate the
sale and although the seller, the depositor,
the administrator and/or the master
servicer, as applicable, 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 such
student loans have been sold to the eligible
lender trustee. If, through inadvertence or
otherwise, any of the student loans were
sold to another party, or a security
interest therein were granted to another
party that purchased (or took such security
interest in) any of such student loans in
the ordinary course of its business and took
possession of such student loans, then the
purchaser (or secured party) would acquire
an interest in the student loans superior to
the interest of the eligible lender trustee,
if the purchaser (or secured party) acquired
such student loans without knowledge of the
eligible lender trustee's interest.
- INSOLVENCY OF THE MASTER SERVICER, A
SUB-SERVICER OR THE ADMINISTRATOR MAY CAUSE
LOSSES. In the event of default by the
master servicer, a sub-servicer or the
administrator resulting solely from certain
events of insolvency or bankruptcy, a court,
conservator, receiver or liquidator may have
the power to prevent either the indenture
trustee or the noteholders from appointing a
successor master servicer or administrator,
or prevent the master servicer from
appointing a new sub-servicer, as the case
may be, and delays in collections in respect
of the student loans may occur. Any delay in
the collections of student loans may delay
or reduce payments to you.
CHANGES IN LEGISLATION MAY
10
ADVERSELY AFFECT STUDENT
LOANS AND FEDERAL GUARANTORS You can not be certain that the Higher
Education Act of 1965, as amended, or other
relevant federal or state laws, rules and
regulations will not be amended or modified in
the future in a manner that will adversely
affect the federal student loan programs
described in this prospectus, the student
loans made thereunder or the financial
condition of the federal guarantors.
Legislation amending the Higher Education Act
is currently under consideration before
Congress. Major amendments to the Higher
Education Act are expected to be enacted this
year or in 2005.
In addition, if the direct student loan
program expands, the sub-servicers may
experience increased costs due to reduced
economies of scale or other adverse effects on
their business to the extent the volume of
loans serviced by the sub-servicers is
reduced. Such cost increases could reduce the
ability of the sub-servicers to satisfy their
obligations to service the student loans or to
purchase student loans in the event of certain
breaches of its covenants.
CERTAIN POLICIES OF THE
DEPARTMENT OF EDUCATION MAY
REDUCE AMOUNTS AVAILABLE
FOR PAYMENTS ON YOUR
SECURITIES Each trust will be obligated to pay to the
Department of Education a monthly rebate at an
annualized rate of generally 1.05% of the
outstanding principal balance and accrued
interest receivable on each federal
consolidation loan which is a part of the
related trust. This rebate will be payable
prior to distributions made to you. In
addition, the trust must pay to the Department
of Education a 0.50% origination fee on the
initial principal balance of each student loan
which is originated on its behalf by the
eligible lender trustee after the applicable
closing date. This fee will be deducted by the
Department of Education from interest subsidy
payments and special allowance payments
otherwise payable to the trust(s). In such
event the amount available to be distributed
to you will be reduced. Under certain
circumstances, the related trust is obligated
to pay any portion of the unpaid fee from
other assets of
11
that trust prior to making distributions to
you. As a result, the payment of the rebate
fee and origination fee to the Department of
Education will affect the rate and timing of
payments to you. Moreover, if the origination
fee is deducted from interest subsidy payments
and special allowance payments the interest
rate payable on your securities may be capped
at a lower rate. In such event, the value of
your investment may be impaired.
Due to a Department of Education policy
limiting the granting of new lender
identification numbers, all of the trusts
established by the seller and/or the
depositor, as applicable, to securitize
federal student loans may use a common
Department of Education lender identification
number. The Department of Education regards
the eligible lender trustee as the party
primarily responsible to the Department of
Education for any liabilities owed to the
Department of Education or federal guarantors
resulting from the eligible lender trustee's
activities in the federal student loan
program. If the Department of Education or a
federal guarantor determines such a liability
exists in connection with a trust using the
shared lender identification number, the
Department of Education or such federal
guarantor may collect that liability or offset
such liability from amounts due the eligible
lender trustee under the shared lender
identification number.
Because the servicing agreements for the
trusts established by the seller and/or the
depositor, as applicable, which share a lender
identification number, will require the
eligible lender trustee or the master servicer
to allocate to the proper trust shortfalls or
an offset by the Department of Education or a
federal guarantor arising from the student
loans held by the eligible lender trustee on
each trust's behalf, if the amount available
for indemnification by one trust to another
trust is insufficient, you may suffer a loss
on your investment as a result of the
performance of another trust.
12
NOTEHOLDERS' RIGHT TO CONTROL
UPON CERTAIN DEFAULTS
MAY ADVERSELY AFFECT
CERTIFICATEHOLDERS AND
SUBORDINATE NOTEHOLDERS In the event of a default by the master
servicer or the administrator, the indenture
trustee or the senior noteholders, may remove
the master servicer or the administrator, as
the case may be, without the consent of the
eligible lender trustee or any of the
certificateholders or subordinate noteholders.
In addition, senior noteholders have the
ability, with certain specified exceptions, to
waive defaults by the master servicer or the
administrator, including defaults that could
materially adversely affect the
certificateholders or subordinated
noteholders.
CONSUMER PROTECTION LAWS
MAY AFFECT ENFORCEABILITY OF
STUDENT LOANS 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 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 student loans. In
addition, the remedies available to the
indenture trustee or the noteholders upon an
event of default under the indenture may not
be readily available or may be limited by
applicable state and federal laws.
INTERNET-BASED LOAN ORIGINATION
PROGRAMS MAY GIVE RISE TO RISKS
THAT ARE NOT FOUND IN CUSTOMARY
LOAN ORIGINATION PROGRAMS The seller may originate loans through a
process that would enable a borrower to apply
for a loan and electronically sign documents
through an online process in an electronic
transaction. The origination process and loan
documentation that would be used for these
student loans were developed in recent years
to capitalize on the potential benefits of
conducting business using
13
electronic means, including over the internet.
As such, these processes and the related loan
documentation raise issues that do not exist
in customary student loan origination programs
and may give rise to challenges by borrowers
based on consumer protection or other laws
relating to issues that are currently untested
in the courts, or to challenges by a guarantor
to its obligation to make guarantee payments.
We can provide you no assurance that these
risks will not adversely affect the
collectability or enforceability of the
student loans or related guarantee payments.
14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Key Bank USA, National Association and Key Consumer Receivables LLC, as
originators of each of the various trusts, have filed with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended, with respect to the securities offered pursuant to this prospectus.
The registration statement contains information which is not contained in this
prospectus. Prospective investors may read the registration statement and make
copies of it at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the SEC's regional offices at
Seven World Trade Center, New York, New York 10048, and 500 West Madison Street,
14th Floor, Chicago, Illinois 60661. Copies of the registration statement may be
obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC maintains a Web site at
http://www.sec.gov containing registration statements and other information
regarding registrants, including Key Bank USA, National Association and Key
Consumer Receivables LLC, that file electronically with the SEC.
All documents filed by Key Bank USA, National Association or Key
Consumer Receivables LLC, as originator of any trust, pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the
date of this prospectus and before the termination of the offering of the
securities will be deemed to be incorporated by reference in this prospectus.
Any statement contained in this prospectus or a document incorporated or deemed
to be incorporated by reference may be modified or superseded by a subsequently
filed document.
Key Bank USA, National Association and Key Consumer Receivables LLC
will provide without charge to each person to whom a copy of this prospectus is
delivered, including a beneficial owner of securities, on the written or oral
request of that person, a copy of any or all of the documents incorporated by
reference in this prospectus or in any related prospectus supplement, except any
exhibits to those documents, unless the exhibits are specifically incorporated
by reference in this prospectus or any related prospectus supplement. Requests
for these copies should be directed to Key Bank USA, National Association,
Education Resources, 800 Superior Avenue, 4th Floor, Cleveland, Ohio 44114,
Attention: Education Loan Trust Administrator (Telephone: (216) 828-9357).
FORMATION OF THE TRUSTS
THE TRUSTS
Either the seller or the depositor will establish a separate trust for
each series of securities. Each trust will be formed under a trust agreement for
the transactions described in this prospectus and in the related prospectus
supplement. The property of each trust will consist of:
- a pool of undergraduate loans and/or graduate school student
loans legal title to which is held by the related eligible
lender trustee on behalf of each trust,
15
- all funds collected or to be collected in respect of that pool
of student loans (including any guarantee payments) on or
after the applicable cutoff date specified in the related
prospectus supplement,
- any other rights under certain collateral agreements with
respect to certain private graduate loans to the extent
assigned to each trust by the seller, and
- all moneys and investments on deposit in any collection
account, any pre-funding account, any escrow account, any
negative carry account, any reserve account and any other
trust accounts or any other form of credit or cash flow
enhancement that may be obtained for the benefit of holders of
one or more classes of those securities. To the extent
provided in the applicable prospectus supplement, the notes
will be collateralized by the property of the related trust.
To facilitate servicing and to minimize administrative burden
and expense, the master servicer will be appointed by the
eligible lender trustee as the custodian, and the master
servicer will then appoint the sub-servicers or another
qualified custodian or custodians as the custodians on its
behalf, of the promissory notes representing the student loans
that each services.
The principal offices of each trust and the related eligible lender
trustee will be specified in the applicable prospectus supplement.
ELIGIBLE LENDER TRUSTEE
The eligible lender trustee for each trust will be identified in the
related prospectus supplement. The eligible lender trustee on behalf of the
related trust will acquire legal title to all the related student loans acquired
under the related sale and servicing agreement and will enter into a guarantee
agreement or comparable arrangement, if applicable, with each of the guarantors
with respect to the student loans which are guaranteed or insured. Each eligible
lender trustee will qualify as an eligible lender and owner of all federal loans
and private loans for all purposes under the Higher Education Act and the
guarantee agreements. Failure of the federal loans to be owned by an eligible
lender would result in the loss of any federal guarantee payments from any
federal guarantor and any federal assistance with respect to those federal
loans. See "The Student Loan Financing Business -- Description of Federal Loans
Under the Programs." An eligible lender trustee's liability in connection with
the issuance and sale of the notes and the certificates is limited solely to the
express obligations of the eligible lender trustee in the related trust
agreement and the related sale and servicing agreement. See "Description of the
Transfer and Servicing Agreements." The seller plans to maintain normal
commercial banking relations with each eligible lender trustee.
USE OF PROCEEDS
If the seller is selling the student loans relating to any given
series, the net proceeds from the sale of securities of a given series will be
used by the applicable trust to purchase the related student loans on the
applicable closing date from the seller and to make the initial deposit into the
reserve account, pre-funding account or negative carry account, if any. The
seller will use the net proceeds paid to it with respect to any trust for
general corporate purposes.
16
If the depositor is selling the student loans relating to any given
series, the net proceeds from the sale of securities of a given series will be
used by the applicable trust to purchase the related student loans on the
applicable closing date from the depositor and to make the initial deposit into
the reserve account, pre-funding account or negative carry account, if any. The
depositor will use the net proceeds to purchase the related student loans on the
closing date from the seller, affiliates of the seller and/or third party
originators of student loans or their affiliates. The seller will use the net
proceeds paid to it with respect to any trust for general corporate purposes.
THE SELLER, THE DEPOSITOR, THE ADMINISTRATOR, THE MASTER
SERVICER AND THE SUB-SERVICERS
THE SELLER, DEPOSITOR, ADMINISTRATOR AND MASTER SERVICER
GENERAL. If Key Bank USA, National Association is selling the student
loans relating to any given series, Key Bank USA, National Association will act
as seller and as master servicer, under the related sale and servicing
agreement, and as administrator under the related administration agreement.
If Key Consumer Receivables LLC is selling the student loans relating
to any given series, Key Consumer Receivables LLC will act as depositor, and Key
Bank USA, National Association will act as master servicer, under the related
sale and servicing agreement, and as administrator under the related
administration agreement.
Key Bank USA, National Association is a national banking association
and a wholly owned subsidiary of KeyCorp. Key Bank USA, National Association is
engaged in consumer loan activities nationally, including, automobile lending
and leasing, home equity financing of both first- and second-home mortgages,
education lending, and marine and recreational vehicle financing. The principal
executive offices of Key Bank USA, National Association are located at Key
Tower, 127 Public Square, Cleveland, Ohio 44114 and its telephone number is
(216) 689-6300.
Key Consumer Receivables LLC is a Delaware limited liability company
and a wholly-owned subsidiary of Key Bank USA, National Association. Key
Consumer Receivables LLC is a special-purpose "bankruptcy remote" entity formed
to purchase student loans from the seller and its affiliates, and to form trusts
that will issue asset-backed securities. The principal executive offices of Key
Consumer Receivables LLC are located at Key Tower, 127 Public Square, Cleveland,
Ohio 44114 and its telephone number is (216) 828-8122.
SERVICES AND FEES OF ADMINISTRATOR. Under each administration
agreement, the administrator will be responsible for preparing and filing claim
forms on behalf of the eligible lender trustee for interest subsidy payments and
special allowance payments from the Department of Education and is required to
provide notices and reports and to perform other administrative obligations
required by the related indenture, trust agreement and sale and servicing
agreement. See "Description of the Transfer and Servicing
Agreements--Administrator."
17
MASTER SERVICER. Key Bank USA, National Association, in its capacity as
master servicer will be responsible for master servicing the student loans. The
master servicer will arrange for and oversee the performance of each
sub-servicer of its respective servicing obligations with respect to the student
loans. The master servicer will receive in the aggregate, subject to certain
limitations described in this prospectus, a monthly fee payable by each trust as
specified in the related prospectus supplement and certain fixed fees for each
student loan for which a forbearance period was granted or renewed or for which
a guarantee claim was filed, in each case subject to certain adjustments,
together with other administrative fees and similar charges. The master servicer
will in turn be solely responsible for all compensation due to the sub-servicers
for the performance of their respective obligations under the related
sub-servicing agreements. See "Description of Transfer and Servicing
Agreements--Servicing Compensation." In addition, if specified in the related
prospectus supplement, Key Bank USA, National Association may directly service,
and act as custodian of, some or all of the student loans in any trust.
THE SUB-SERVICERS
The sub-servicers under each sale and servicing agreement will be
identified in the related prospectus supplement.
With respect to the student loans it is servicing on behalf of the
master servicer and with respect to each trust, each sub-servicer will be
required by the related sub-servicing agreement between that sub-servicer and
the master servicer to perform the services and duties customary to the
servicing of student loans it is required to service, and to do so in the same
manner as that sub-servicer has serviced student loans on behalf of the seller
and/or the master servicer and otherwise in compliance with all applicable
standards and procedures. Also, each sub-servicer is required to maintain its
eligibility as a third-party servicer under the Higher Education Act. See
"Description of the Transfer and Servicing Agreements--Servicing Procedures."
Each sub-servicer will be paid directly by the master servicer for its services
rendered under each sub-servicing agreement. The trust will be an intended
third-party beneficiary of each sub-servicing agreement. See "Description of the
Transfer and Servicing Agreements -- Master Servicer Default; Administrator
Default."
THE STUDENT LOAN POOLS
GENERAL
The student loans to be sold by the seller, or the depositor after
purchasing the student loans from the seller, affiliates of the seller and/or
third party originators of student loans or their affiliates, to the eligible
lender trustee on behalf of a trust under the related sale and servicing
agreement will be selected from the seller's portfolio of student loans (or, if
specified in the related prospectus supplement, the student loan portfolio of
another originator of student loans and/or an affiliate of either) by several
criteria, including that each student loan:
- was originated in the United States or its territories or
possessions under and in accordance with the student loan
programs described in this prospectus under "The Student Loan
Financing Business -- Programs Offered by the Seller" or
otherwise described in the related prospectus supplement;
18
- contains terms in accordance with those required by the
programs and any applicable guarantee agreements;
- is not selected using procedures believed by the seller (or
the applicable third party originator) and/or the master
servicer to be adverse to the securityholders of the related
series;
- provides for periodic payments that will fully amortize the
amount financed over its term to maturity, exclusive of any
deferral or forbearance periods; and
- satisfies any other criteria described in the related
prospectus supplement.
The student loans in each trust will be held by the related eligible
lender trustee, as trustee on behalf of that trust. The eligible lender trustee
will also enter into, on behalf of that trust, guarantee agreements with the
guarantors described in this prospectus and the related prospectus supplement.
See "Formation of the Trusts--Eligible Lender Trustee."
The prospectus supplement for each series will provide information
about the student loans in the related trust that will include:
- the composition of the pool;
- the distribution of the pool by loan type, payment status,
interest rate basis and remaining term to maturity;
- borrowers' states of residence; and
- the portion of those student loans guaranteed by the specified
guarantors.
In the case of each series for which the related trust may acquire
student loans from the seller or the depositor, as applicable, after the related
cutoff date through additional fundings, information with respect to the student
loans eligible to be acquired by the related trust will be set forth in the
related prospectus supplement as will information about the duration and
conditions of any related funding period, the circumstances under which
additional fundings will be made during this period and, if additional fundings
may continue to be made after this period, the circumstances under which those
additional fundings may be made.
Each regular payment with respect to a student loan includes an
installment of interest which is calculated on the basis of the outstanding
principal balance of the student loan multiplied by the applicable interest rate
and further multiplied by the period elapsed (as a fraction of a calendar year)
since the last payment of interest was made. As payments are received on the
student loan, the amount received is applied first to interest accrued to the
date of payment and the balance 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 last 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
19
pays a monthly installment after its scheduled due date, a late fee, where
applicable, will be assessed and the portion of the payment allocable to the
late fee and interest for the period since the last 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.
THE STUDENT LOAN FINANCING BUSINESS
PROGRAMS OFFERED BY THE SELLER
The student loans to be sold by the seller or the depositor to the
eligible lender trustee on behalf of a trust under the related sale and
servicing agreement will be selected from the portfolio of student loans
originated or acquired by the seller, or acquired by the depositor, under
various loan programs described in this prospectus and/or the related prospectus
supplement. The proceeds of the loans are used to finance a portion of the costs
of:
- undergraduate education,
- graduate education,
- post-graduate activities such as studying for bar exams or
participating in residency programs, or
- post-secondary education in certificate or non-degree granting
programs (also known as career education).
Undergraduate loans and graduate loans may be originated through the
Federal Family Education Loan Program (or FFELP). These loans are referred to in
this prospectus as federal loans. As described herein and in the related
prospectus supplement, substantially all payments of principal and interest with
respect to federal loans 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 under a
guarantee agreement to be entered into between one of the federal guarantors
specified in the related prospectus supplement and the applicable eligible
lender trustee. Each of the federal guarantors is entitled, subject to certain
conditions, to be reimbursed by the Department of Education for 75% to 95% of
all guarantee payments it makes under a program of federal reinsurance under the
Higher Education Act. In addition, each eligible lender trustee, as a holder of
the federal loans on behalf of the related trust, is entitled to receive from
the Department of Education certain interest subsidy payments and special
allowance payments with respect to certain of these federal loans as described
in this prospectus. See " -- Description of Federal Loans Under the Programs"
below.
Undergraduate, graduate, post-graduate and career education student
loans may also be originated under loan programs that are not federally
guaranteed. These student loans are referred to in this prospectus as private
loans. Payments of principal and interest on the private loans may be (1)
unguaranteed by any federal or private guarantor, or by any other party or
governmental agency or (2) guaranteed against default, death, bankruptcy or
disability of the applicable borrower by certain private guarantors under a
guarantee agreement to be entered into among private guarantors specified in the
related prospectus supplement, the seller or the
20
depositor, as applicable, and the eligible lender trustee, or by private
guarantors under surety bonds issued to the seller or the depositor, as
applicable, and assigned to each eligible lender trustee on behalf of the
related trust. Guarantee payments under the guarantee agreements with private
guarantors or the surety bonds issued by private guarantors are referred to as
private guarantee payments and guarantee payments under guarantee agreements
with federal guarantors are referred to as federal guarantee payments. See " --
Description of Private Loans Under the Programs" below.
DESCRIPTION OF FEDERAL LOANS UNDER THE PROGRAMS
GENERAL. The following descriptions of the Federal Stafford Loan
Program, the Federal Subsidized Stafford Loan Program, the Supplemental Loans
for Students Program (or the "SLS Loan Program"), the Federal PLUS Loan Program
(or the "PLUS Loan Program"), and the Federal Consolidation Loan Program as
authorized under the Higher Education Act are qualified in their entirety by
reference to the Higher Education Act. The programs listed above are referred to
in this prospectus as the federal programs. Since its original enactment in
1965, the Higher Education Act has been amended and reauthorized several times,
including by the Higher Education Amendments of 1992 and the Higher Education
Amendments of 1998. The provisions of the Higher Education Act were extended
through September 30, 2004 under the General Education Provisions Act. Congress
is expected to enact an additional one year extension of the Higher Education
Act or reauthorize the Higher Education Act before this date.
We can give you no assurance that the Higher Education Act or other
relevant federal or state laws, rules and regulations and the programs
implemented under it will not be amended or modified in the future in a manner
that will adversely impact the programs described in this prospectus, the
related prospectus supplement and the student loans made thereunder or the
guarantors. Also, future measures to reduce any future federal budget deficit or
for other purposes may adversely affect the amount and nature of federal
financial assistance available with respect to these programs. We can give you
no assurance that future federal legislation or administrative actions will not
adversely affect expenditures by the Department of Education or the financial
condition of the federal guarantors. For a discussion of each federal
guarantor's claims-paying ability, see the related prospectus supplement.
SUBSIDIZED STAFFORD LOAN AND UNSUBSIDIZED STAFFORD LOAN PROGRAMS.
Stafford Loans are loans made by eligible lenders in accordance with the Higher
Education Act to eligible students, based on financial need, to finance a
portion of the costs of attending an eligible institution of higher education or
a vocational school. The Higher Education Act limits the amount of Stafford
Loans that may be made to a student in any given academic year, the amount a
student may have outstanding in total and specifies certain payment terms,
including the interest rates that may be charged on Stafford Loans. Holders of
Stafford Loans complying with these limitations and the other conditions
specified in the Higher Education Act will be entitled to the benefits of
federal assistance, consisting of:
- a guarantee of the payment of principal and interest with
respect to the Stafford Loans by a federal guarantor, which
guarantee will be supported by federal reinsurance of all or
most of these guaranteed amounts as described herein;
21
- federal interest subsidy payments equal to the interest
payable on the Stafford Loans prior to the time the borrower
begins repayment of the Stafford Loans and during any
applicable deferral periods, together with interest on these
amounts not paid by the Department of Education when due; and
- federal special allowance payments, in varying amounts, during
the term of the Stafford Loans to ensure that interest payable
on the Stafford Loans approximates current market interest
rates, together with interest on these amounts not paid by the
Department of Education when due.
Certain Stafford Loans do not qualify for interest subsidy payments but
otherwise qualify for all other forms of federal assistance. These Stafford
Loans are known as "Unsubsidized Stafford Loans". These loans are identical to
other Stafford Loans in all material respects, except that interest accruing on
them during periods when the borrower is in school or in a deferral period or
grace period is either paid periodically by the borrower during these periods or
added periodically to the principal balance of the loan by its holder. A
borrower qualifies for an Unsubsidized Stafford Loan if, and to the extent that,
the borrower's need for a Stafford Loan, as calculated pursuant to the Higher
Education Act, is more than the maximum Subsidized Stafford Loan authorized by
statute.
(1) Eligibility Requirements. Subject to the annual and
aggregate limits on the amount of Stafford Loans that a student can
borrow discussed below, Stafford Loans are available to eligible
students in amounts not exceeding their unmet need for financing as
determined in accordance with the provisions of the Higher Education
Act. Eligible students are students that are:
- enrolled in, or admitted for enrollment in, an approved or
accredited undergraduate or graduate school;
- enrolled in, or admitted for enrollment in, an acceptable
degree program;
- attending at least half-time;
- making satisfactory progress toward the completion of that
program according to the standards of the school;
- U.S. citizens, U.S. nationals or eligible non-citizens;
- not borrowers under federal loans, including the requested
loan, that exceed the applicable annual and aggregate limits;
and
- not in default on any education loan or not required to refund
an educational grant.
Each Stafford Loan:
- must be unsecured;
22
- must provide for deferral of the obligation of the borrower to
make (x) interest payments for as long as the Department of
Education makes interest subsidy payments and (y) principal
payments so long as the borrower remains an eligible student
and thereafter during any applicable grace periods, deferral
periods or forbearance periods; and
- must provide for repayment over a period not to exceed 10
years (excluding any deferral periods or forbearance periods)
from the date repayment commences.
(2) Loan Limits. In order to qualify for assistance under
the Stafford Loan Program, the Higher Education Act imposes an annual
limit on the amount of Stafford Loans and other federal loans that may
be made to any single student and an aggregate limit on the amount of
the federal loans that student may have outstanding.
We have set forth in the following chart the current and historic loan
limits.
ALL STUDENTS (1) INDEPENDENT STUDENTS(1)
---------------- -----------------------------
BASE AMOUNT ADDITIONAL
SUBSIDIZED SUBSIDIZED AND UNSUBSIDIZED MAXIMUM
SUBSIDIZED ON OR UNSUBSIDIZED ON ONLY ON OR AGGREGATE
BEFORE AFTER OR AFTER AFTER TOTAL
BORROWER'S ACADEMIC LEVEL 1/1/87 1/1/87 10/1/93(2) 7/1/94(3) AMOUNT IN
- ------------------------- ---------- ---------- --------------- ------------ ---------
Undergraduate (per year)
1st year. $ 2,500 $ 2,625 $ 2,625 $ 4,000 $ 6,625
2nd year. $ 2,500 $ 2,625 $ 3,500 $ 4,000 $ 7,500
3rd year and above $ 2,500 $ 4,000 $ 5,500 $ 5,000 $ 10,500
Graduate (per year) $ 5,000 $ 7,500 $ 8,500 $10,000 $ 18,500
Aggregate Limit;
Undergraduate $12,500 $17,250 $23,000 $23,000 $ 46,000
Graduate (including
undergraduate) $25,000 $54,750 $65,500 $73,000 $138,500
- -----------------
(1) The loan limits are inclusive of both Stafford Loans and other student
loans.
(2) These amounts represent the combined maximum loan amount per year for
Subsidized Stafford Loans 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.
(3) Independent undergraduate students, graduate students or professional
students may borrow these additional amounts. In addition, dependent
undergraduate students may also receive these additional loan amounts
if the parents of these students are unable to provide the family
contribution amount and it is unlikely that the student's parents will
qualify for a PLUS Loan.
The annual loan limits are reduced in some instances where the
student is enrolled in a program that is less than one academic year or
has less than a full academic year remaining in his or her program. The
Department of Education has discretion to raise these limits to
accommodate highly specialized or exceptionally expensive course of
study.
Congress is currently considering legislation reauthorizing
the Higher Education Act. When enacted, this legislation may increase
annual and aggregate borrowing limits.
23
(3) Interest. The borrower's interest rate on a Stafford
Loan may be fixed or variable. We have summarized Stafford Loan
interest rates in the chart below.
TRIGGER DATE(1) BORROWER RATE(2) MAXIMUM RATE INTEREST RATE MARGIN
- --------------- ---------------- ------------ --------------------
Prior to 01/01/81 7% 7% N/A
01/01/81-09/12/83 9% 9% N/A
09/13/83-06/30/88 8% 8% N/A
07/01/88-09/30/92 8% for 48 months; 8% for 48 months, 3.25%
thereafter, 91-Day then 10%
Treasury + Interest Rate
Margin
10/01/92-06/30/94 91-Day Treasury + 9% 3.10%
Interest Rate Margin
07/01/94-06/30/95 91-Day Treasury + 8.25% 3.10%
Interest Rate Margin
07/01/95-06/30/98 91-Day Treasury + 8.25% 2.50% (In-School, Grace or
Interest Deferment); 3.10% (in
Rate Margin repayment)
On or after 07/01/98 91-Day Treasury + 8.25% 1.70% (In-School, Grace or
Interest Rate Margin Deferment); 2.30% (in
repayment)
- ---------------------
(1) The Trigger Date for Stafford Loans made before October 1, 1992 is the
first day of enrollment period for which a borrower's first Stafford
Loan is made and the Trigger Date for Stafford Loans made on or after
October 1, 1992 is the date of the disbursement of a borrower's first
Stafford Loan.
(2) 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 (a) the applicable
Maximum Rate or (b) the sum of (i) the bond equivalent rate of 91-day
Treasury Bills auctioned at the final auction held prior to that June 1
and (ii) the applicable Interest Rate Margin.
Interest is payable on each Stafford Loan monthly in arrears
until the principal amount of the loan is paid in full. However, before
the date the borrower begins repaying the principal of the Stafford
Loan and during any applicable deferral period, the borrower has no
obligation to make interest payments. Instead, the Department of
Education makes quarterly interest subsidy payments to the holder of
the Subsidized Stafford Loans on behalf of the borrower during those
periods, in amounts equal to the accrued and unpaid interest for the
previous quarter with respect to the Stafford Loan. During a
forbearance period, the Department of Education will not make any
interest subsidy payments; instead, at the borrower's option, interest
on each Stafford Loan may be paid currently or capitalized and added to
the outstanding principal balance of the Stafford Loan at the end of
that forbearance period. See "--(6) Interest Subsidy Payments" below.
The 91-day Treasury Bill rate is, on any date of
determination, the weighted average annual discount rate (expressed on
a bond equivalent basis and applied on a daily basis) for 91-day
Treasury Bills at the most recent 91-day Treasury Bills auction prior
to that date as published by the Board of Governors of the Federal
Reserve System or as reported by the U.S. Treasury Department.
(4) Repayment. No principal and/or interest payments with
respect to a Stafford Loan are required to be made during the time a
borrower remains an eligible student and during an applicable grace
period, deferral period or forbearance period. In general, a borrower
must repay each Stafford Loan in monthly installments over a period of
not more than 10 years (excluding any deferral period or forbearance
period) after commencement of repayment. New borrowers on or after
October 7, 1998 who accumulate outstanding loans under the Student
Assistance General Provisions and FFELP totaling more than $30,000, are
entitled to extended repayment schedules of up to 25 years subject to
certain minimum repayment amounts. Any borrower may voluntarily
24
prepay without premium or penalty any federal loan and in connection
with that prepayment may waive any grace period or deferral period. The
Higher Education Act presently requires a minimum annual principal and
interest payment with respect to a Stafford Loan of $600 in the
aggregate (but in no event less than accrued interest), unless the
borrower and the lender agree to a lesser amount. For Stafford Loans
first disbursed on or after July 1, 1993 to a borrower who has no
outstanding federal loans on the date that loan is made, the borrower
must be offered the opportunity to repay the loan according to a
graduated or income-sensitive repayment schedule established in
accordance with Department of Education regulations. For Stafford Loans
entering repayment on or after October 1, 1995, borrowers may choose
among several repayment options, including the option to make interest
only payments for limited periods.
(5) Grace Periods, Deferral Periods, Forbearance Periods.
Borrowers of Stafford Loans must generally begin repaying the loans
following a grace period of not more than 6 months after the borrower
ceases to be an eligible student. However, subject to certain
conditions, no principal repayments need be made with respect to
Stafford Loans during the following deferral periods:
- periods when the borrower has returned to an eligible
educational institution on at least a half-time basis or is
pursuing studies pursuant to an approved graduate fellowship
program,
- certain other periods (varying from six months to three years)
when the borrower has joined the military or certain volunteer
organizations (for all loans made prior to July 1, 1993, or
loans made after that date to borrowers with loans already
outstanding on that date),
- periods when the borrower is unable to secure employment (up
to three years), or
- periods during which the borrower is experiencing economic
hardship (for loans made after July 1, 1993, to borrowers with
no outstanding loans on that date).
In addition, the lender may, and in some circumstances must,
allow, in accordance with standards and guidelines approved by the
applicable federal guarantor and the Department of Education,
forbearance periods during which the borrower may defer principal
and/or interest payments because of temporary financial hardship.
(6) Interest Subsidy Payments. Interest subsidy payments
are payments made quarterly to the holder of a Subsidized Stafford Loan
by the Department of Education with respect to those Stafford Loans as
to which the applicable conditions of the Higher Education Act have
been satisfied, in an amount equal to the accrued and unpaid interest
on the outstanding principal amount of each Stafford Loan for that
quarter, beginning on the date that Stafford Loan is made until the end
of the applicable grace period after the borrower ceases to be an
eligible student and during any applicable deferral period. The
Department of Education will not make interest subsidy payments during
any forbearance period. The Higher Education Act provides that the
holder of such a qualifying Stafford Loan has a contractual right
against the United States to receive interest subsidy
25
payments from the Department of Education (including the right to
receive interest on any interest subsidy payments not timely paid).
Receipt of interest subsidy payments is conditioned on compliance with
the requirements of the Higher Education Act, including satisfaction of
certain need-based criteria (and the delivery of sufficient information
by the borrower and the lender to the Department of Education to
confirm the foregoing) and continued eligibility of the Stafford Loan
for federal reinsurance. This eligibility may be lost, however, if the
loans are not originated and serviced, or are not held by an eligible
lender, in accordance with the requirements of the Higher Education Act
and the applicable guarantee agreements. See "--(1) Eligibility
Requirements"; "Formation of the Trusts--Eligible Lender Trustee" and
"Description of the Transfer and Servicing Agreements--Servicing
Procedures." The seller and the depositor expect that each of the
Subsidized Stafford Loans that are part of a pool of student loans will
be eligible to receive interest subsidy payments.
(7) Special Allowance Payments. The Higher Education Act
requires, subject to certain conditions, the Department of Education to
make quarterly special allowance payments to holders of qualifying
federal loans (including Stafford Loans), in an amount equal to a
specified percentage of the average outstanding principal amount of
each such federal loan during each quarter.
The percentage or rate used to determine the special allowance
payments for a particular loan varies based on a number of factors,
including when the loan was disbursed and the period of enrollment with
respect to which it was made. Generally, the special allowance payment
with respect to a federal loan for a quarter will be equal to the
excess, if any, of the amount of interest that would be payable on that
loan at an annual rate equal to:
- the average bond equivalent rates of 91-day Treasury Bills
auctioned for that quarter plus 3.25% (3.10% for loans first
disbursed on or after October 1, 1992 and before October 1,
1998),
- the average bond equivalent rates of 91-day Treasury Bills
auctioned for that quarter plus 2.2 % while borrowers are
in-school, grace or deferment status, or 2.8% while borrowers
are in the repayment period for loans first disbursed on or
after July 1, 1998 and before January 1, 2000, or
- the 3-month commercial paper (financial) rates in effect for
each of the days in that quarter as reported by the Federal
Reserve in Publication H15, plus 2.34% during repayment
periods or 1.74% while borrowers are in-school, grace or
deferment periods (or 2.64% in the case of PLUS and federal
consolidation loans for which the application is received on
or after January 1, 2000, over
the stated amount of interest payable on the loan.
The Higher Education Act provides that a holder of a
qualifying loan who is entitled to receive special allowance payments
has a contractual right against the United States to receive those
payments (including the right to receive interest on any special
26
allowance payments not timely paid). Receipt of special allowance
payments, however, is conditioned on compliance with the requirements
of the Higher Education Act, including satisfaction of certain
need-based criteria (and the delivery of sufficient information by the
borrower and the lender to the Department of Education to confirm the
foregoing) and continued eligibility for federal reinsurance. This
eligibility may be lost, however, if the loans are not originated and
serviced, or are not held by an eligible lender, in accordance with the
requirements of the Higher Education Act and the applicable guarantee
agreement. See "--(1) Eligibility Requirements;" "Formation of the
Trusts--Eligible Lender Trustee" and "Description of the Transfer and
Servicing Agreements--Servicing Procedures." The seller and the
depositor expect that each of the Stafford Loans that are part of a
pool of student loans will be eligible to receive special allowance
payments, if any are payable from time to time.
Interest subsidy payments and special allowance payments are
generally received within 45 to 60 days after submission to the
Department of Education of the applicable claims forms for any given
calendar quarter, although we can give you no assurance that these
payments will in fact be received from the Department of Education
within that period. For each trust, the related administrator will
agree to prepare and file with the Department of Education all such
claims forms and any other required documents or filings on behalf of
the applicable eligible lender trustee as owner of the related federal
loans on behalf of that trust. The administrator will also agree to
assist the eligible lender trustee in monitoring, pursuing and
obtaining these interest subsidy payments and special allowance
payments, if any, with respect to these federal loans. Except under
certain conditions described in this prospectus, each eligible lender
trustee will be required to remit interest subsidy payments and special
allowance payments it receives with respect to the federal loans within
two business days of receipt to the related collection account.
THE SLS LOAN PROGRAM. In addition to the Stafford Loan Program, the
Higher Education Act previously provided a separate program to facilitate
additional loans to graduate and professional students and independent
undergraduate students. This program is referred to as the "Supplemental Loans
for Students Program" (or the "SLS Loan Program"). As of July 1, 1994, the SLS
Loan Program was discontinued and SLS Loans are no longer made. The basic
framework and principal provisions of the Stafford Loan Program as described
above are similar in many respects to those that are applicable to SLS Loans
under the SLS Loan Program. In particular, SLS Loans are subject to similar
eligibility requirements and, provided that these requirements are satisfied,
are entitled to the same guarantee and federal reinsurance arrangements. SLS
Loans differ significantly from Stafford Loans, however, in the context of the
interest subsidy payments and special allowance payments discussed above. If a
substantial portion of the federal loans sold to any trust will consist of SLS
Loans, a description of the SLS Loan Program will be included in the related
prospectus supplement.
THE PLUS LOAN PROGRAM. The Higher Education Act authorizes Federal PLUS
Loans (or "PLUS Loans") to be made to parents of eligible dependent students
under the PLUS Loan Program. After July 1, 1993, only parents who do not have an
adverse credit history or who can secure an endorser without an adverse credit
history are eligible for PLUS Loans. The basic provisions applicable to Federal
PLUS Loans are similar to those of Stafford Loans with respect to the federal
insurance and reinsurance on the loans. However, PLUS Loans differ from
27
Stafford Loans in that interest subsidy payments are not available under the
PLUS Loan Program and in some instances special allowance payments are more
restricted.
PLUS Loans disbursed before July 1, 1993 are limited to $4,000 per
academic year with a maximum aggregate amount of $20,000. The only limit on the
annual and aggregate amounts of PLUS Loans first disbursed on or after July 1,
1993 is the cost of the student's education less other financial aid received,
including scholarship, grants and other student loans.
The interest rate determination for a PLUS Loan depends on when the
PLUS Loan was originally made and disbursed and the period of enrollment. We
have summarized the interest rates for PLUS Loans in the following chart.
INTEREST
TRIGGER DATE(1) BORROWER RATE(2) MAXIMUM RATE RATE MARGIN
- --------------- ---------------- ------------- -----------
Prior to 10/01/81......... 9% 9% N/A
10/01/81-10/30/82......... 14% 14% N/A
11/01/82-06/30/87......... 12% 12% N/A
07/01/87-09/30/92......... 52-Week Treasury + Interest Rate 12% 3.25%
Margin(3)
10/01/92-06/30/94......... 52-Week Treasury + Interest Rate 10% 3.10%
Margin(3)
07/01/94-06/30/98......... 52-Week Treasury + Interest Rate 9% 3.10%
Margin(3)
After 6/30/98............. 91-Day Treasury + Interest Rate 9% 3.10%
Margin
- ---------------------
(1) The Trigger Date for PLUS Loans made before October 1, 1992 is the
first day of the enrollment period for which the PLUS Loan is made. The
Trigger Date for PLUS Loans made on or after October 1, 1992 is the
date of the disbursement of the PLUS Loan.
(2) For PLUS Loans that carry a variable rate, the rate is set annually for
12-month periods beginning on July 1 and ending on June 30 on the
preceding June 1 and is equal to the lesser of (a) the applicable
maximum rate and (b) the sum of (i) the bond equivalent rate of 52-week
Treasury Bills (or 91-day Treasury Bills in the case of loans made or
disbursed on or after June 30, 1998) auctioned at the final auction
held prior to that June 1 and (ii) the applicable Interest Rate Margin.
(3) For periods beginning on or after July 1, 2001, the interest rate is
equal to the weekly average 1-year constant maturity Treasury yield, as
published by the Board of Governors of the Federal Reserve System, for
the last calendar week ending on the preceding June 26, plus the
applicable interest rate margin.
A holder of a PLUS Loan is eligible to receive special allowance
payments during any quarter if (a) the sum of (i) the average of the bond
equivalent rates of 91-day Treasury Bills auctioned during that quarter and (ii)
the Interest Rate Margin shown in the table above exceeds (b) the Maximum Rate
shown in the table above.
Repayment of principal of a PLUS Loan is required to start no later
than 60 days after the date of disbursement of the loan, subject to certain
deferral and forbearance provisions. The deferral provisions applicable to PLUS
Loans are more limited than those applicable to Stafford Loans and although
interest subsidy payments are not available for these deferments, interest may
be capitalized during these periods upon agreement of the lender and borrower
during certain periods of educational enrollments and periods of unemployment or
hardship as specified under the Higher Education Act. Maximum loan repayment
periods and minimum payment amounts are the same as for Stafford Loans.
A borrower may refinance all outstanding PLUS Loans under a single
repayment schedule for principal and interest, with the new repayment period
calculated from the date of repayment of the most recent included loan. The
interest rate of a refinanced loan will be the weighted average of the rates of
all PLUS Loans being refinanced. A second type of refinancing enables an
eligible lender to reissue a PLUS Loan which was initially originated at a fixed
rate prior to July 1, 1987 in order to permit the borrower to obtain the
variable interest rate available
28
on PLUS Loans on and after July 1, 1987. If a lender is unwilling to refinance
the original PLUS Loan, the borrower may obtain a loan from another lender for
the purpose of discharging the loan and obtaining a variable interest rate.
THE FEDERAL CONSOLIDATION LOAN PROGRAM. The Higher Education Act
established a program to facilitate the ability of eligible borrowers of
Stafford Loans or PLUS Loans to consolidate these underlying federal loans,
together with the borrowers' other education loans that are made or guaranteed
by the federal government, into a single loan referred to in this prospectus as
a federal consolidation loan. Subject to the satisfaction of certain conditions
in the Higher Education Act, including limitations on the timing and payment of
principal and interest with respect to federal consolidation loans and a
requirement that the proceeds of federal consolidation loans are to be used to
repay the underlying federal loans (and any other loans consolidated thereunder)
of any borrower, each holder of a federal consolidation loan will be entitled to
substantially the same guarantee and federal reinsurance arrangements as are
available on Stafford Loans and PLUS Loans. Federal consolidation loans, like
Stafford Loans, are also eligible for interest subsidy payments and special
allowance payments. Under this program, an eligible borrower of federal
consolidation loans means a borrower (i) with outstanding underlying federal
loans and (ii) who has begun repaying, who is in a grace period preceding
repayment of, or who is a delinquent or defaulted borrower who will, through the
loan consolidation, recommence repayment of, these underlying federal loans. A
married couple, each of whom has outstanding underlying federal loans, may apply
for and obtain a single federal consolidation loan so long as both individuals
agree to be held jointly and severally liable on the federal consolidation loan.
Under this program, a lender may make a federal consolidation loan to
an eligible borrower at the request of the borrower if the lender holds an
outstanding underlying federal loan of the borrower or the borrower certifies
that he or she has been unable to obtain a federal consolidation loan from any
of the holders of the borrower's outstanding underlying federal loans. The
lender making any federal consolidation loan will pay the amount thereof to the
various lenders of the respective underlying federal loans and other loans being
consolidated to pay off those loans.
The "Federal Direct Consolidation Loan Program" provides borrowers with
the opportunity to consolidate outstanding student loans at interest rates and
subject to terms, including an income-contingent repayment option, that some
borrowers may find preferable to those that would be available on a loan
originated under the Federal Consolidation Loan Program. Borrowers generally
make smaller payments based on their earnings than in the standard ten-year
plan, and the government forgives loans that are not repaid in twenty-five
years. For applications received after October 1, 1998 and before January 31,
1999, the Federal Direct Consolidation Loan Program established borrower rates
at levels lower than the statutory rate established by the Higher Education
Amendments of 1998 (or "1998 Reauthorization Bill") under the Federal Family
Education Loan Program. The 1998 Reauthorization Bill also reduced the lender
paid monthly fee on federal consolidation loans from 1.05% to 0.62% per annum
for loans made pursuant to applications received on or after October 1, 1998 and
on or before January 31, 1999. The lower rate applies only to borrowers who
applied before February 1, 1999. The availability of these lower-rate,
income-contingent loans may decrease the likelihood that the seller would be the
originator of a federal consolidation loan, as well as increase the
29
likelihood that a federal loan in a trust will be prepaid through the issuance
of a federal direct consolidation loan.
Federal consolidation loans made on or after November 13, 1997 through
September 30, 1998 bear interest at an annual rate up to the weighted average
interest rate on the underlying federal loans (rounded up to the nearest whole
percent). Federal consolidation loans for which the application is received on
or after October 1, 1998 bear interest at a rate equal to the weighted average
interest rate of the loans consolidated, rounded up to the nearest one-eighth
percent and capped at 8.25%. For federal consolidation loans received on or
after January 1, 1993, all interest of the borrower is paid during all deferral
periods. However, federal consolidation loan applications received on or after
August 10, 1993 will only be subsidized if all of the underlying loans being
consolidated were subsidized Stafford Loans; provided that, in the case of
federal consolidation loans made on or after November 13, 1997, that portion of
the federal consolidation loan that is comprised of subsidized Stafford Loans
will retain its subsidy benefits during deferral periods. In general, a borrower
must repay each federal consolidation loan in scheduled monthly installments
over a period of not more than 10 to 30 years (excluding any deferral period and
any forbearance period), depending on the original principal amount of that
federal consolidation loan. Borrowers may voluntarily prepay all or a portion of
any federal consolidation loan without premium or penalty. Repayment of a
federal consolidation loan must commence within 60 days after all holders of
underlying federal loans have discharged the liability of the borrower thereon;
provided, however, that this repayment obligation is deferred for as long as the
borrower remains an eligible student and during any applicable deferral period
and forbearance period. For federal consolidation loans entering repayment on or
after October 1, 1995, borrowers may choose among several repayment options,
including the option to make interest only payments for limited periods. Special
allowance payments are made on federal consolidation loans whenever the rate
charged the borrower is limited by the applicable fixed percentage rate cap.
However, for applications received on or after October 1, 1998, special
allowance payments are paid in order to afford the lender a yield equal to the
91-day Treasury Bill rate plus 3.1% whenever that formula exceeds the borrower's
interest rate. For student loans made pursuant to applications received on or
after January 1, 2000, special allowance payments are made in order to afford
the lender a yield equal to the bond equivalent rate of quotes for the 3-month
commercial paper (financial) rate plus 2.64%.
The Omnibus Budget Reconciliation Act of 1993 made a number of changes
to the Federal Consolidation Loan Program, including (i) requiring holders of
federal consolidation loans made on or after October 1, 1993, to pay to the
Department of Education a federal consolidation loan rebate equal to 1.05% per
annum on the outstanding balance of those loans, (ii) requiring lenders of
federal consolidation loans made on or after July 1, 1994, to offer borrowers
income-sensitive repayment schedules, (iii) repealing the $7,500 minimum
indebtedness requirement, and (iv) removing the 9% interest rate floor for
federal consolidation loans made on or after July 1, 1994. In addition, with
respect to any federal loan (including federal consolidation loans) made on or
after October 1, 1993, the lender must pay to the Department of Education a
federal origination fee equal to 0.50% on the initial principal balance of the
loan. With respect to any federal consolidation loan purchased by the eligible
lender trustee on behalf of the related trust, the related trust must pay to the
Department of Education the federal origination fee, which will be deducted by
the Department of Education out of interest subsidy payments and special
allowance payments. If sufficient interest subsidy
30
payments and special allowance payments are not due to the applicable trust to
cover the amount of the federal origination fee, the balance of the federal
origination fee may be deferred by the Department of Education until sufficient
interest subsidy payments and special allowance payments accrue to cover the
fee. If these amounts never accrue, the applicable trust would be obligated to
pay any remaining fee from other assets of that trust prior to making
distributions to noteholders or certificateholders.
UNDERGRADUATE FEDERAL LOANS. The seller originates or acquires Stafford
Loans and federal consolidation loans for students attending eligible schools.
Eligible schools include institutions of higher education and
proprietary institutions. Institutions of higher education must meet certain
standards, which generally provide that the institution:
- only admits persons who have a high school diploma or its
equivalent,
- is legally authorized to operate within a state,
- provides not less than a two-year program with credit
acceptable toward a bachelor's degree,
- is a public or non-profit institution, and
- is accredited by a nationally recognized accrediting agency or
is determined by the Department of Education to meet the
standards of an accredited institution.
Eligible proprietary institutions of higher education include business,
trade and vocational schools meeting standards which provide that the
institution:
- only admits persons who have a high school diploma or its
equivalent, or persons who are beyond the age of compulsory
school attendance and have the ability to benefit from the
training offered (as defined in the Higher Education Act),
- is authorized by a state to provide a program of vocational
education designed to fit individuals for useful employment in
recognized occupations,
- has been in existence for at least two years,
- provides at least a six-month training program to prepare
students for gainful employment in a recognized occupation,
and
- is accredited by a nationally recognized accrediting agency or
is specially accredited by the Department of Education.
With specified exceptions, institutions are excluded from consideration
as educational institutions if the institution:
- offers more than 50% of its courses by correspondence,
- enrolls 50% or more of its students in correspondence courses,
- has a student enrollment in which more than 25% of the
students are incarcerated, or
- has a student enrollment in which more than 50% of the
students are admitted without a high school diploma or its
equivalent on the basis of their ability to benefit from the
education provided (as defined by statute and regulation).
31
Further, schools are specifically excluded from participation if:
- the educational institution has filed for bankruptcy,
- the owner, or its chief executive officer, has been convicted
or pleaded "nolo contendere" or "guilty" to a crime involving
the acquisition, use or expenditure of federal student aid
funds, or has been judicially determined to have committed
fraud involving funds under the student aid program, or
- the educational institution has a cohort default rate in
excess of the rate prescribed by the Act. In order to
participate in the program, the eligibility of a school must
be approved by the Department of Education under standards
established by regulation.
GRADUATE FEDERAL LOANS. The seller originates or acquires federal loans
under loan programs to provide educational financing to graduate and
professional students enrolled in or recently graduated from law schools,
medical schools, dental schools, graduate business schools and other graduate
schools approved or accredited by national accrediting institutions and regional
associations of schools and colleges, as appropriate. The federal graduate
programs originally targeted law school students but have been expanded over the
years to include virtually all graduate level fields of study. The seller (or
its predecessors) has been originating loans under the federal graduate programs
since 1990.
We have set forth in the following table the acceptable degree programs
for each graduate field of study:
FIELD OF STUDY ACCEPTABLE DEGREE PROGRAMS
- -------------- --------------------------
Law Juris Doctor of Law or other
joint law degree program
Medical Medical Doctor, Doctor of
Osteopathy or Doctor of
Podiatry
Dental Graduate dental program
Business Graduate business program
Graduate Graduate level certificate or
degree program
DESCRIPTION OF PRIVATE LOANS UNDER THE PROGRAMS
GENERAL. In addition to the federal loans originated under the Higher
Education Act, the seller and other lenders have developed private student loan
programs that are not federally guaranteed for undergraduate students and/or
their parents, graduate students and students undertaking career education that
can be used by borrowers in lieu of federal loans or to supplement their federal
loans in situations where the federal loans do not cover the cost of education.
A law student may also receive a bar examination loan to finance the costs of
32
preparing for and taking one or more state bar examinations if that student has
applied for the loan within a limited period before or after graduation. A
medical or dental student may also receive a residency loan to finance the cost
of participating in one or more medical or dental residency programs if that
student has applied for the loan within a limited period or after graduation.
Also, a career education student may pursue a certificate or training program,
including a specialized technical training program, to enhance his or her
education or to increase his or her potential income.
These loans are referred to collectively in this prospectus as private
loans. The holders of private loans are not entitled to receive any federal
assistance relating to those private loans.
PRIVATE UNDERGRADUATE LOANS. The seller originates private
undergraduate loans through multiple alternative loan programs, including the A+
Funds Private Loan Program, the Campus Door Private Loan Program and the Key
Alternative Loan Program. The seller may in the future originate private
undergraduate loans, or acquire private undergraduate loans originated, under
other similar alternative loan programs. This prospectus or the prospectus
supplement for each trust will contain a description of the alternative loan
programs under which the seller or another lender originated a significant
portion of the private loans sold to that trust.
KEY ALTERNATIVE LOANS. Key Alternative Loans provide undergraduate
students supplemental fundings that allow these students the opportunity to
share the responsibility of education financing with or without a cosigner. Key
Alternative Loans were introduced to students in 1995 and are serviced on behalf
of the seller by Great Lakes Educational Loan Services Inc. Key Alternative
Loans are not guaranteed by any federal or private guarantor, or by any other
party or governmental agency.
(1) Eligibility Requirements. In order to qualify for a
Key Alternative Loan, the borrower must meet the following eligibility
requirements:
- At least half-time undergraduate student at a Title IV
eligible institution (Prior to the 1998-1999 program year, the
borrower had to be a full-time student.)
- U.S. citizen/national or an eligible non-citizen
- Must meet the following credit criteria:
- No account has been 90 or more days delinquent in the
past two years.
- No record of bankruptcy, foreclosure, repossession,
skips or wages garnishment.
- No record of unpaid collections, charged-off accounts
or written-off accounts.
- No record of an open judgment or suit, unsatisfied
tax lien, unpaid prior educational loan default or
other negative public record items in the past seven
years.
33
- Applicant can be approved without cosigner if the applicant
meets credit criteria, has acceptable credit bureau score and
sufficient credit history.
- If applicant does not meet the criteria applicant will be
declined.
- If applicant meets the criteria but has unacceptable credit
bureau score, a creditworthy cosigner will be required for
approval.
- Cosigner, if any, must pass the credit review process that
considers the above criteria and must score well compared with
other applicants.
- The credit bureau score requirements apply to both applicant
and cosigner.
A creditworthy cosigner may be required if the borrower has
insufficient credit history and/or is not a US citizen.
If a cosigner is required, the cosigner must also be a US
citizen/national or permanent resident and meet minimum credit
criteria. The cosigner does not have to be the borrower's parent or
guardian. Upon request of the borrower, the cosigner may be released
from its obligations with respect to the loan if the borrower
establishes an acceptable payment record and certain other specific
financial and credit criteria are met.
(2) Loan Limits. The minimum annual loan amount for a Key
Alternative Loan is $1,000. The annual and aggregate maximum loan
limits are as follows:
PROGRAM YEAR* YEAR IN SCHOOL ANNUAL MAXIMUM AGGREGATE MAXIMUM
- ------------- -------------- -------------- -----------------
1998-1999 First year $ 7,500 $ 47,500
Second - Fifth years $ 10,000
1999-2000 All $ 10,000 $ 50,000
2000-2001 All $ 10,000 $ 60,000
2001-2002 All $ 10,000 $ 60,000
2002-2003 All $ 10,000 $100,000
2003-2004 All $ 10,000 $100,000
* Annual and aggregate loan limits for Key Alternative Loans originated before
1998 differ from the annual and aggregate loan limits in the table above. If Key
Alternative Loans originated before 1998 constitute a significant portion of the
private loans sold to any trust, these limits will be described in the related
prospectus supplement.
(3) Interest. Interest is payable on each Key Alternative
Loan monthly until the principal amount is repaid in full. Borrowers
may defer interest payments during the interim period. The deferred
interest will be capitalized once on the last day of the interim
period. We have set forth in the following table the applicable
interest rates for Key Alternative Loans:
PROGRAM YEAR(1) INTEREST MARGIN APPLICABLE INDEX
- --------------- --------------- ----------------
Interim (2) Repayment (3)
----------- -------------
1998-1999 2.72% 2.87% three-month LIBOR
1999-2000 2.72% 2.87% three-month LIBOR
2000-2001 2.72% 2.87% three-month LIBOR
34
INTEREST MARGIN
---------------
PROGRAM YEAR(1) Interim (2) Repayment (3) APPLICABLE INDEX
- --------------- ----------- ------------- ----------------
2001-2002 2.75% 2.90% three-month LIBOR
2002-2003 2.75% 2.90% three-month LIBOR
2003-2004 2.75% 2.90% three-month LIBOR
(1) Interest rates for Key Alternative Loans originated before 1998 differ
from the interest rates in the table above. If Key Alternative Loans
originated before 1998 constitute a significant portion of the private
loans sold to any trust, these interest rates will be described in the
related prospectus supplement.
(2) "Interim" represents any period while the borrower is attending school
or during a specified grace period.
(3) "Repayment" represents the period after the specified grace period, in
which the borrower is required to make payments or enter into some type
of deferment or forbearance period.
(4) Repayment. In general, borrowers must repay each Key
Alternative Loan in monthly installments until the loan is paid in
full. The repayment term is 10 years if the balance at repayment is
less than $15,000 or 15 years if the balance at repayment is $15,000 or
more. There is a minimum payment amount of $50 per month and there is
no prepayment penalty.
(5) Grace Periods, Deferral Periods, Forbearance Periods.
The repayment period on a Key Alternative Loan generally begins after
the grace period, defined as six months after the student graduates or
ceases to be enrolled at least half-time at an accredited institution
or five years from the date of the first Key Alternative Loan
disbursement. In general, deferral periods are not permitted other than
during the in school and grace periods, when the borrower is still
responsible for the capitalization of the deferred interest. Borrowers
may request periods of forbearance related to the following areas:
unemployment, underemployment, hardship, practical and graduate school
enrollment. Forbearances are generally granted in six month increments
except for graduate school forbearance which is granted in 12 month
increments.
PRIVATE GRADUATE LOANS. The seller originates or acquires private
graduate loans through multiple programs, including the A+ Funds Private Loan
Program, the Campus Door Private Loan Program, the Med Funds Private Loan
Program and the Key Graduate Achiever Loan Program. The seller may in the future
originate private graduate loans, or acquire private graduate loans originated,
under other similar loan programs. This prospectus or the prospectus supplement
for each trust will contain a description of the loan programs under which the
seller or another lender originated a substantial portion of the private loans
sold to that trust.
Private graduate loans are made to provide educational financing to
help pay for the costs of:
- attending law, medical, dental, graduate, business, or other
graduate school,
- taking/passing one or more state bar examinations upon
graduation from law school, or
- participating in one or more medical or dental residency
programs upon graduating from medical or dental school.
35
Private graduate loans consist of loans associated with the
above-mentioned fields of study (including bar exam and residency loans) and
private consolidation loans and may be guaranteed or unguaranteed. The
unguaranteed private graduate loans are not guaranteed in any respect by any
federal or private guarantor or by any other party or governmental agency.
Subject to the satisfaction of the conditions imposed by the applicable loan
program and the applicable guarantee agreement, the guaranteed private graduate
loans are fully guaranteed against nonpayment of principal and interest as a
result of a borrower's default, death, disability or bankruptcy by the private
guarantors. Private guarantors are not reinsured by the Department of Education
or any other governmental entity. Borrowers of guaranteed private graduate loans
must meet the credit underwriting standards established by the applicable
private guarantor as well as the requirements imposed by the applicable loan
program, including the credit underwriting standards established by the seller.
(1) Loan Limits. We have summarized in the following
table the annual, aggregate and cumulative loan limits for each private
graduate loan:
ANNUAL AGGREGATE CUMULATIVE
PROGRAM YEAR(1) TYPE OF LOAN MAXIMUM MAXIMUM MAXIMUM(2)
- --------------- ------------ ------- ------- ----------
1998-1999 Law Loan Up to the cost of attendance N/A $130,000
Business Loan Up to the cost of attendance N/A $130,000
Dental Loan Up to the cost of attendance N/A $175,000;
$200,000
(post-doctoral)
Graduate Loan Up to the cost of attendance N/A $130,000
Medical Loan Up to the cost of attendance N/A None
Bar Exam Loan $7,500 $7,500 $ 7,500
Residency Loan $8,000 $8,000 $ 8,000
1999-2000 Law Loan Up to the cost of attendance N/A $130,000
Business Loan Up to the cost of attendance N/A $130,000
Dental Loan Up to the cost of attendance N/A $175,000;
$200,000
(post-doctoral)
Graduate Loan Up to the cost of attendance N/A $130,000
Medical Loan Up to the cost of attendance N/A None
Bar Exam Loan $8,000 $8,000 $ 8,000
Residency Loan $8,000 $8,000 $ 8,000
2000-2001 Law Loan Up to the cost of attendance N/A $130,000
Business Loan Up to the cost of attendance N/A $130,000
Dental Loan Up to the cost of attendance N/A $195,000;
$230,000
(post-doctoral)
Graduate Loan Up to the cost of attendance N/A $130,000
Medical Loan Up to the cost of attendance N/A None
Bar Exam Loan $ 8,000 $ 8,000 $ 8,000
Residency Loan $10,000 $10,000 $ 10,000
2001-2002 Law Loan Up to the cost of attendance N/A $130,000
Business Loan Up to the cost of attendance N/A $130,000
Dental Loan Up to the cost of attendance N/A $230,000;
$250,000
(post-doctoral)
Graduate Loan Up to the cost of attendance N/A $130,000
Medical Loan Up to the cost of attendance N/A None
36
ANNUAL AGGREGATE CUMULATIVE
PROGRAM YEAR(1) TYPE OF LOAN MAXIMUM MAXIMUM MAXIMUM(2)
- --------------- ------------ ------- ------- ----------
Bar Exam Loan $10,000 $10,000 $ 10,000
Residency Loan $10,000 $10,000 $ 10,000
2002-2003 Law Loan Up to the cost of attendance N/A $ 150,000
Dental Loan Up to the cost of attendance N/A $ 230,000;
$ 250,000
(post-doctoral)
Medical Loan Up to the cost of attendance N/A None
Bar Exam Loan $10,000 $10,000 $ 10,000
$15,000 $ 15,000
Residency Loan $10,000 $10,000 $ 10,000
$15,000 $ 15,000
Law Loan Up to the cost of attendance N/A $ 150,000
Dental Loan Up to the cost of attendance N/A $ 230,000;
$ 250,000
(post-doctoral)
2003-2004 Law Loan Up to the cost of attendance N/A $ 150,000
Dental Loan Up to the cost of attendance N/A $ 230,000;
$ 250,000
(post-doctoral)
Medical Loan Up to the cost of attendance N/A None
Bar Exam Loan $15,000 $10,000 $ 10,000
$15,000 $ 15,000
Residency Loan $15,000 $10,000 $ 10,000
$15,000 $ 15,000
Law Loan Up to the cost of attendance N/A $ 150,000
Dental Loan Up to the cost of attendance N/A $ 230,000;
$ 250,000
(post-doctoral)
(1) Loan limits for private graduate loans originated before 1998 differ
from the loan limits in the table above. If private graduate loans
originated before 1998 constitute a significant portion of the private
loans sold to any trust, these limits will be described in the related
prospectus supplement.
(2) Including graduate and undergraduate debt.
(2) Interest. Interest accrues on each private graduate
loan at an annual rate, reset quarterly, equal to the 91-day Treasury
Bill rate or three-month LIBOR plus a margin, depending on the type of
loan. We have set forth in the following table the applicable interest
rate for each type of private graduate loan:
PROGRAM YEAR(1) TYPE OF LOAN INTEREST MARGIN APPLICABLE INDEX
- --------------- ------------ --------------- ----------------
Interim (2) Repayment (3)
----------- -------------
1998-1999(4) Law Loan 2.90%-3.25% 2.50%-3.25% 91 Day T-Bill
Medical Loan 2.50% 2.25%-2.85% 91 Day T-Bill
Dental Loan 2.50%-2.75% 2.25%-3.00% 91 Day T-Bill
Business Loan 3.25%-3.00% 2.50%-3.25% 91 Day T-Bill
Graduate Loan 3.25%-3.40% 2.50%-3.40% 91 Day T-Bill
Bar Exam Loan 2.90%-3.25% 2.50%-3.25% 91 Day T-Bill
Residency Loan 2.50% 2.25%-2.85% 91 Day T-Bill
Dental 2.50%-2.75% 2.25%-3.00% 91 Day T-Bill
Residency Loan
1999-2000(4) Law Loan 2.90% 2.50%-3.25% 91 Day T-Bill
37
INTEREST MARGIN
---------------
PROGRAM YEAR(1) TYPE OF LOAN Interim (2) Repayment (3) APPLICABLE INDEX
- --------------- ------------ ----------- ------------- ----------------
Medical Loan 2.50% 2.00%-2.85% 91 Day T-Bill
Dental Loan 2.50%-2.75% 2.00%-2.85% 91 Day T-Bill
Business Loan 3.25% 2.50%-3.25% 91 Day T-Bill
Graduate Loan 3.25% 2.50%-3.25% 91 Day T-Bill
Bar Exam Loan 2.90% 2.50%-3.25% 91 Day T-Bill
Residency Loan 2.50% 2.00%-2.85% 91 Day T-Bill
Dental 2.50%-2.75% 2.00%-2.85% 91 Day T-Bill
Residency Loan
2000-2001(4) Law Loan 2.90% 2.50%-3.25% 91 Day T-Bill
Medical Loan 2.50% 2.25%-2.85% 91 Day T-Bill
Dental Loan 2.50%-2.75% 2.00%-2.85% 91 Day T-Bill
Business Loan 3.25% 2.50%-3.25% 91 Day T-Bill
Graduate Loan 3.25% 2.50%-3.25% 91 Day T-Bill
Bar Exam Loan 2.90% 2.50%-3.25% 91 Day T-Bill
Residency Loan 2.50% 2.00%-2.85% 91 Day T-Bill
Dental 2.50%-2.75% 2.00%-2.85% 91 Day T-Bill
Residency Loan
2001-2002(4) Law Loan 2.30% 2.20%-3.10% three-month LIBOR
Medical Loan 2.30% 2.00%-2.70% three-month LIBOR
Dental Loan 2.30% 2.00%-2.70% three-month LIBOR
Graduate Loan 2.30% 2.20%-3.10% three-month LIBOR
Bar Exam Loan 2.30% 2.20%-3.10% three-month LIBOR
Residency Loan 2.30% 2.00%-2.70% three-month LIBOR
Dental 2.30% 2.00%-2.70% three-month LIBOR
Residency Loan
2002-2003(4) Law Loan 2.30%-2.55% 2.20%-4.00% three-month LIBOR
Medical Loan 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Dental Loan 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Graduate Loan 2.30%-2.55% 2.20%-4.00% three-month LIBOR
Bar Exam Loan 2.30%-2.55% 2.20%-4.00% three-month LIBOR
Residency Loan 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Dental Residency 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Loan
2003-2004(4) Law Loan 2.30%-2.55% 2.20%-4.00% three-month LIBOR
Medical Loan 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Dental Loan 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Bar Exam Loan 2.30%-2.55% 2.20%-4.00% three-month LIBOR
Residency Loan 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Dental 2.30%-2.55% 2.00%-4.00% three-month LIBOR
Residency Loan
(1) Interest rates for private graduate loans originated before 1998 differ
from the payment terms in the table above. If private graduate loans
originated before 1998 constitute a significant portion of the private
loans sold to any trust, these terms will be described in the related
prospectus supplement.
(2) "Interim" represents any period while the borrower is attending school
or during a specified grace period.
(3) "Repayment" represents the period after the specified grace period, in
which the borrower is required to make payments or enter into some type
of deferment or forbearance period.
(4) Two separate loan programs apply. In one program, the margin is
determined based on the borrower's choice of repayment terms, which
range from 10 to 25 years (the "Keys2Repay Program"). The other program
has one margin regardless of interim, repayment period, or repayment
term.
Interest accrues on the outstanding principal amount of each
private graduate loan from the date the lender makes the private
graduate loan and is payable monthly by each borrower starting on a
repayment start date which is a specified number of months after
38
the borrower graduates or otherwise ceases to be enrolled at least
half-time in an approved institution.
(3) Repayment. After the applicable repayment start date,
each student with an outstanding private graduate loan is obligated to
make scheduled payments of principal at the same time that he or she
makes interest payments in an amount sufficient to repay the private
graduate loan in accordance with the terms of the applicable program
(except with respect to private graduate loans made under the
Keys2Repay incentive program, where the repayment term can be 10, 15 or
25 years at the borrower's option). Any borrower may at any time
voluntarily prepay all or any portion of his or her outstanding private
loans without premium or penalty. Also, any borrower may pay accrued
interest before the applicable repayment start date on a quarterly
basis in lieu of capitalizing those amounts without premium or penalty.
(4) Grace Periods, Deferral Periods, Forbearance Periods.
For all private graduate loans, the grace period is approximately nine
months, except that in the case of Medical or Residency loans, the
period, generally, is extended to nine months after the borrower
completes any required residency (generally, up to a maximum of 57
months after graduation), subject to deferral or forbearance as
discussed below. Subject to certain conditions, borrowers of private
graduate loans may receive the benefits of certain deferral periods
(either before commencing repayment or after) similar to those
applicable to Stafford Loans, during which borrowers are permitted to
defer principal payments and to capitalize the interest accruing on the
private graduate loans. In addition, borrowers of private graduate
loans may, subject to certain conditions, qualify at the discretion of
the lender (in accordance with standards and guidelines approved by the
private guarantors, if applicable), for periods of forbearance because
of temporary financial hardship, during which borrowers may defer or
make reduced principal payments on those private graduate loans.
Interest on each private graduate loan that accrues before the
repayment start date may, at the option of the borrower, be paid
currently or be capitalized and added to the principal amount
outstanding for that private graduate loan on that date.
(5) Loan Fees. With respect to each private graduate loan
(other than private consolidation loans) made, a fee equal to a
percentage of the original principal amount of the private graduate
loan is charged to the borrower on the last day before the applicable
repayment start date. These fees may vary by the type of loan, the
program year and the borrower's credit (including credit history), and
can range from 2% to 6.9%. Unless this fee is paid, the seller will
make an additional loan as a fee advance to the borrower in an amount
equal to this fee, which will be added to the principal balance of the
related private graduate loan and repaid over its term.
(6) Incentive Programs. Some private graduate loans are
eligible for a 0.25% interest rate reduction for direct debit from a
borrower's checking or savings account, and some are eligible for 0.5%
to 2.0% interest rate reduction for 36 on-time payments.
KEY CAREERLOANS
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Key CareerLoans are career education loans that provide financing for
students enrolled part-time (including less than half-time) and full-time in
undergraduate, graduate, evening, weekend, distance learning, certificate,
continuing education, information technology or other approved specialized
technical training programs. The student must be the listed as the applicant on
a Key CareerLoan application, and may apply with or without a co-applicant. The
Key CareerLoan Program was introduced to students in 1997. Key CareerLoans are
not guaranteed by any federal or private guarantor, or by any other party or
governmental agency.
(1) Eligibility Requirements. In order to qualify for a
Key CareerLoan, the borrower must meet the following eligibility
requirements:
- Both applicant and co-applicant (if applicable) must be a U.S.
citizen, national, permanent resident or eligible non-citizen
possessing an original I-151, I-551 or I-94 INS card.
- Must meet the following credit criteria:
- No account has been 90 or more days delinquent in the
past two years;
- No record of bankruptcy, foreclosure, repossession,
skips or wage garnishment;
- No record of unpaid collections, charged-off accounts
or written-off accounts;
- No record of an open judgment or suit, unsatisfied
tax lien, unpaid prior education loan default or
other negative public record items in the past seven
years;
- Applicant can be approved without co-applicant if the
applicant meets credit criteria, has acceptable
credit bureau score and sufficient credit history;
- If applicant does not meet the criteria, applicant
will be declined;
- A co-applicant will not overcome a negative credit
history on the part of the applicant;
- Co-applicant, if any, must pass the credit review
process that considers the above criteria; and
- The credit bureau score requirements apply to both
applicant and co-applicant.
A creditworthy co-applicant may be required if the borrower
has insufficient credit history. If a co-applicant is required, the
co-applicant must also be a U.S. citizen, national or permanent
resident and meet minimum credit criteria. The co-applicant may be any
creditworthy person, and need not be the borrower's parent, guardian,
or other relative.
40
(2) Loan Limits. The minimum loan amount for a Key
CareerLoan is $1,000. Borrowers who have received the minimum loan
amount are eligible for additional incidental loan funds. There is no
minimum incidental loan funds amount. The annual maximum loan limits
are $15,000 (loan proceeds), plus $3,000 (incidental loan proceeds),
with an aggregate maximum loan limit of $50,000 (combined loan and
incidental funds).
(3) Interest. Interest rates for the Key CareerLoans are
variable and are adjusted on a quarterly basis. The interest rate for
loans originated before April 25, 2001 is calculated based on the
13-week Treasury Bill rate plus a margin of 4.75%. The interest rate
for loans originated on or after April 25, 2001 is calculated based on
3-month LIBOR plus a margin of 4.25% for loans entering repayment
immediately after disbursement, and on 3-month LIBOR plus a margin of
5.25% for loans for which repayment is deferred for one year after
disbursement.
(4) Repayment. In general, borrowers must repay each Key
CareerLoan in monthly installments until the loan is repaid in full.
The maximum repayment term is 15 years. There is a minimum payment
amount of $50 per month and there is no prepayment penalty.
(5) Grace Periods, Deferment and Forbearance. Key
CareerLoan borrowers are not eligible for any grace periods. Loans
originated before April 25, 2001 began repayment within 30 days of
initial disbursement. No deferment option was available to customers
prior to this date. Loans originated on or after April 25, 2001 begin
repayment within 15 to 45 days after initial disbursement if the
deferment option is not selected, or approximately one year after
initial disbursement if the deferment option is selected. The applicant
must request the deferment option at the time the loan application is
submitted. Requests for forbearance may be granted on a case by case
basis.
GUARANTEED PRIVATE CONSOLIDATION LOANS. The seller has established a
guaranteed private consolidation loan program to facilitate the ability of
eligible borrowers of underlying private graduate loans to consolidate these
loans into a single private consolidation loan. Subject to the satisfaction of
certain conditions in the programs relating to private graduate loans, including
limitations on the timing and payment of principal and interest with respect to
guaranteed private consolidation loans and a requirement that the proceeds of a
guaranteed private consolidation loan be used to repay the respective underlying
private graduate loans of any borrower, each holder of a guaranteed private
consolidation loan will be entitled to substantially the same guarantee
arrangements, if any, as are available on the underlying private graduate loans.
Currently, all of the underlying private graduate loans that are consolidated
under the guaranteed private consolidation loan program are private graduate
loans that were guaranteed by TERI against default, death, bankruptcy or
disability of the applicable borrower, and the resulting private consolidation
loan is similarly guaranteed by TERI. Under this program, an eligible borrower
of a guaranteed private consolidation loan guaranteed by TERI means a borrower
(i) with outstanding underlying private graduate loans of at least $7,500 and
(ii) who has begun repaying and is not more than 45 days delinquent in required
payments on any underlying private graduate loan. A borrower of a guaranteed
private consolidation loan
41
must consolidate all of his or her eligible loans and in doing so will generally
forgo all opportunities for deferment or forbearance.
Guaranteed private consolidation loans will bear interest at the rate
applicable to the type of underlying graduate loan for which the greatest
principal amount of underlying graduate loans to be consolidated is outstanding.
The guaranteed private consolidation loans made before May 1, 1997 are repayable
over a period of 15-25 years and the guaranteed private consolidation loans made
on or after May 1, 1997 are or will be repayable over a period of 25 to 30
years, in each case, depending on the original principal amount of the
guaranteed private consolidation loan. The private loan repayment start date
with respect to a guaranteed private consolidation loan will occur immediately
upon disbursement, with no provision for deferment or forbearance. The borrower
of a guaranteed private consolidation loan will be offered repayment options
similar to those available for other private graduate loans. With respect to
each guaranteed private consolidation loan, a fee equal to 1% of the amount paid
to discharge the underlying private graduate loans will be charged to the
borrower and included in the original principal amount of the guaranteed private
consolidation loan as a private consolidation fee advance.
UNGUARANTEED PRIVATE CONSOLIDATION LOANS. The seller's private
consolidation loan program also allows the consolidation of education related
debt (excluding credit card debt) used for education purposes, into a single Key
Education Consolidation Loan(sm) that is not guaranteed by any federal or
private guarantor, or by any other party or governmental agency. Borrowers of
these unguaranteed private consolidation loans will be required to satisfy
certain conditions, including limitations on the timing and payment of principal
and interest with respect to these private consolidation loans and a requirement
that the proceeds of the private consolidation loan be used to repay all the
underlying student loans or education loans of the borrower that were
consolidated
(1) Eligibility Requirements. In order to qualify for a
Key Education Consolidation Loan(sm), the borrower must meet the
following eligibility requirements:
- Loans must be in grace or repayment status.
- Must meet the following credit criteria:
- No account that has been 90 or more days delinquent in the
past two years;
- No unresolved bankruptcy, foreclosure, repossession, skip or
wage garnishment;
- No record of an unpaid collection, charge-off account or
write-off account;
- No record of an open judgment or suit, unsatisfied tax lien,
unpaid prior education loan default or other negative public
record items;
- Applicant can be approved without a cosigner if the applicant
meets credit criteria, has acceptable bureau score and
sufficient credit history;
42
- If applicant does not meet criteria, applicant will be
declined;
- If applicant meets criteria but has unacceptable bureau score,
credit worthy cosigner will be required for approval;
- Cosigner, if any, must pass the credit review process which
considers the above criteria and must score well compared with
other applicants;
- Bureau score requirements for both applicant and cosigner are
the same. Applicant and cosigner (if applicable, typically a
spouse) must be a US citizen, national, permanent resident or
eligible non-citizen possessing an original I-151, I-551 or
I-94 INS card.
(2) Loan Limits. The minimum annual loan amount for a Key
Education Consolidation Loan(sm) is $7,500. There is no maximum loan
limit for education related debt owed to the seller or its affiliates,
and a $75,000 maximum for other education related debt.
(3) Interest. Interest is payable on each Key Education
Consolidation Loan(sm) monthly until the principal amount is repaid in
full. The interest rate is calculated based on 3-month LIBOR plus a
margin. The interest rate is reset quarterly in January, April, July,
and October on the 20th of the month prior to the effective date.
(4) Repayment. In general, borrowers must repay each Key
Education Consolidation Loan(sm) in monthly installments until the loan
is paid in full. The repayment term is 10 years if the balance at
repayment is less than $15,000 or 15 years if the balance at repayment
is $15,000 or more. There is a minimum payment amount of $50 per month
and there is no prepayment penalty.
(5) Grace Periods, Deferral Periods, Forbearance Periods.
There are no grace, deferral or forbearance periods offered.
(6) Loan Fees. Fees are added to the principal of a Key
Education Consolidation Loan(sm) at the time of disbursement. This fee
is based on the borrower's credit (including credit history) and can
range from 0.5% to 8%.
FEDERAL GUARANTORS OF STUDENT LOANS
The Higher Education Act authorizes federal guarantors to support
education financing and credit needs of students at post-secondary schools. The
Higher Education Act encourages every state either to establish its own agency
or to designate another federal guarantor in cooperation with the Secretary of
Education. Under various programs throughout the United States of America,
federal guarantors insure and sometimes service guaranteed student loans. The
federal guarantors are reinsured by the federal government for from 78% to 98%
of each default claim paid, depending on their claims experience, for loans
disbursed on or after October 1, 1993 and prior to October 1, 1998, and from 75%
to 95% of each default claim paid, depending on their claims experience, for
loans disbursed on or after October 1, 1998. Federal
43
guarantors are reinsured by the federal government for 100% of death,
disability, bankruptcy, closed school and false certification claims paid. Loans
guaranteed under the lender of last resort provisions of the Higher Education
Act are also 100% guaranteed and reinsured. See"--Federal Insurance and
Reinsurance of Federal Guarantors" below.
Federal guarantors collect a one-time insurance premium of up to 1% of
the principal amount of each guaranteed loan, depending on the federal
guarantor. Federal guarantors are permitted to set their own policies on whether
or not to charge an insurance premium. Because federal guarantors are subject to
increased federal regulation and other consequences if their federal reserve
fund ratio is 0.25% or lower, several federal guarantors have recently started
to charge an insurance premium. President Bush proposed requiring federal
guarantors to charge a 1% fee in his FY 2005 budget. If enacted, all guarantors
would have to charge a 1% fee on new loans.
Each federal loan to be sold to an eligible lender trustee on behalf of
a trust will be guaranteed as to principal and interest by a federal guarantor
under a guarantee agreement between that federal guarantor and the applicable
eligible lender trustee. The applicable prospectus supplement for each trust
will identify each related federal guarantor for the federal loans held by that
trust as of the applicable closing date and the amount of the federal loans it
is guaranteeing for that trust.
FEDERAL INSURANCE AND REINSURANCE OF FEDERAL GUARANTORS. A federal loan
is considered to be in default for purposes of the Higher Education Act when the
borrower fails to make an installment payment when due or to comply with other
terms of the loan, and if the failure continues for 270 days in the case of a
loan repayable in monthly installments or for 330 days in the case of a loan
repayable in less frequent installments. Under certain circumstances a loan
deemed ineligible for federal reinsurance may be restored to eligibility.
Procedures for this restoration of eligibility are discussed below.
If the loan in default is covered by federal loan insurance in
accordance with the provisions of the Higher Education Act, the Department of
Education is to pay the applicable federal guarantor, as insurance beneficiary,
the amount of the loss sustained thereby, upon notice and determination of this
amount, within 90 days of that notification, subject to reduction as described
below.
If the loan is guaranteed by a federal guarantor, the eligible lender
is reimbursed by the federal guarantor for not less than 98% for loans disbursed
on or after October 1, 1993 of the unpaid principal balance of the defaulted
loan plus accrued and unpaid interest thereon so long as an eligible lender has
properly originated and serviced that loan. Claims submitted by lenders
satisfying requirements of the special insurance and reinsurance rules under
section 428I of the Higher Education Act, however, are eligible for 100%
payment. As of March, 2004, only one lender had qualified under these
provisions.
Under these agreements, the Department of Education also agrees to
reimburse a federal guarantor for 100% of the amounts expended in connection
with a claim resulting from the death, bankruptcy, total and permanent
disability of a borrower, the death of a student whose parent is the borrower of
a PLUS Loan or claims by borrowers who received loans on or after
44
January 1, 1986 and who are unable to complete the programs in which they are
enrolled due to school closure or borrowers whose borrowing eligibility was
falsely certified by the eligible institution; these claims are not included in
calculating a federal guarantor's claims rate experience for federal reinsurance
purposes. The Department of Education also agrees to reimburse a federal
guarantor for 100% of the amounts expended in connection with claims on loans
made under the lender of last resort provisions. The Department of Education is
also required to repay the unpaid balance of any loan if the borrower files for
relief under Chapter 12 or 13 of the Bankruptcy Code or files for relief under
Chapter 7 or 11 of the Bankruptcy Code and has been in repayment for more than 7
years or commences an action for a determination of dischargeability under
Section 523(a)(8)(b) of the Bankruptcy Code, and is authorized to acquire the
loans of borrowers who are at high risk of default and who request an
alternative repayment option from the Department of Education. See, "Certain
Legal Aspects of the Student Loans - Bankruptcy Considerations" herein.
The amount of this reinsurance payment to the federal guarantor for
default claims is subject to reduction based upon the annual default claims rate
of the federal guarantor, calculated to equal the amount of federal reinsurance
claims paid by the Department of Education to the federal guarantor during any
fiscal year as a percentage of the original principal amount of guaranteed loans
in repayment at the end of the prior federal fiscal year. The formula is
summarized as follows:
CLAIMS RATE OF FEDERAL GUARANTORS REIMBURSEMENT BY THE DEPARTMENT OF EDUCATION (1)
- --------------------------------- ------------------------------------------------
0% to and including 5% 98%
Greater than 5% to and including 9% 98% of claims to and including 5%; 88% of claims greater than 5%
Greater than 9% 98% of claims to and including 5%; 88% of claims greater than 5% to
and including 9%; and 78% of claims greater than 9%
- -------------------
(1) Each of the reimbursement percentages listed above is increased by two
percentage points for a loan made prior to October 1, 1993 and
decreased by three percentage points for a loan made on or after
October 1, 1998.
The claims experience for any federal guarantor is not accumulated from
year to year for purposes of this test but is determined solely on the basis of
claims filed in any one federal fiscal year. The Higher Education Act provides
that, subject to compliance with the Higher Education Act, federal guarantors
are deemed to have a contractual right against the United States to receive
reinsurance in accordance with its provisions.
The Omnibus Budget Reconciliation Act of 1993 made a number of changes
that may adversely affect the financial condition of the federal guarantors,
including reducing to 98% the maximum percentage of guarantee payments the
Department of Education will reimburse for loans first disbursed on or after
October 1, 1993, reducing substantially the premiums and default collections
that federal guarantors are entitled to receive and/or retain and giving the
Department of Education broad powers over federal guarantors and their reserves.
These powers include the authority to require a federal guarantor to return all
reserve funds to the Department of Education if the Department of Education
determines this action is necessary to serve the best interests of the student
loan programs or to ensure the proper maintenance of that federal guarantor's
funds or assets. The Department of Education is also now authorized to direct a
federal guarantor to
45
return a portion of its reserve funds which the Department of Education
determines is unnecessary to pay the program expenses and contingent liabilities
of the federal guarantor and/or to cease any activities involving the use of the
federal guarantor's reserve funds or assets which the Department of Education
determines is a misapplication or otherwise improper. The Department of
Education may also terminate a federal guarantor's reinsurance agreement if the
Department of Education determines that this action is necessary to protect the
federal fiscal interest. These various changes create a risk that the resources
available to the federal guarantors to meet their guarantee obligations will be
significantly reduced. These changes could result in a reduction of a trust's
ability to pay principal and interest on the related notes and certificates, as
a result of a reduction in the ability of the federal guarantors to make
guarantee payments to the eligible lender trustee with respect to the related
student loans. In addition, this legislation sought to greatly expand the loan
volume under the Federal Direct Student Loan Program to a target of
approximately 60% of student loan demand in academic year 1998-1999, although
only about 25% of that loan demand is currently being met by the direct lending
program. The expansion of this program in the future could result in increasing
reductions in the volume of federal loans made by the seller. These changes
could have an adverse effect on the financial condition of the federal
guarantors and on the ability of a federal guarantor to satisfy its obligations
under its guarantee agreement with respect to the federal loans. See "Risk
Factors--Changes in Legislation May Adversely Affect Student Loans and Federal
Guarantors." The 1998 Reauthorization Bill created additional risks that the
resources available to the federal guarantors to meet their guarantee
obligations will be further reduced in the future, by mandating additional
recall of guarantor reserves and reducing reinsurance to guarantors from 98% to
95%.
Each federal guarantor is required to maintain a current minimum
reserve level of at least 0.25% of the aggregate principal amount of all
outstanding federal loans guaranteed by that federal guarantor. Annually, the
Department of Education will collect information from each federal guarantor to
determine the amount of that federal guarantor's reserves and other information
regarding its solvency. If a federal guarantor's current reserve level falls
below the required minimum for any two consecutive years, that federal
guarantor's annual claims rate exceeds 5% or the Department of Education
determines that a federal guarantor's administrative or financial condition
jeopardizes that federal guarantor's continued ability to perform its
responsibilities, then that federal guarantor must submit and implement a
management plan acceptable to the Department of Education. The 1992 amendments
to the Higher Education Act also provide that under certain circumstances the
Department of Education is authorized, on terms and conditions satisfactory to
the Department of Education, but is not obligated, to terminate its
reimbursement agreement with any federal guarantor. If that happens, however,
the Department of Education is required to assume the functions of that federal
guarantor and as a result is authorized to do one or more of the following: to
assume the guarantee obligations of, to assign to other guarantors the guarantee
obligations of, or to make advances to, a federal guarantor in order to assist
that federal guarantor in meeting its immediate cash needs and to ensure
uninterrupted payment of default claims to lenders or to take any other action
the Department of Education deems necessary to ensure the continued availability
of student loans and the full honoring of guarantee claims thereunder. In
addition, the 1992 amendments to the Higher Education Act provide that if the
Department of Education determines that a federal guarantor is unable to meet
its guarantee obligations, holders of federal loans covered thereby may submit
guarantee claims directly to the Department of Education until those guarantee
obligations are transferred to a new guarantor capable of meeting those
obligations or until a
46
successor guarantor assumes those obligations. We can give you no assurance that
the Department of Education would under any given circumstances assume the
obligation to ensure satisfaction of a guarantee obligation by exercising its
right to terminate a reimbursement agreement with a federal guarantor or by
making a determination that the federal guarantor is unable to meet its
guarantee obligations.
PRIVATE GUARANTORS OF STUDENT LOANS
Private loans are not entitled to any federal reinsurance or assistance
from the Department of Education or any other governmental entity. Although each
private guarantor maintains a loan loss reserve intended to absorb losses
arising from its guarantee commitments, we can give you no assurance that the
amount of this reserve will be sufficient to cover the obligations of a private
guarantor over the term of the related private loans.
CLAIMS AND RECOVERY RATES
Certain historical information concerning guarantee claims and recovery
rates of the guarantors for the student loans held by the related trust as of
the applicable closing date with respect to each series of securities will be
set forth in each prospectus supplement. We can give you no assurance that the
claim and recovery experience on any pool of student loans with respect to a
given trust will be comparable to prior experience or to any such information.
ORIGINATION PROCESS
The Higher Education Act specifies rules regarding loan origination
practices, which lenders must comply with in order for their federal loans to be
guaranteed and to be eligible to receive federal assistance. Lenders and
guarantors are prohibited from offering points, premiums, payments or other
inducements, directly or indirectly, to any educational institution, guarantee
agency or individual in order to secure loan applications. No lender or
guarantor may conduct unsolicited mailings of student loan applications to
students who have not previously received student loans from that lender or, in
the case of a guarantor, guaranteed by the guarantor.
With respect to all student loans, whether federal loans or private
loans (other than consolidation loans and Key Alternative Loans discussed
below), the seller forwards each application for the student loans (which should
include an executed promissory note) to either a marketing agent or the seller's
origination department. On behalf of the seller, either the marketing agent or
the origination department reviews each application to confirm its completeness,
to confirm that the applicant is an eligible student and that the loan complies
with certain other conditions of the applicable program. Also, a credit report
of each applicant for private graduate loans is obtained from an authorized
credit reporting service, which the seller then uses to determine, in
consultation with the private guarantors, if applicable, whether the applicant
satisfies certain specified credit underwriting criteria. The
credit-underwriting criteria for private guaranteed loans are as follows:
- No account that has been 90 or more days delinquent in the
past two years, and no more than one account is currently more
than 60 days delinquent.
- No record of bankruptcy, foreclosure, repossession, skips or
wages garnishment.
47
- No record of unpaid collections, charged-off accounts or
written-off accounts.
- No record of an open judgment or suit, unsatisfied tax lien,
unpaid prior educational loan default or other negative public
record items in the past six years.
- No record of bankruptcy in the past seven years.
The credit-underwriting criteria for private unguaranteed loans are as follows:
- No more than 3 accounts rated 30 days are more delinquent in
the past 2 years.
- No more than one account is currently rated 30 days or more
delinquent.
- No more than 2 accounts rated 60 or more days delinquent in
the past 2 years.
- No account more than 90 days delinquent in the past five
years.
- No record of bankruptcy discharge in the past 7 years.
- No record of foreclosure, repossession, open judgment or suit,
unsatisfied tax lien, unpaid prior educational loan default or
other negative public credit in the past 6 years.
- No record of unpaid collections, charged-off accounts or
written-off accounts.
- No more than 3 authorized inquiries in the past 6 months.
- Applicants with no credit history will be approved.
- Applicants who meet the 2nd through the 8th criteria above,
but do not meet the minimum credit score determined by the
seller must obtain a co-signer to be eligible.
- Law applicants with credit card balances greater than $20,000
must have a credit worthy co-signer. (Medical and Dental
applicants require a co-signer with revolving balances
exceeding $30,000)
- No single or combination of paid charged-off or paid
collection accounts totaling more than $100 reported within
last 2 years.
- A credit bureau score may be used to enhance applicants
position for certain other criteria.
The origination of federal loans must comply with the provisions of the
Higher Education Act, and therefore does not consider the creditworthiness of
borrowers.
Any borrower inquiries concerning federal consolidation loans or
private consolidation loans are forwarded to the appropriate sub-servicer, who
contacts the borrower and prepares and sends to the borrower an application
(which includes a promissory note) for a consolidation loan for the borrower's
review and signature. Each sub-servicer is required to obtain certifications
from the lenders of the loans to be consolidated and to review the loan
application and the certifications to confirm that the borrower is eligible for
a federal consolidation loan or private consolidation loan, as the case may be.
Upon approval of an application for a consolidation loan, the applicable lender
causes the proceeds of the consolidation loan to be disbursed to each lender of
the loans being consolidated in amounts sufficient to retire each of these
loans. For each
48
consolidation loan that is made by the seller, a sub-servicer retains the
completed loan application and executed promissory note as custodian.
Applications for Key Alternative Loans are entered into the processing
system and are checked for completeness. If the borrower is ineligible for the
loan due to a processing denial reason an ineligibility letter is sent to the
borrower. Great Lakes Educational Loan Services Inc. sends an electronic
transmission of applicant information on each complete application to the
seller's system for credit review. Approved applications are transmitted back to
Great Lakes Educational Loan Services Inc. on a daily basis, where an approval
letter is generated and sent to the applicant, cosigner and the school. Denied
applicants are sent an adverse action letter from the credit department the day
the application is denied. If an applicant feels they have been denied based on
inaccurate or incomplete information contained in a credit report, they can
request a review (within 60 days of initial denial). Denied applicants may have
their loan reconsidered with a written request and supporting documentation. A
credit representative will review denied loan applicants documentation and
approve or deny the request. Each appeal is handled based on its individual
merits.
The seller is implementing a program that will permit borrowers to
apply for a student loan through an online process and to complete all the
related documentation, including the signing of the application and promissory
note, online through a completely electronic transaction. The program will
include a process for the archiving and storage of the electronic records
created in the course of the transaction with a borrower and will include the
promissory note with the borrower's electronic signature.
The origination process and loan documentation used by Key Bank USA,
National Association in connection with these student loans were developed in
recent years to capitalize on the potential benefits of conducting business
using electronic means, including over the internet. As such, these processes
and the related loan documentation raise issues that do not exist in customary
student loan origination programs and may give rise to challenges by borrowers
based on consumer protection or other laws relating to issues that are currently
untested in the courts, or to challenges by a guarantor to its obligation to
make guarantee payments.
SERVICING AND COLLECTIONS PROCESS
The Higher Education Act, the programs relating to private loans and
the applicable guarantee agreements require the holder of student loans to cause
specified procedures, including due diligence procedures and the taking of
specific steps at specific intervals, to be performed with respect to the
servicing of the student loans that are designed to ensure that the student
loans are repaid on a timely basis by or on behalf of borrowers. Each
sub-servicer performs these procedures on behalf of the seller or the depositor,
as applicable, and the master servicer and will agree, under the related
sub-servicing agreement, to perform specified and detailed servicing and
collection procedures with respect to the student loans on behalf of the related
trust. These procedures generally include periodic attempts to contact any
delinquent borrower by telephone and by mail, commencing with a written notice
at the tenth day of delinquency and including multiple written notices and
telephone calls to the borrower thereafter at specified times during any such
delinquency. All telephone calls and letters are automatically registered, and a
synopsis
49
of each call or the mailing of each letter is noted in each sub-servicer's loan
file for the borrower. Each sub-servicer also will be required to perform skip
tracing procedures on delinquent borrowers whose current location is unknown,
including contacting that borrowers' schools and references. Failure to comply
with the established procedures could adversely affect the ability of the
applicable eligible lender trustee, as holder of legal title to the applicable
student loans on behalf of the related trust, to realize the benefits of any
guarantee agreement or to receive the benefits of federal assistance from the
Department of Education with respect thereto. Failure to comply with certain of
the established procedures with respect to a federal loan may also result in the
denial of coverage under a guarantee agreement for certain accrued interest
amounts, in circumstances where that failure has not caused the loss of the
guarantee of the principal of that federal loan.
At prescribed times before submitting a claim for payment under a
guarantee agreement for a delinquent student loan, each sub-servicer is required
to notify the applicable guarantor of the existence of the delinquency. These
requests notify the guarantors of seriously delinquent accounts and allow the
guarantors to make additional attempts to collect on these loans prior to the
filing of claims. If a loan is delinquent for 180 days (in the case of federal
loans made prior to the enactment date of the 1998 Reauthorization Bill), 270
days (in the case of federal loans made on or after October 7, 1998), or 150
days (in the case of private guaranteed loans), the applicable sub-servicer may
file a default claim with the respective guarantor. Failure to file a claim
within 270 days (in the case of federal loans made prior to the enactment date
of the 1998 Reauthorization Bill), 360 days (in the case of federal loans made
on or after October 7, 1998), or 180 days (in the case of private guaranteed
loans) of delinquency may result in denial of the guarantee claim with respect
to that loan. A sub-servicer's failure to file a guarantee claim in a timely
fashion would constitute a breach of its covenants and create an obligation of
that sub-servicer to purchase the applicable student loan. See "Description of
the Transfer and Servicing Agreements--Master Servicer Covenants."
INCENTIVE PROGRAMS
The seller has offered, and may continue to offer, incentive programs
to certain student loan borrowers. If any incentive programs are applicable to
the student loans in a trust, these incentive programs will be described in the
related prospectus supplement. Any incentive program not in existence as of the
date of that prospectus supplement, or not described in the related prospectus
supplement, that effectively reduces borrower payments on student loans and,
with respect to federal loans, is not required by the Higher Education Act, will
be applicable to the student loans only if and to the extent that the applicable
trust receives payment from the seller or the depositor, as applicable (or the
seller or the depositor, as applicable, deposits or causes a deposit to be made
into the related collection account), in an amount sufficient to offset these
effective yield reductions.
WEIGHTED AVERAGE LIVES OF THE SECURITIES
The rate of payment of principal of the notes and the certificates of
any series and the yield on the notes and the certificates of any series will be
affected by prepayments of the student loans that may occur as described below.
All the student loans are prepayable in whole or in part by the borrowers at any
time (including by means of federal consolidation loans, private
50
consolidation loans or consolidation loans made under the Federal Direct Student
Loan Program as discussed below) or as a result of a borrower's default, death,
disability or bankruptcy and subsequent liquidation or collection of related
guarantee payments. We cannot predict the rate of these prepayments and they may
be influenced by a variety of economic, social and other factors, including
those described below. In general, the rate of prepayments may tend to increase
if alternative financing becomes available at prevailing interest rates which
fall significantly below the interest rates applicable to the student loans.
However, because many of the student loans bear interest at a rate that either
actually or effectively is floating, it is impossible to determine whether
changes in prevailing interest rates will be similar to or vary from changes in
the interest rates on the student loans.
Several bills have been introduced in Congress that would permit
borrowers of existing federal consolidation loans to refinance those loans.
Should this legislation be enacted, the prepayment risk on loans would be
increased. We can provide you no information as to the prospects for enactment
of this legislation.
To the extent borrowers of student loans elect to borrow consolidation
loans with respect to those student loans:
- from the seller, after the funding period, or
- from another lender at any time
noteholders of a series (and after the notes have been paid in full,
certificateholders of that series) will collectively receive as a prepayment of
principal the aggregate principal amount of these student loans. Any such
prepayments will result in a more rapid amortization of the securities of a
series than would otherwise be the case. At this time, we cannot determine the
volume of existing loans that may be repaid in this fashion at this time.
However, if the seller or a third party transferor of student loans to the
depositor makes any consolidation loans during a funding period (in which case
the seller will then sell that consolidation loan to the applicable eligible
lender trustee (or the seller or the applicable transferor will sell that
consolidation loan to the depositor who will then sell the consolidation loan to
the applicable eligible lender trustee), to the extent that funds are available
in the applicable escrow account and during the funding period, the pre-funding
account, for the purchase thereof), the aggregate outstanding principal balance
of student loans (after giving effect to the addition of the consolidation
loans) will be at least equal to and in most cases greater than that balance
prior to the prepayment, although the portion of the loan guaranteed will be 98%
with respect to any federal consolidation loan made on or after October 1, 1993,
even if the underlying federal loans were 100% guaranteed. See "The Student Loan
Financing Business--Description of Federal Loans Under the Programs--Federal
Consolidation Loans." We can give you no assurance that borrowers with student
loans will not seek to obtain consolidation loans with respect to their student
loans or, if they do so, that the consolidation loans will not be made by the
seller after the end of a funding period when collections on the student loans
are not available to purchase the consolidation loans or by another lender at
any time.
In addition, the seller, the depositor, the master servicer or another
entity identified in the related prospectus supplement, as applicable, will be
obligated to repurchase any student loan
51
under the applicable sale and servicing agreement as a result of a breach of any
of its representations and warranties, and the master servicer will be obligated
to purchase any student loan under the sale and servicing agreement as a result
of a breach of certain covenants with respect to that student loan, in each case
where the breach materially adversely affects the interests of the
certificateholders or the noteholders of a series in that student loan and is
not cured within the applicable cure period (it being understood that, in the
case of any guaranteed student loan, any breach that does not affect the related
guarantor's obligation to guarantee or insure payment of that student loan will
not be considered to have a material adverse effect). See "Description of the
Transfer and Servicing Agreements--Sale of Student Loans; Representations and
Warranties" and "--Servicer Covenants." See also "Description of the Transfer
and Servicing Agreements---Additional Fundings" regarding the prepayment of
principal to noteholders and certificateholders of a series if as of the date
specified in the applicable prospectus supplement the amount on deposit in the
related pre-funding account has not been reduced to zero and the prepayment of
principal to noteholders of a series as a result of excess funds remaining on
deposit in the pre-funding account at the end of the funding period,
"--Insolvency Event" regarding the sale of the student loans if a Seller
Insolvency Event occurs and "--Termination" regarding the master servicer's
option to purchase the student loans when the aggregate Pool Balance (as defined
in the applicable prospectus supplement) is less than or equal to 10% of the
initial Pool Balance of a series and the auction of the student loans occurs on
or after the date specified in the related prospectus supplement.
On the other hand, scheduled payments with respect to, and maturities
of, the student loans may be extended, including pursuant to grace periods,
deferral periods and, under certain circumstances, forbearance periods or of
refinancings through consolidation loans to the extent these consolidation loans
are sold to an eligible lender trustee on behalf of a trust as described above.
In that event, the fact that these consolidation loans will likely have longer
maturities than the student loans they are replacing may lengthen the remaining
term of the student loans and the average life of the notes and the certificates
of a series. The rate of payment of principal of the notes and the certificates
of a series and the yield on the notes and the certificates of a series may also
be affected by the rate of defaults resulting in losses on defaulted 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
related guarantee payments. Also, the maturity of many of the student loans will
extend well beyond the final scheduled distribution dates of the notes and the
certificates of a series.
We cannot predict the rate of prepayment on the student loans, and any
reinvestment risks resulting from a faster or slower incidence of prepayment of
student loans will be borne entirely by the securityholders of a series. These
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time
securityholders of a series receive payments from the related trust than the
interest rates and the spreads would otherwise have been had these prepayments
not been made or had these prepayments been made at a different time.
POOL FACTORS AND TRADING INFORMATION
Each of the note pool factor for each class of notes and the
certificate pool factor for each class of certificates will be a seven-digit
decimal which the administrator will compute for each
52
distribution date indicating the remaining outstanding principal amount of that
class of notes or the remaining principal balance for that class of certificates
(referred to as the certificate balance), respectively, as of that distribution
date (after giving effect to distributions to be made on that distribution
date), as a fraction of the initial outstanding principal amount of that class
of the notes or the initial certificate balance for that class of certificates,
respectively. Each pool factor will be 1.0000000 as of the closing date, and
thereafter will decline to reflect reductions in the outstanding principal
amount of the applicable class of notes or reductions of the certificate balance
of the applicable class of certificates. A securityholder's portion of the
aggregate outstanding principal amount of the related class of notes or of the
aggregate outstanding certificate balance for the related class of certificates,
as applicable, is the product of (x) the original denomination of that
securityholder's note or certificate and (y) the applicable pool factor.
Under the related indenture and the related trust agreement, the
securityholders will receive reports on or about each distribution date about
the payments received on the student loans, the Pool Balance (as defined in the
related prospectus supplement), the applicable pool factor and various other
items of information. Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest date
permitted by law. See "Certain Information Regarding the Securities--Reports to
Securityholders."
DESCRIPTION OF THE NOTES
GENERAL
With respect to each trust, one or more classes of notes of a given
series will be issued under an indenture between the trust and the indenture
trustee for that series, a form of which has been filed as an exhibit to the
registration statement of which this prospectus is a part. The following summary
describes the material terms of the notes and the indenture. The summary does
not purport to be complete and is qualified in its entirety by reference to all
the provisions of the notes and the indenture.
Unless otherwise specified in the related prospectus supplement, each
class of notes will initially be represented by one or more notes, in each case
registered in the name of the nominee of The Depository Trust Company (commonly
referred to as "DTC") or any successor depository selected by the administrator,
except as set forth below. Unless otherwise specified in the related prospectus
supplement, the notes will be available for purchase in denominations of $1,000
and integral multiples thereof in book-entry form only. The trust has been
informed by DTC that DTC's nominee will be Cede & Co., unless another nominee is
specified in the related prospectus supplement. Accordingly, this nominee is
expected to be the holder of record of the notes of each class. Unless and until
definitive notes are issued under the limited circumstances described in this
prospectus, no noteholder will be entitled to receive a physical certificate
representing a note. All references in this prospectus and in the related
prospectus supplement to actions by noteholders of notes held in book-entry form
refer to actions taken by DTC upon instructions from its participating
organizations (or participants) and all references in this prospectus to
distributions, notices, reports and statements to noteholders refer to
distributions, notices, reports and statements to DTC or its nominee, as the
case may be, as the registered holder of the notes
53
for distribution to noteholders in accordance with DTC's procedures. See
"Certain Information Regarding the Securities--Book-Entry Registration" and
"--Definitive Securities."
PRINCIPAL OF AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
interest as a per annum interest rate and amount of or method of determining
payments of principal and interest on each class of notes of a given series will
be described in the related prospectus supplement. 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, as described in the related prospectus supplement. Payments of
interest on the notes of that series will be made before payments of principal
thereon. Each class of notes may have a different interest rate, which may be a
fixed, variable or adjustable interest rate or any combination of the foregoing.
The related prospectus supplement will specify the interest rate for each class
of notes of a given series or the method for determining that interest rate. See
also "Certain Information Regarding the Securities--Fixed Rate Securities" and
"--Floating Rate Securities." One or more classes of the notes of a series may
be redeemable in whole or in part under the circumstances specified in the
related prospectus supplement, including as a result of the exercise by the
master servicer or such other party as may be named in the related prospectus
supplement, of its option to purchase the related student loans.
Unless otherwise specified in the related prospectus supplement,
noteholders of all classes within a series will have the same priority with
respect to payments of interest. Under certain circumstances, the amount
available for these payments could be less than the amount of interest payable
on the notes on any of the distribution dates specified in the related
prospectus supplement, in which case each class of noteholders will receive its
ratable share (based upon the aggregate amount of interest due to that class of
noteholders) of the aggregate amount available to be distributed in respect of
interest on the notes of that series. See "Description of the Transfer and
Servicing Agreements--Distributions" and "--Credit and Cash Flow Enhancement."
In the case of a series of notes which includes two or more classes of
notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to their
determination, of each such class will be set forth in the related prospectus
supplement. Payments in respect of principal and interest of any class of notes
will be made on a pro rata basis among all the noteholders of that class.
In the case of a series of notes relating to a trust having a
pre-funding account or escrow account, the notes of that series will be redeemed
in part on the distribution date on or immediately following the last day of the
related funding period if any amount remains on deposit in the applicable
account after giving effect to all additional fundings on or prior to that date,
in an aggregate principal amount described in the related prospectus supplement.
See "Description of the Transfer and Servicing Agreements--Credit and
Cash Flow Enhancement--Reserve Account" for a description of the reserve account
and the distribution of amounts in excess of the Specified Reserve Account
Balance (as defined in the related prospectus supplement).
54
THE INDENTURE
MODIFICATION OF INDENTURE. With respect to each trust, with the consent
of the holders of a majority of the specified senior class(es) of outstanding
notes of the related series, the indenture trustee and the trust may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the indenture with respect to the notes, or to
modify (except as provided below) in any manner the rights of the related
noteholders.
Unless otherwise specified in the related prospectus supplement with
respect to a series of notes, however, without the consent of the holder of each
such outstanding note affected thereby, no supplemental indenture will:
- change the due date of any installment of principal of or
interest on any note or reduce the principal amount thereof,
the interest rate specified thereon or the redemption price
with respect thereto or change any place of payment where or
the coin or currency in which any such note or any interest
thereon is payable,
- impair the right to institute suit for the enforcement of
certain provisions of the related indenture regarding payment,
- reduce the percentage of the aggregate amount of the
outstanding notes of that series, the consent of the holders
of which is required for any such supplemental indenture or
the consent of the holders of which is required for any waiver
of compliance with certain provisions of the related Indenture
or of certain defaults thereunder and their consequences as
provided for in that indenture,
- modify or alter the provisions of the related indenture
regarding the voting of notes held by the applicable trust,
the seller or the depositor, as applicable, an affiliate of
either of them or any obligor on those notes,
- reduce the percentage of the aggregate outstanding amount of
those notes, the consent of the holders of which is required
to direct the related eligible lender trustee on behalf of the
applicable trust to sell or liquidate the student loans if the
proceeds of that sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the
outstanding notes of that series,
- decrease the percentage of the aggregate principal amount of
those notes required to amend the sections of the related
indenture which specify the applicable percentage of aggregate
principal amount of the notes necessary to amend the related
indenture or certain other related agreements, or
- permit the creation of any lien ranking prior to or on a
parity with the lien of the related indenture with respect to
any of the collateral for the notes of that series or, except
as otherwise permitted or contemplated in that indenture,
terminate the lien of that indenture on any such collateral or
deprive the holder of any note of the security afforded by the
lien of that indenture.
55
The applicable trust and the related indenture trustee may also enter
into supplemental indentures without obtaining the consent of noteholders of
that series, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the related indenture or of
modifying in any manner the rights of noteholders of that series so long as that
action will not, in the opinion of counsel satisfactory to the applicable
indenture trustee, materially and adversely affect the interest of any
noteholder of that series.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the
notes of a given series, an event of default under the related indenture will
include the following:
- a default for three business days or more in the payment of
any interest on any note after the same becomes due and
payable;
- a default in the payment of the principal of or any
installment of the principal of any note when the same becomes
due and payable;
- a default in the observance or performance of any covenant or
agreement of the applicable trust made in the related
indenture and the continuation of any such default for a
period of 30 days after notice thereof is given to the
applicable trust by the applicable indenture trustee or to the
applicable trust and the applicable indenture trustee by the
holders of at least 25% in principal amount of the notes then
outstanding;
- any representation or warranty made by the applicable trust in
the related indenture or in any certificate delivered pursuant
thereto or in connection therewith having been incorrect in a
material respect as of the time made, and the breach is not
cured within 30 days after notice thereof is given to that
trust by the applicable indenture trustee or to that trust and
the applicable indenture trustee by the holders of at least
25% in principal amount of the notes of that series then
outstanding; or
- certain events of bankruptcy, insolvency, receivership or
liquidation of that trust.
However, the amount of principal required to be distributed to
noteholders of that series under the related indenture on any distribution date
will generally be limited to amounts available after payment of all prior
obligations of that trust. Therefore, the failure to pay principal on a class of
notes generally will not result in the occurrence of an event of default until
the final scheduled distribution date for that class of notes.
If, with respect to any series of notes, interest is paid at a variable
rate based on an index, the related prospectus supplement may provide that if,
for any distribution date, the interest rate as calculated based on the index is
less than an alternate rate calculated for that distribution date based on
interest collections on the student loans, the interest rate for that
distribution date will be the alternate rate and the interest index carryover
(generally equal to the difference between that alternate rate and the rate
based on an index) will be payable as described in that prospectus supplement.
Payment of the interest index carryover generally will be lower in priority than
payment of interest on the notes at the interest rate (whether the interest rate
is based on the index or the alternate rate) and, accordingly, the nonpayment of
the interest index carryover on
56
any distribution date will not generally constitute a default in the payment of
interest on the notes.
If an event of default should occur and be continuing with respect to
the notes of any series, the related indenture trustee or holders of a majority
in principal amount of the specified senior class(es) of those notes then
outstanding may declare the principal of those notes to be immediately due and
payable. Unless otherwise specified in the related prospectus supplement, the
declaration may be rescinded by the holders of a majority in principal amount of
the specified senior class(es) of the notes then outstanding if (x) the related
trust has paid or deposited with the indenture trustee a sum equal to all
amounts then due with respect to the notes (without giving effect to the
acceleration) and (y) all events of default, other than the nonpayment of the
principal of the notes that has become due solely by the acceleration, have been
cured or, under the circumstances described below, waived.
If the notes of any series have been declared to be due and payable
following an event of default relating to them, the related indenture trustee
may, in its discretion, exercise remedies as a secured party, require the
related eligible lender trustee to sell the student loans or elect to have the
related eligible lender trustee maintain possession of the student loans and
continue to apply collections with respect to the student loans as if there had
been no declaration of acceleration. Unless otherwise specified in the related
prospectus supplement, however, the related indenture trustee is prohibited from
directing the related eligible lender trustee to sell the student loans
following an event of default, other than a default in the payment of any
principal or a default for three business days or more in the payment of any
interest on any note with respect to any series, unless:
- the holders of all such outstanding notes consent to the sale;
- the proceeds of the sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding notes
at the date of the sale; or
- the related indenture trustee determines that the collections
on the student loans would not be sufficient on an ongoing
basis to make all payments on the notes as those payments
would have become due if those obligations had not been
declared due and payable, and the related indenture trustee
obtains the consent of the holders of 66 2/3% of the aggregate
principal amount of the notes then outstanding;
provided, that the indenture trustee may not sell or otherwise liquidate the
student loans following an event of default, other than a default in the payment
of any principal on the final scheduled distribution date for a class of notes
or a default of three business days or more on the payment of any interest on
any note when due, unless:
- the proceeds of the sale or liquidation of the student loans
distributable to the certificateholders are sufficient to pay
to the certificateholders the outstanding certificate balance
plus accrued and unpaid interest thereon; or
- after receipt of notice from the eligible lender trustee that
the proceeds of the sale or liquidation distributable to the
certificateholders would not be sufficient to pay
57
to the certificateholders the outstanding certificate balance
plus accrued and unpaid interest thereon, the
certificateholders of at least a majority of the outstanding
certificate balance consent thereto;
provided, further that the indenture trustee may not sell or otherwise liquidate
the student loans following an event of default, other than a default in the
payment of any principal on the final scheduled distribution date for a class of
notes or a default of three business days or more on the payment of any interest
on any note when due unless:
- proceeds of the sale or liquidation of the student loans
distributable from the sale are sufficient (1) to pay to
noteholders, the outstanding principal balance of the notes
(other than the Noteholders' Interest Carryover Shortfall (as
defined in each prospectus supplement)) and (2) to pay to
certificateholders, the outstanding certificate balance plus
accrued and unpaid interest thereon (other than the
Certificateholders' Interest Carryover Shortfall (as defined
in each prospectus supplement)); or
- after receipt of notice from the eligible lender trustee that
the proceeds of the sale or liquidation would not be
sufficient (1) to pay to noteholders, the outstanding
principal balance of the notes (other than the Noteholders'
Interest Carryover Shortfall) and (2) to pay to
certificateholders the outstanding certificate balance plus
accrued and unpaid interest thereon (other than the
Certificateholders' Interest Carryover Shortfall).
If the proceeds of any sale are insufficient to pay the then outstanding
principal amount of the notes and any accrued interest, those proceeds will be
distributed to the holders of notes on a pro rata basis, based on the amount
then owing on each class of notes.
Subject to the provisions of the applicable indenture relating to the
duties of the related indenture trustee, if an event of default should occur and
be continuing with respect to a series of notes, the related indenture trustee
will be under no obligation to exercise any of the rights or powers under the
applicable indenture at the request or direction of any of the holders of those
notes, if that indenture trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be incurred
by it in complying with that request. Subject to these provisions for
indemnification and certain limitations contained in the related indenture, the
holders of a majority in principal amount of the specified senior class(es) of
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 that
indenture trustee and the holders of a majority in principal amount of the
specified senior class(es) of the notes then outstanding may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
applicable indenture that cannot be modified without the waiver or consent of
all the holders of these outstanding notes or more junior class of notes.
Unless otherwise specified in the related prospectus supplement, no
holder of notes of any series will have the right to institute any proceeding
with respect to the related indenture, unless:
58
- that holder previously has given to the applicable indenture
trustee written notice of a continuing event of default,
- the holders of not less than 25% in principal amount of those
outstanding notes have requested in writing that the indenture
trustee institute the proceeding in its own name as indenture
trustee,
- such holder or holders have offered the indenture trustee
reasonable indemnity,
- the indenture trustee has for 60 days failed to institute the
proceeding, and
- no direction inconsistent with the written request has been
given to the indenture trustee during that 60-day period by
the holders of a majority of the specified senior class(es) of
outstanding notes.
Also, each indenture trustee and the related noteholders will covenant
that they will not at any time institute against the applicable trust any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to any trust, none of the related indenture trustee, the
seller, any third party transferor of student loans to the depositor or the
depositor, as applicable, the administrator, the master servicer, the
sub-servicers or the eligible lender trustee in its individual capacity, or any
holder of a certificate representing an ownership interest in the applicable
trust, or any of their respective owners, beneficiaries, agents, officers,
directors, employees, successors or assigns will, in the absence of an express
agreement to the contrary, be personally 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 related trust
may not consolidate with or merge into any other entity, unless:
- the entity formed by or surviving the consolidation or merger
is organized under the laws of the United States of America,
any state thereof or the District of Columbia,
- that entity expressly assumes the trust's obligation to make
due and punctual payments upon the notes of the related series
and the performance or observance of every agreement and
covenant of the trust under the related indenture,
- no event of default shall have occurred and be continuing
immediately after the consolidation or merger,
- the trust has been advised that the ratings of the notes and
the certificates of the related series would not be reduced or
withdrawn by the rating agencies as a result of the
consolidation or merger, and
59
- the trust has received an opinion of counsel to the effect
that the consolidation or merger would have no material
adverse federal or Pennsylvania state tax consequence to the
trust or to any certificateholder or noteholder of the related
series.
Each trust will not, among other things:
- except as expressly permitted by the applicable indenture, the
applicable sale and servicing agreements or certain related
documents, sell, transfer, exchange or otherwise dispose of
any of the assets of that trust,
- claim any credit on or make any deduction from the principal
and interest payable in respect of the notes of the related
series (other than amounts withheld under the Code or
applicable state law) or assert any claim against any present
or former holder of the notes because of the payment of taxes
levied or assessed upon that trust,
- except as contemplated by the related documents, dissolve or
liquidate in whole or in part,
- permit the validity or effectiveness of the applicable
indenture to be impaired or permit any person to be released
from any covenants or obligations with respect to the notes
under the applicable indenture except as may be expressly
permitted thereby, or
- permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the trust or any
part thereof, or any interest therein or the proceeds thereof,
except as expressly permitted by the related documents.
No trust may engage in any activity other than financing, purchasing,
owning, selling and managing student loans and the other assets of the trust and
making additional fundings, in each case in the manner contemplated by the
related documents and activities incidental thereto. No trust will incur, assume
or guarantee any indebtedness other than indebtedness incurred pursuant to the
notes of the related series and the applicable indenture or otherwise in
accordance with the related documents.
ANNUAL COMPLIANCE STATEMENT. Each trust will be required to file
annually with the applicable indenture trustee a written statement relating to
the fulfillment of its obligations under the related indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. Each indenture trustee will be
required to mail each year to all related noteholders a brief report relating
to, among other things, its eligibility and qualification to continue as
indenture trustee under the applicable indenture, any amounts advanced by it
under the indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the trust to the applicable indenture trustee in its
individual capacity, the
60
property and funds physically held by the applicable indenture trustee as such
and any action taken by it that materially affects the related notes and that
has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An indenture will be
discharged with respect to the collateral securing the related notes upon the
delivery to the related indenture trustee for cancellation of all such notes or,
with certain limitations, upon deposit with the indenture trustee of funds
sufficient for the payment in full of all related notes.
THE INDENTURE TRUSTEE. The indenture trustee for a series of notes will
be identified in the related prospectus supplement. The indenture trustee for
any series may resign at any time, in which case the trust will be obligated to
appoint a successor trustee for that series. The trust may also remove any
indenture trustee if that indenture trustee ceases to be eligible to continue as
such under the related indenture or if that indenture trustee becomes insolvent.
In those circumstances, the trust will be obligated to appoint a successor
trustee for the applicable series of notes. Any resignation or removal of the
indenture trustee and appointment of a successor trustee for any series of notes
does not become effective until acceptance of the appointment by the successor
trustee for that series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each trust, one or more classes of certificates of a
given series will, unless otherwise specified in the related prospectus
supplement, be issued under a trust agreement, a form of which has been filed as
an exhibit to the registration statement of which this prospectus is a part. The
following summary describes the material terms of the certificates and the trust
agreement. The summary does not purport to be complete and is qualified in its
entirety by reference to all the provisions of the certificates and the trust
agreement.
Unless otherwise specified in the related prospectus supplement, each
class of certificates will initially be represented by a single certificate
registered in the name of the seller, the depositor, a third party transferor of
student loans to the depositor or an affiliate of any of them or, if beneficial
interests therein are to be sold, in the name of DTC or its nominee, except as
described below. Unless otherwise specified in the related prospectus supplement
and except for the certificates of a given series purchased by the seller, the
depositor or a third party transferor of student loans to the depositor, as
applicable, or an affiliate of any of them, as applicable, specified in the
related prospectus supplement, the certificates will be available for purchase
in minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof in book-entry form only. The seller and the depositor 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 certificates of any series that are
not purchased by the seller, the depositor or a third party transferor of
student loans to the depositor, as applicable, or an affiliate of any of them.
Unless and until definitive certificates are issued under the limited
circumstances described in this prospectus or in the related prospectus
supplement, no certificateholder (other than the seller, the depositor or a
third party transferor of student loans to the depositor, as applicable, or an
affiliate of any of them, as applicable) will be entitled to receive a physical
certificate representing a certificate. All
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references in this prospectus and in the related prospectus supplement to
actions by certificateholders (other than the seller, the depositor or a third
party transferor of student loans to the depositor, as applicable, or an
affiliate of any of them, as applicable) refer to actions taken by DTC upon
instructions from its participants and all references herein and in the related
prospectus supplement to distributions, notices, reports and statements to
certificateholders (other than the seller, the depositor or a third party
transferor of student loans to the depositor, as applicable, or an affiliate of
any of them, as applicable) refer to distributions, notices, reports and
statements to DTC or its nominee, as the case may be, as the registered holder
of the certificates, for distribution to certificateholders in accordance with
DTC's procedures. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Securities." Unless otherwise specified in the
related prospectus supplement, certificates of a given series owned by the
seller, the depositor or a third party transferor of student loans to the
depositor, as applicable, or its respective affiliates will be entitled to equal
and proportionate benefits under the applicable trust agreement, except that,
assuming that all certificates of a given series are not all owned by the
seller, the depositor or a third party transferor of student loans to the
depositor, as applicable, and its respective affiliates, the certificates owned
by the seller, the depositor or a third party transferor of student loans to the
depositor, as applicable, and its respective affiliates will be deemed not to be
outstanding for the purpose of determining whether the requisite percentage of
certificateholders has given any request, demand, authorization, direction,
notice, consent or other action under the related documents (other than the
commencement by the related trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing
Agreements--Insolvency Event").
PRINCIPAL AND INTEREST IN RESPECT OF THE CERTIFICATES
The timing and priority of distributions, seniority, allocations of
losses, interest at a per annum pass-through rate and amount of or method of
determining distributions with respect to principal and interest of each class
of certificates of a given series will be described in the related prospectus
supplement. Distributions of interest on the certificates will be made on each
distribution date and will be made prior to distributions with respect to
principal of the certificates. Each class of certificates may have a different
pass-through rate, which may be a fixed, variable or adjustable pass-through
rate or any combination of the foregoing. The related prospectus supplement will
specify the pass-through rate for each class of certificates of a given series
or the method for determining the pass-through rate. See also "Certain
Information Regarding the Securities--Fixed Rate Securities" and "--Floating
Rate Securities." Distributions on the certificates of a given series may be
subordinate to payments on the notes of that series as more fully described in
the related prospectus supplement. Distributions of interest on and principal of
any class of certificates will be made pro rata among all the certificateholders
of that class.
In the case of a series of certificates which includes two or more
classes of certificates, the timing, sequential order, priority of payment or
amount of distributions in respect of interest and principal, and any schedule
or formula or other provisions applicable to their determination, of each class
will be as set forth in the related prospectus supplement.
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See "Description of the Transfer and Servicing Agreements--Credit and
Cash Flow Enhancement--Reserve Account" for a description of the reserve account
and the distribution of amounts in excess of the Specified Reserve Account
Balance.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of securities may be fixed rate securities, bearing interest
at a fixed annual rate, or floating rate securities, bearing interest at a
variable or adjustable annual rate, as more fully described below and in the
applicable prospectus supplement. Each class of fixed rate securities will bear
interest at the applicable per annum interest rate or pass-through rate, as the
case may be, specified in the applicable prospectus supplement. Interest on each
class of fixed rate securities will be computed on the basis of a 360-day year
of twelve 30-day months. See "Description of the Notes--Principal of and
Interest on the Notes" and "Description of the Certificates--Principal and
Interest in Respect of the Certificates."
FLOATING RATE SECURITIES
Each class of floating rate securities will bear interest for each
applicable interest period at a rate per annum determined by reference to an
interest rate basis (or base rate), plus or minus the spread, if any, or
multiplied by the spread multiplier, if any, in each case as specified in the
related prospectus supplement. The spread is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable prospectus supplement as being applicable to that
class, and the spread multiplier is the percentage that may be specified in the
applicable prospectus supplement as being applicable to that class.
The applicable prospectus supplement will designate a base rate for a
given floating rate security based on the London interbank offered rate
(referred to as "LIBOR"), commercial paper rates, Federal funds rates, U.S.
Government treasury securities rates, negotiable certificates of deposit rates
or another rate or rates as set forth in that prospectus supplement.
As specified in the applicable prospectus supplement, floating rate
securities of a given class may also have either or both of the following (in
each case expressed as an annual rate): (a) a maximum limitation, or ceiling, on
the rate at which interest may accrue during any interest period and (b) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of floating rate securities, the interest rate
applicable to any class of floating rate securities will in no event be higher
than the maximum rate permitted by applicable law, as may be modified by United
States law of general application.
Each trust that issues a class of floating rate securities will
appoint, and enter into agreements with, a calculation agent to calculate
interest rates on each class of floating rate securities issued by it. The
applicable prospectus supplement will identify the calculation agent for each
class of floating rate securities of a given series, which may be the
administrator, the eligible lender trustee or the indenture trustee with respect
to that series. All determinations of interest by the calculation agent will, in
the absence of manifest error, be conclusive for all purposes and binding on the
holders of floating rate securities of a given class. Unless otherwise
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specified in the applicable prospectus supplement, all percentages resulting
from any calculation of the rate of interest on a floating rate security will be
rounded, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
BOOK-ENTRY REGISTRATION
Persons acquiring beneficial ownership interests in the notes may hold
their interests through DTC in the United States or Clearstream Banking, societe
anonyme (or "Clearstream") or The Euroclear System (or "Euroclear") in Europe
and persons acquiring beneficial ownership interests in the certificates may
hold their interests through DTC. Securities will be registered in the name of
Cede & Co. as nominee for DTC. Clearstream and Euroclear will hold omnibus
positions with respect to the notes on behalf of Clearstream participants and
the Euroclear participants, respectively, through customers' securities accounts
in Clearstream's and Euroclear's name on the books of their respective
depositaries which in turn will hold those positions in customers' securities
accounts in the depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants, some of which (and/or their representatives) own DTC, and
to facilitate the clearance and settlement of securities transactions between
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. Indirect access to
the DTC system also is available to other indirect participants, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Noteholders and certificateholders that are not participants or
indirect participants but wish 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. Also, securityholders will receive all
distributions of principal and interest from the applicable indenture trustee or
eligible lender trustee, through participants and indirect participants. Under a
book-entry format, securityholders may experience some delay in their receipt of
payments, since those payments will be forwarded by the applicable trustee to
DTC's nominee. DTC will forward those payments to its participants, which will
forward them to indirect participants or securityholders. Except for the seller,
the depositor or a third party transferor of student loans to the depositor, as
applicable, or an affiliate of any of them, as applicable, with respect to any
series of securities, it is anticipated that the only "securityholder,"
"certificateholder" and "noteholder" will be DTC's nominee. Securityholders will
not be recognized by the applicable trustee as noteholders or
certificateholders, as those terms are used in each indenture and each trust
agreement, respectively, and securityholders will be permitted to exercise the
rights of securityholders only indirectly through DTC and its participants.
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between Clearstream participants and
Euroclear participants will occur in the ordinary way in accordance with their
applicable rules and operating procedures.
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Because of time-zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a DTC participant
will be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. These credits or any
transactions in these securities settled during this processing will be reported
to the relevant Euroclear participants or Clearstream participants 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.
Cross-market transfers between persons holding notes 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 in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its depository; however, these 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.
Under the rules, regulations and procedures creating and affecting DTC
and 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 distributions of principal of, and interest on, the
securities. Participants and indirect participants with which securityholders
have accounts with respect to the securities similarly are required to make
book-entry transfers and receive and transmit those payments on behalf of their
respective securityholders. Accordingly, although securityholders will not
possess securities, the DTC rules provide a mechanism by which participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of participants, which in turn act
on behalf of indirect participants and certain banks, the ability of a
securityholder to pledge securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to those
securities, may be limited due to the lack of a physical certificate for those
securities.
Clearstream has advised that it is incorporated under the laws of the
Grand Duchy of Luxembourg as a professional depositary. Clearstream holds
securities for its participating organizations. Clearstream facilitates the
clearance and settlement of securities transactions between Clearstream
participants through electronic book-entry changes in accounts of Clearstream
participants, eliminating the need for physical movement of certificates.
Clearstream provides to Clearstream 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 Commission for
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the Supervision of the Financial Sector (CSSF). 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.
Distributions, to the extent received by the U.S. depositary for
Clearstream, with respect to the notes held beneficially through Clearstream
will be credited to cash accounts of Clearstream participants in accordance with
its rules and procedures.
Euroclear has advised that it was created in 1968 to hold securities
for its participants and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, eliminating the need for physical movement of certificates and
eliminating any risk from lack of simultaneous transfers of securities and cash.
Euroclear provides various other services, including securities lending and
borrowing and interfaces with domestic markets in several countries. Euroclear
is operated by Euroclear Bank S.A./NV (known as the Euroclear Operator), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (known as the Cooperative). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear participants. Euroclear participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear Operator 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.
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. The foregoing govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear are held on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the foregoing
terms and conditions and applicable Belgian law only on behalf of Euroclear
participants and has no record of or relationship with persons holding through
Euroclear participants.
Distributions, to the extent received by the U.S. depositary for
Euroclear, with respect to notes held beneficially through Euroclear will be
credited to the cash accounts of Euroclear participants in accordance with the
terms and conditions described above and applicable Belgian law.
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If definitive notes are issued, a paying agent and transfer agent in
Luxembourg will be accepted. Holders of definitive notes will be able to receive
payments and effect transfers at the offices of the Luxembourg paying and
transfer agent.
DTC has advised the administrator that it will take any action
permitted to be taken by a securityholder under the related indenture or the
related trust agreement, as the case may be, only at the direction of one or
more participants to whose accounts with DTC the securities are credited. DTC
may take conflicting actions with respect to other undivided interests to the
extent that the actions are taken on behalf of participants whose holdings
include those undivided interests.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of interests in the notes among
participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform those procedures and those procedures may be
discontinued at any time.
NONE OF THE TRUST, THE SELLER, THE DEPOSITOR, THE MASTER SERVICER, ANY
SUB-SERVICERS, THE ADMINISTRATOR, THE ELIGIBLE LENDER TRUSTEE, THE INDENTURE
TRUSTEE NOR THE UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY
PARTICIPANTS, CLEARSTREAM PARTICIPANTS OR EUROCLEAR PARTICIPANTS OR THE PERSONS
FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS
MAINTAINED BY DTC, CLEARSTREAM OR EUROCLEAR OR ANY PARTICIPANT, (2) THE PAYMENT
BY DTC, CLEARSTREAM OR EUROCLEAR OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY
BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST ON THE
SECURITIES, (3) THE DELIVERY BY ANY PARTICIPANT, CLEARSTREAM PARTICIPANT OR
EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THE INDENTURE OR THE TRUST AGREEMENT TO BE GIVEN TO
SECURITYHOLDERS OR (4) ANY OTHER ACTION TAKEN BY DTC AS THE SECURITYHOLDER.
DEFINITIVE SECURITIES
Except with respect to the certificates of a given series that may be
purchased by the seller, the depositor or a third party transferor of student
loans to the depositor, as applicable, or an affiliate of any of them, as
applicable, the notes and the certificates of a given series will be issued as
definitive notes or definitive certificates in fully registered, certificated
form to noteholders or certificateholders or their respective nominees, rather
than to DTC or its nominee, only if:
- the related administrator advises the applicable trustee in
writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to
the securities and the administrator is unable to locate a
qualified successor,
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- the administrator, at its option, elects to terminate the
book-entry system through DTC, or
- after the occurrence of an event of default or a master
servicer default, securityholders representing at least a
majority of the outstanding principal amount of the applicable
class of notes or the certificates, as the case may be, of
that series advise the applicable trustee through DTC in
writing that the continuation of a book-entry system through
DTC (or a successor thereto) with respect to the notes of that
class or certificates of that series is no longer in the best
interest of the holders of those securities.
Following any of these events, the applicable trustee will be required
to notify all applicable securityholders of a given series through DTC
participants of the availability of definitive securities. Upon surrender by DTC
of the definitive securities representing the corresponding securities and
receipt of instructions for re-registration, the applicable trustee will reissue
those securities as definitive securities to those securityholders.
Distributions of principal of, and interest on, definitive securities
will thereafter be made by the applicable trustee in accordance with the
procedures in the related indenture or the related trust agreement, as the case
may be, directly to holders of definitive securities in whose names the
definitive securities were registered at the close of business on the applicable
record date (which will be the business day preceding each distribution date,
unless otherwise specified in the related prospectus supplement) specified for
those securities in the related prospectus supplement. Distributions will be
made by check mailed to the address of the holder as it appears on the register
maintained by the applicable trustee. The final payment on any definitive
security, however, will be made only upon presentation and surrender of that
definitive security at the office or agency specified in the notice of final
distribution to applicable securityholders.
Definitive securities will be transferable and exchangeable at the
offices of the applicable trustee or of a registrar named in a notice delivered
to holders of definitive securities. No service charge will be imposed for any
registration of transfer or exchange, but the applicable trustee may require
payment of a sum sufficient to cover any tax or other related governmental
charge.
LIST OF SECURITYHOLDERS
Three or more holders of notes or one or more holders of notes
evidencing not less than 25% of the aggregate outstanding principal balance of
those notes may, by written request to the related indenture trustee, obtain
access to the list of all noteholders maintained by that indenture trustee for
the purpose of communicating with other noteholders with respect to their rights
under the related indenture or those notes. The indenture trustee may elect not
to provide the list of noteholders if it agrees to mail the desired
communication or proxy, on behalf and at the expense of the requesting
noteholders, to all noteholders of that series.
Three or more certificateholders of a series or one or more holders of
those certificates evidencing not less than 25% of the certificate balance of
those certificates may, by written request to the related eligible lender
trustee, obtain access to the list of all certificateholders for
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the purpose of communicating with other certificateholders with respect to their
rights under the related trust agreement or under those certificates.
REPORTS TO SECURITYHOLDERS
With respect to each series of securities, on each distribution date,
the applicable trustee will provide to securityholders of record as of the
related record date a statement setting forth substantially the same information
as is required to be provided on the periodic report provided to the related
indenture trustee and the related trust described under "Description of the
Transfer and Servicing Agreements--Statements to Indenture Trustee and Trust."
These statements will be filed with the SEC during the period required by Rule
15d-1 under the Exchange Act and will not be filed with the SEC thereafter. The
statements provided to securityholders will not be financial statements prepared
in accordance with generally accepted accounting principles.
Unless and until definitive notes or definitive certificates are
issued, quarterly and annual unaudited reports containing information concerning
the student loans will be prepared by Key Bank USA, National Association and
sent on behalf of the related trust only to Cede & Co., as nominee of DTC and
registered holder of the notes and the certificates, but will not be sent to any
beneficial holder of the securities.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each trust, the applicable
trustee will mail to each person who at any time during that calendar year was a
securityholder with respect to that trust and received any related payment, a
statement containing certain information for the purposes of that
securityholder's preparation of federal income tax returns. See "Income Tax
Consequences."
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
The following is a summary of the material terms of:
- each sale and servicing agreement, under which the related
eligible lender trustee on behalf of a trust will purchase
student loans from the seller or the depositor, as applicable,
and the master servicer will (or will cause the related
sub-servicers to) service the student loans;
- each administration agreement, under which the administrator
will undertake certain administrative duties with respect to a
trust and the student loans;
- each trust agreement, under which a trust will be created and
the related certificates will be issued;
- and, when the depositor is selling the student loans relating
to any given series to the eligible lender trustee, one or
more student loan transfer agreements, under which the
depositor will purchase the student loans from the seller, one
or more affiliates of the seller and/or one or more third
party originators of student loans or their affiliates to the
extent specified in the related prospectus supplement.
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These agreements are referred to collectively in this prospectus as the
transfer and servicing agreements.
A form of the sale and servicing agreement has been filed as an exhibit
to the registration statement of which this prospectus is a part. Following the
closing of a given series, a Form 8-K will be filed with the SEC containing
copies of each of the transfer and servicing agreements for the related series.
This summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the related transfer and servicing
agreements.
If stated in the related prospectus supplement, the master servicer may
directly assume servicing responsibilities for some or all of a pool of student
loans without a sub-servicer. Key Bank USA, National Association may also choose
not to act as master servicer with respect to a trust, in which case the related
trust may contract directly with one or more sub-servicers, under the related
sale and servicing agreement, to perform all of the required servicing
responsibilities with respect to the related pool of student loans without the
appointment of a master servicer, on the terms and conditions described in this
prospectus and the related prospectus supplement.
SALE OF STUDENT LOANS; REPRESENTATIONS AND WARRANTIES
On or before the closing date specified with respect to any given trust
in the related prospectus supplement, the depositor and/or the seller, as
applicable, will sell and assign to the related eligible lender trustee on
behalf of that trust, without recourse, except as provided in the student loan
transfer agreement and/or the sale and servicing agreement, as applicable, its
entire interest in the student loans, all collections received and to be
received on the student loans for the period on and after the cutoff date and
all the related assigned rights under the sale and servicing agreement. Each
student loan will be identified in a schedule appearing as an exhibit to that
sale and servicing agreement. Each eligible lender trustee will, concurrently
with the execution of that sale and assignment, execute, authenticate (or cause
the authentication of) and deliver the related certificates and notes. The net
proceeds received from the sale of the related notes and certificates will be
applied to the purchase of the student loans.
In each sale and servicing agreement, the depositor and/or the seller
and/or with respect to those student loans purchased from one or more affiliates
of the seller or third parties, the master servicer or another entity identified
in the related prospectus supplement, as applicable, will make certain
representations and warranties with respect to the student loans to a trust for
the benefit of the certificateholders and the noteholders of a given series,
including, among other things, that:
- each student loan, on the date on which it is transferred to
the trust, is free and clear of all security interests, liens,
charges and encumbrances and no offsets, defenses or
counterclaims with respect thereto have been asserted or
threatened;
- the information provided with respect to the student loans is
true and correct as of the cutoff date; and
- each student loan, at the time it was originated, complied
and, at the closing date, complies in all material respects
with applicable federal and state laws (including,
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without limitation, the Higher Education Act) and applicable
restrictions imposed by the programs or any applicable
guarantee agreement.
Following the discovery by or notice to the seller, the master
servicer, such other entity identified in the related prospectus supplement or
the depositor, as applicable, of a breach of any representation or warranty with
respect to any student loan that materially and adversely affects the interests
of the related certificateholders or the noteholders in the student loans in the
trust (it being understood that, in the case of any guaranteed student loan, any
breach that does not affect the related guarantor's obligation to guarantee or
insure payment of that student loan will not be considered to have a material
adverse effect), the seller will (or the depositor will cause the seller or the
master servicer or such other entity identified in the related prospectus
supplement, as applicable, to), unless the breach is cured within 60 days,
repurchase that student loan from the related eligible lender trustee, as of the
first day following the end of the 60-day period that is the last day of a
collection period at a repurchase price equal to the unpaid principal balance
owed by the applicable borrower plus accrued interest to the day of repurchase.
In addition, the seller will (or the depositor shall cause the seller or the
master servicer or such other entity identified in the related prospectus
supplement, as applicable, to) reimburse the related trust with respect to a
federal loan for any accrued interest amounts that a federal guarantor refuses
to pay under its guarantee agreement because of, or for any interest subsidy
payments and special allowance payments that are lost or that must be repaid to
the Department of Education because of, a breach of any such representation or
warranty by the seller, the master servicer, such other entity identified in the
related prospectus supplement or the depositor, as applicable. The repurchase
and reimbursement obligations of the seller, the master servicer, such other
entity identified in the related prospectus supplement or the depositor, as
applicable, will constitute the sole remedy available to or on behalf of the
related trust, the certificateholders or the noteholders for any uncured breach.
The repurchase and reimbursement obligations are contractual obligations under
the sale and servicing agreement that may be enforced against the seller, the
master servicer, such other entity specified in the related prospectus
supplement or the depositor, as applicable, but the breach of which will not
constitute an event of default.
To assure uniform quality in servicing and to reduce administrative
costs, the master servicer will appoint each sub-servicer the custodian of the
promissory notes representing the student loans which that sub-servicer is
servicing and any other related documents on behalf of the master servicer with
respect to each trust. The seller's and/or the depositor's, as applicable, the
master servicer's and the sub-servicers' records and computer systems will
reflect the sale and assignment by the seller or the depositor, as applicable,
of the student loans to the related eligible lender trustee on behalf of the
related trust, and UCC financing statements reflecting the sale and assignment
will be filed.
ADDITIONAL FUNDINGS
In the case of a trust having a pre-funding account or an escrow
account, that trust will use funds on deposit in that account from time to time
during the related funding period (1) to make interest payments to noteholders
and certificateholders in lieu of collections of interest on certain of the
student loans if that interest is not paid currently but is capitalized and
added to the principal balance of those student loans and (2) to add student
loans to the trust through additional fundings under the circumstances and
having the characteristics described in the
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related prospectus supplement. The additional student loans may be purchased by
the trust from the seller or the depositor, as applicable, or may be originated
by the trust, if and to the extent specified in the related prospectus
supplement.
We can give you no assurance as to the portion of the amounts on
deposit in any pre-funding account or escrow account that will be spent during
the related funding period. If the amount initially deposited into a pre-funding
account or an escrow account for a series has not been reduced to zero by the
end of the related funding period, the amounts remaining on deposit in the
applicable account will be distributed to the related securityholders in the
amounts described in the related prospectus supplement.
If and to the extent specified in the related prospectus supplement,
the related trust may use distributions on the student loans, or may exchange
student loans with the seller or the depositor, as applicable, in order to pay
for additional fundings after any funding period.
ACCOUNTS
With respect to each trust, and to the extent provided in the related
prospectus supplement, the administrator will establish and maintain one or more
accounts entitled the collection account, the pre-funding account, the escrow
account, the cap account, the demand deposit account, the negative carry account
and the reserve account, in the name of the indenture trustee on behalf of the
noteholders and the certificateholders. These accounts are referred to together
as the trust accounts.
For any series of securities, funds in the trust accounts will be
invested as provided in the related sale and servicing agreement in eligible
investments. Eligible investments are generally limited to short-term U.S.
government backed securities, certain highly rated commercial paper and money
market funds and other investments acceptable to the rating agencies as being
consistent with the rating of the securities. Subject to certain conditions,
eligible investments may include securities or other obligations issued by the
seller or its affiliates, or trusts originated by the seller or its affiliates,
or shares of investment companies for which the seller or its affiliates may
serve as the investment advisor. Eligible investments are limited to obligations
or securities that mature not later than the business day immediately preceding
the next distribution date. Investment earnings on funds deposited in the trust
accounts, net of losses and investment expenses, will be deposited in the
collection account on each distribution date and will be treated as collections
of interest on the related student loans.
The trust accounts will be maintained as eligible deposit accounts.
Eligible deposit account means either (a) a segregated account with an eligible
institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in that account, so long as any of the
securities of that depository institution have a credit rating from each rating
agency in one of its generic rating categories which signifies investment grade.
Any of these accounts may be maintained with the seller or any of its
affiliates, if these accounts meet the requirements described in clause (a) of
the preceding sentence. An eligible institution is a depository institution
(which may be, without limitation, the
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seller or its affiliate, or the indenture trustee or its affiliate) organized
under the laws of the United States of America or any one of the states thereof
or the District of Columbia (or any domestic branch of a foreign bank), which
has a long-term unsecured debt rating acceptable and/or a short-term unsecured
debt rating or certificate of deposit rating acceptable to the rating agencies,
and the deposits of which are insured by the Federal Deposit Insurance
Corporation (or FDIC).
SERVICING PROCEDURES
Under each sale and servicing agreement, the master servicer will agree
to service, and perform all other related tasks with respect to, all the student
loans acquired from time to time on behalf of each trust. The master servicer
will hold as custodian on behalf of the trust, or will designate the related
sub-servicer (if any) to hold as custodian on its behalf and on behalf of the
trust, the notes evidencing, and other documents relating to, that student loan.
Under the related sale and servicing agreement, the master servicer is
responsible for performing all services and duties customary to the servicing of
student loans (including all collection practices), and to do so (or to cause
the sub-servicers to do so) with reasonable care and in compliance with, and to
otherwise comply with, all standards and procedures provided for in the Higher
Education Act, the guarantee agreements and all other applicable federal and
state laws. However, the master servicer may designate one or more sub-servicers
to perform some or all of the requisite duties listed above, but the master
servicer shall not be relieved of its responsibilities and obligations under the
sale and servicing agreement.
The duties of the master servicer (any or all of which may be delegated
by the master servicer to a sub-servicer) with respect to each trust under the
related sale and servicing agreement will include, but not be limited to, the
following: collecting and depositing into the collection account (or if daily
deposits are not required, paying to the administrator) all payments, including
claiming and obtaining any guarantee payments, but excluding these tasks with
respect to any interest subsidy payments and special allowance payments with
respect to the student loans (which the administrator and the eligible lender
trustee will perform, see "--Administrator" below), responding to inquiries from
borrowers under the student loans, investigating delinquencies and sending out
statements, payment coupons and tax reporting information to borrowers.
However, if any of those activities require any consents, approvals or
licenses under the Higher Education Act or otherwise, any sub-servicers
designated by the master servicer will possess the required consents, approvals
and licenses to perform those duties. The master servicer will be responsible
for any failure of a sub-servicer to perform these activities. Also, the master
servicer will (or will cause each sub-servicer to) keep ongoing records with
respect to the student loans and collections thereon and will furnish quarterly
and annual statements with respect to this information to the administrator, in
accordance with the master servicer's or that sub-servicer's customary servicing
practices, as applicable, with respect to student loans and as otherwise
required in the related sale and servicing agreement.
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PAYMENTS ON STUDENT LOANS
With respect to each trust, except as provided below, the master
servicer will (or will cause each sub-servicer to) deposit all payments on
student loans (from whatever source), and all proceeds of student loans
collected by it during each collection period into the collection account within
two business days of receipt. Except as provided below, the eligible lender
trustee will deposit all interest subsidy payments and all special allowance
payments with respect to the student loans received by it during each collection
period into the collection account within two business days of receipt.
However, if Key Bank USA, National Association satisfies certain
requirements for quarterly remittances and the rating agencies affirm their
ratings of the notes and the certificates of each series at the initial level,
then so long as Key Bank USA, National Association is the administrator and
provided that (x) there exists no administrator default and (y) each other
condition to making quarterly deposits as may be specified by the rating
agencies is satisfied, the eligible lender trustee and the master servicer will
(and the master servicer will cause each sub-servicer to) pay all the amounts
referred to in the preceding paragraph that would otherwise be deposited into
the collection account to the administrator, and the administrator will not be
required to deposit those amounts into the collection account until the business
day immediately before each monthly servicing payment date described in the
related prospectus supplement (to the extent of the master servicing fee payable
on that date) and the business day immediately before each distribution date (to
the extent of the remaining amounts). In that case, the administrator will
deposit the aggregate repurchase price of any student loans repurchased by the
seller (or by the seller at the direction of the depositor, if applicable) and
purchased by the master servicer (or a sub-servicer) into the collection account
on or before the business day before each distribution date. Pending deposit
into the collection account, collections may be invested by the administrator at
its own risk and for its own benefit, and will not be segregated from funds of
the administrator.
MASTER SERVICER COVENANTS
With respect to each trust, the master servicer will covenant in the
related sale and servicing agreement that:
- it will (or will cause each sub-servicer to) duly satisfy all
obligations on its part to be fulfilled under or in connection
with the student loans, maintain in effect all qualifications
required in order to service the student loans and comply in
all material respects with all requirements of law in
connection with servicing the student loans, the failure to
comply with which would have a materially adverse effect on
the related certificateholders or noteholders;
- it will not permit (nor will it allow any sub-servicer to
permit) any rescission or cancellation of a student loan
except as ordered by a court of competent jurisdiction or
other government authority or as otherwise consented to by the
related eligible lender trustee and the related indenture
trustee;
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- it will do nothing to (nor will it permit any sub-servicer to)
impair the rights of the related certificateholders and the
related noteholders in the student loans; and
- it will not (nor will it permit any sub-servicer to)
reschedule, revise, defer or otherwise compromise with respect
to payments due on any student loan except pursuant to any
applicable deferral or forbearance periods or otherwise in
accordance with its guidelines for servicing student loans in
general and those of the seller (or the third party transferor
of student loans to the depositor, if applicable) in
particular and any applicable program requirements.
If specified in the related prospectus supplement, certain incentive
programs currently available or to be made available in the future by the seller
to borrowers may also be made available by the master servicer (or a
sub-servicer) to borrowers with student loans in a trust and if an incentive
program is not in existence as of the date of the related prospectus supplement
or not described in that prospectus supplement, then any incentive program that
effectively reduces borrower payments on student loans and, with respect to
federal loans, is not required by the Higher Education Act, will be applicable
to the student loans only if and to the extent that the master servicer (or a
sub-servicer) receives payment on behalf of the trust from the seller or the
depositor, as applicable, in an amount sufficient to offset these effective
yield reductions. See "The Student Loan Financing Business--Incentive Programs"
herein.
Under the terms of the related sale and servicing agreement, unless
otherwise specified in the related prospectus supplement, if the seller, the
depositor, or the master servicer, as applicable, discovers, or receives written
notice, that any covenant of the master servicer described above has not been
complied with by the master servicer in all material respects and this
noncompliance has not been cured within 60 days and has a materially adverse
effect on the interest of the related certificateholders or noteholders in the
student loans in the trust (it being understood that, in the case of any
guaranteed student loan, any breach that does not affect the related guarantor's
obligation to guarantee or insure payment of that student loan will not be
considered to have a material adverse effect), unless the breach is cured, the
master servicer will purchase the student loan as of the first day following the
end of the 60-day period that is the last day of a collection period. In that
case, the master servicer will be obligated to deposit into the collection
account an amount equal to the repurchase price of that student loan and the
related trust's interest in any purchased student loan will be automatically
assigned to the master servicer. Also, the master servicer will reimburse the
related trust with respect to any federal loan for any accrued interest amounts
that a federal guarantor refuses to pay under its guarantee agreement because
of, or for any interest subsidy payments and special allowance payments that are
lost or that must be repaid to the Department of Education because of, a breach
of any such covenant of the master servicer.
MASTER SERVICING COMPENSATION
With respect to any trust, the master servicer will be entitled to
receive a master servicing fee monthly in an aggregate amount equal to a
specified amount per annum of the Pool Balance as of the last day of the
preceding calendar month as set forth in the related prospectus supplement and,
if applicable, certain one-time fixed fees for each student loan, together with
other administrative fees, late fees and similar charges specified in the
related prospectus supplement as compensation for performing the functions as
servicers for the related trust described above. The
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master servicing fee (together with any part of the master servicing fee that
remains unpaid from prior distribution dates) will be paid as specified in the
applicable prospectus supplement.
The master servicing fee will compensate the master servicer for
performing (or causing the sub-servicers to perform) the functions of third
party servicers of student loans as agents for their beneficial owner, including
collecting and posting all payments, responding to inquiries of borrowers on the
student loans, investigating delinquencies, pursuing, filing and collecting any
guarantee payments, accounting for collections and furnishing monthly and annual
statements to the administrator. The master servicing fee also will reimburse
the master servicer for certain taxes, accounting fees, outside auditor fees,
data processing costs and other costs incurred by the master servicer or the
sub-servicers in connection with administering the student loans. The monthly
fees of the sub-servicers will be paid solely by the master servicer under the
terms of the applicable sub-servicing agreement.
If provided in the related prospectus supplement, in the event of (x)
any sale of the student loans on behalf of the trust to any person (other than
the seller or the depositor, as applicable, the master servicer, the
administrator, or the sub-servicers) in which the purchaser elects to deconvert
the student loans and not retain the applicable sub-servicer as the servicer of
those student loans, or (y) any termination of the applicable sub-servicer of
the student loans, except for any termination for cause or as a result of any
unremedied defaults by the applicable sub-servicer, the trust will pay to the
master servicer, as a part of the master servicing fee, a deconversion fee per
loan based on the status of the loan at the time of deconversion, in the amount
set forth in the related prospectus supplement, but only to the extent that the
master servicer is obligated to pay these amounts to the applicable
sub-servicer.
DISTRIBUTIONS
With respect to each series of securities, beginning on the
distribution date specified in the related prospectus supplement, distributions
of principal and interest on each class of securities entitled thereto will be
made by the applicable trustee to the noteholders and the certificateholders of
that series. The timing, calculation, allocation, order, source, priorities of
and requirements for all payments to each class of noteholders and all
distributions to each class of certificateholders of that series will be set
forth in the related prospectus supplement.
With respect to each trust, collections on the related student loans
will be distributed from the collection account on each distribution date to
noteholders and certificateholders to the extent provided in the related
prospectus supplement. Credit and cash flow enhancement, such as a reserve
account, will be available to cover any shortfalls in the amount available for
distribution on that date to the extent specified in the related prospectus
supplement. As more fully described in the related prospectus supplement, and
unless otherwise specified in that prospectus supplement, distributions of
principal and/or interest on a class of securities of a given series will be
subordinate to distributions of interest on one or more other classes of that
series, and distributions on the certificates of that series may be subordinate
to payments on the notes of that series.
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CREDIT AND CASH FLOW ENHANCEMENT
GENERAL. The amounts and types of credit enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related prospectus supplement.
If and to the extent provided in the related prospectus supplement, credit
enhancement may be in the form of subordination of one or more classes of
securities, reserve accounts, over-collateralization, letters of credit, credit
or liquidity facilities, surety bonds, guaranteed investment contracts,
repurchase obligations, interest rate swaps, interest rate caps, interest rate
floors, currency swaps, other agreements with respect to third party payments or
other support, cash deposits or such other arrangements as may be described in
the related prospectus supplement or any combination of two or more of the
foregoing. If specified in the applicable prospectus supplement, credit
enhancement for a class of securities may cover one or more other classes of
securities of the same series, and credit enhancement for a series of securities
may cover one or more other series of securities.
The presence of a reserve account and other forms of credit enhancement
for the benefit of any class or series of securities is intended to enhance the
likelihood of receipt by the securityholders of that class or series of the full
amount of principal and interest due and to decrease the likelihood that the
securityholders will experience losses. The credit enhancement for a class or
series of securities generally will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance and
interest on those securities. If losses occur which exceed the amount covered by
any credit enhancement or which are not covered by any credit enhancement,
securityholders of any class or series will bear their allocable share of
deficiencies, as described in the related prospectus supplement. Also, if a form
of credit enhancement covers more than one series of securities, securityholders
of any such series will be subject to the risk that the credit enhancement will
be exhausted by the claims of securityholders of other series.
RESERVE ACCOUNT. If indicated in the related prospectus supplement,
under the related sale and servicing agreement, the seller or the depositor, as
applicable, will establish for a series or class of securities a reserve
account, as specified in the related prospectus supplement, which will be
maintained in the name of the applicable indenture trustee. Unless otherwise
provided in the related prospectus supplement, the reserve account will be
funded by an initial deposit by the seller or the depositor, as applicable, on
the closing date in the amount set forth in the related prospectus supplement.
As further described in the related prospectus supplement, the amount on deposit
in the reserve account will be increased on each following distribution date up
to the Specified Reserve Account Balance by the deposit in the reserve account
of the amount of collections on the related student loans remaining on each
distribution date after the payment of all other required payments and
distributions on that date. Amounts in the reserve account will be available to
cover shortfalls in amounts due to the holders of those classes of securities
specified in the related prospectus supplement in the manner and under the
circumstances specified in that prospectus supplement. The related prospectus
supplement will also specify to whom and the manner and circumstances under
which amounts on deposit in the reserve account (after giving effect to all
other required distributions to be made by the applicable trust) in excess of
the Specified Reserve Account Balance will be distributed.
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The reserve account is intended to enhance the likelihood of timely
receipt by the holders of notes and the holders of certificates of the full
amount of interest due them and to decrease the likelihood that the holders will
experience losses. In certain circumstances, however, the reserve account could
be depleted.
STATEMENTS TO INDENTURE TRUSTEE AND TRUST
Before each distribution date with respect to each series of
securities, the administrator (based on the periodic statements and other
information provided to it by the master servicer or the sub-servicers) will
provide to the indenture trustee and the trust, as of the close of business on
the last day of the preceding collection period, a statement which will include
the following information (and any other information so specified in the related
prospectus supplement) with respect to that distribution date or the preceding
collection period as to the notes and the certificates of that series, to the
extent applicable:
1. the amount of the distribution allocable to principal
of each class of securities;
2. the amount of the distribution allocable to interest
on each class of securities;
3. the amount of the distribution, if any, allocable to
any interest index carryover together with the outstanding amount, if
any, thereof after giving effect to any such distribution;
4. the Pool Balance as of the close of business on the
last day of the preceding collection period, after giving effect to
payments allocated to principal reported as described in clause (1.)
above;
5. the aggregate outstanding principal balance of each
class of notes, the certificate balance and each pool factor as of that
distribution date, after giving effect to payments allocated to
principal reported under clause (1.) above;
6. the amount of the master servicing fee and any excess
master servicing fee paid to the master servicer and the amount of the
administration fee paid to the administrator with respect to that
collection period;
7. the interest rate or pass-through rate applicable for
any class of notes or certificates of that series with variable or
adjustable rates;
8. the amount of the aggregate realized losses, if any,
for that collection period and the balance of student loans that are
delinquent in each delinquency period as of the end of that collection
period;
9. the Certificateholders' Index Carryover Shortfall,
the Noteholders' Index Carryover Shortfall, the Noteholders' Interest
Carryover Shortfall, the Noteholders' Principal Carryover Shortfall,
the Certificateholders' Interest Carryover Shortfall and the
Certificateholders' Principal Carryover Shortfall (each as defined in
the related prospectus
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supplement), if any, in each case as applicable to each class of
securities, and the change in such amounts from the preceding
statement;
10. the aggregate repurchase price for student loans, if
any, that were purchased in that collection period;
11. the balance of the reserve account (if any) on that
distribution date, after giving effect to changes on that distribution
date;
12. for distribution dates during the funding period (if
any), the remaining pre-funded amount on that distribution date, after
giving effect to changes during the related collection period; and
13. the aggregate amount of TERI guarantee payments
deposited into the collection account (net of certain specified
amounts) expressed as a percentage of the initial Pool Balance.
Each amount described in subclauses (1), (2), (5) and (6) with respect to the
notes or the certificates of any series will be expressed as a dollar amount per
$1,000 of the initial principal amount of the notes or the initial certificate
balance of the certificates, as applicable.
EVIDENCE AS TO COMPLIANCE
Each sale and servicing agreement will provide that a firm of
independent public accountants will furnish to the trust and the indenture
trustee annually a statement (based on a limited examination of certain
documents and records and on such accounting and auditing procedures considered
appropriate under the circumstances) as to compliance by the master servicer and
the sub-servicers during the preceding calendar year (or, in the case of the
first certificate, the period from the applicable closing date) with certain
standards under the related sale and servicing agreement relating to the
servicing of the student loans.
Each sale and servicing agreement will further provide that a firm of
independent public accountants (which may be the same firm referred to in the
immediately preceding paragraph) will furnish to the trust and the indenture
trustee annually a statement (based on the examination of certain documents and
records and on such accounting and auditing procedures considered appropriate
under the circumstances) as to compliance by the administrator during the
preceding calendar year (or, in the case of the first certificate, the period
from the applicable closing date) with all applicable standards under the
related sale and servicing agreement and the administration agreement relating
to the administration of the trust and the student loans.
Each sale and servicing agreement will also provide for delivery to the
trust and the indenture trustee, concurrently with the delivery of each
statement of compliance referred to above, of a certificate signed by an officer
of the master servicer or the administrator, as the case may be, stating that,
to his knowledge, the master servicer or the administrator, as the case may be,
has fulfilled its obligations under the sale and servicing agreement throughout
the preceding calendar year (or, in the case of the first certificate, the
period from the applicable closing date) or, if there has been a default in the
fulfillment of any obligation, describing each default. Each of the master
servicer, the administrator and the sub-servicers will agree to give the
indenture trustee and the
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eligible lender trustee notice of certain master servicer defaults and
administrator defaults under the sale and servicing agreement.
Copies of these statements and certificates may be obtained by
securityholders by a request in writing addressed to the applicable trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE SUB-SERVICERS
Each sale and servicing agreement will provide that the master servicer
may not resign from its obligations and duties as master servicer, except upon
determination that the master servicer's performance of those duties is no
longer permissible under applicable law. No resignation will become effective
until the related indenture trustee or a successor servicer has assumed the
master servicer's servicing obligations and duties under the sale and servicing
agreement.
Each sub-servicing agreement will provide that the sub-servicer may not
resign from its obligations and duties as sub-servicer without the consent of
the master servicer, except upon determination that a sub-servicer's performance
of those duties is no longer permissible under applicable law. No resignation
will become effective until the master servicer, the related indenture trustee
or a successor servicer has assumed that sub-servicer's servicing obligations
and duties under the sub-servicing agreement. The master servicer may remove a
sub-servicer at its discretion and may either undertake those servicing
responsibilities itself or substitute one or more new sub-servicers; provided
that each such new sub-servicer has been approved, to the extent provided in the
related prospectus supplement and required by the related sale and servicing
agreement, by the eligible lender trustee and each rating agency. The master
servicer will be solely responsible for any termination payments due to the
removed sub-servicer.
Each sale and servicing agreement will further provide that neither the
master servicer nor any of its directors, officers, employees or agents will be
under any liability to the related trust or the related noteholders or
certificateholders for taking any action or for refraining from taking any
action under the related sale and servicing agreement, or for errors in
judgment; provided, however, that, unless otherwise limited in the related
prospectus supplement, neither the master servicer nor any of these persons will
be protected against any liability that would otherwise be imposed because of
willful misfeasance, bad faith or negligence in the performance of the master
servicer's duties thereunder or because of reckless disregard of its obligations
and duties thereunder. In addition, each sale and servicing agreement will
provide that the master servicer is under no obligation to appear in, prosecute,
or defend any legal action that is not incidental to its servicing
responsibilities under the sale and servicing agreement and that, in its
opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each sale and servicing agreement,
any entity into which the master servicer may be merged or consolidated, or any
entity resulting from any merger or consolidation to which the master servicer
is a party, or any entity succeeding to the business of the master servicer,
which corporation or other entity in each of the cases described above assumes
the obligations of the master servicer, will be the successor of the master
servicer under that sale and servicing agreement; and under the circumstances
specified in each sub-servicing agreement, any entity into which a sub-servicer
may be merged or consolidated, or any
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entity resulting from any merger or consolidation to which the sub-servicer is a
party, or any entity succeeding to the business of the sub-servicer, which
corporation or other entity in each of the cases described above assumes the
obligations of the sub-servicer, will be the successor of the sub-servicer under
that sub-servicing agreement.
MASTER SERVICER DEFAULT; ADMINISTRATOR DEFAULT
Except as otherwise provided in the related prospectus supplement, a
master servicer default under each sale and servicing agreement will consist of:
- any failure by the master servicer to deliver (or to cause a
sub-servicer to deliver) to the indenture trustee for deposit
in any of the trust accounts (or, if daily deposits into the
collection account are not required, to the administrator) any
collections, guarantee payments or other amounts received with
respect to the student loans, which failure continues
unremedied for three business days after written notice from
the indenture trustee or the eligible lender trustee is
received by the master servicer or after discovery by the
master servicer;
- any failure by the master servicer to duly observe or perform
in any material respect any other covenant or agreement in the
related sale and servicing agreement, which failure materially
and adversely affects the rights of noteholders or
certificateholders and which continues unremedied for 60 days
after the giving of written notice of the failure (1) to the
master servicer by the indenture trustee, the eligible lender
trustee, the master servicer or the administrator or (2) to
the master servicer and to the indenture trustee and the
eligible lender trustee by holders of notes or certificates,
as applicable, evidencing not less than 25% in principal
amount of the outstanding notes or certificates;
- certain events of insolvency, readjustment of debt, marshaling
of assets and liabilities, or similar proceedings with respect
to the master servicer and certain actions by the master
servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings or inability to pay its obligations;
and
- failure by the master servicer to comply with any requirements
under the Higher Education Act resulting in a loss of its
eligibility as a third-party servicer.
Except as otherwise provided in the related prospectus supplement, an
administrator default under each sale and servicing agreement or each
administration agreement will consist of:
- if daily deposits into the collection account are not
required, any failure by the administrator to deliver to the
indenture trustee for deposit in any of the trust accounts any
required payment on or before the business day prior to any
monthly servicing payment date or distribution date, as
applicable, or (B) any failure by the administrator to direct
the indenture trustee to make any required distributions from
any of the trust accounts on any monthly servicing payment
date or any distribution date, which failure in case of either
clause (A) or (B) continues unremedied for three business days
after written notice from the indenture trustee
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or the eligible lender trustee is received by the
administrator or after discovery by the administrator;
- any failure by the administrator duly to observe or perform in
any material respect any other covenant or agreement in each
administration agreement or each sale and servicing agreement
which failure materially and adversely affects the rights of
noteholders or certificateholders and which continues
unremedied for 60 days after the giving of written notice of
the failure (1) to the administrator by the indenture trustee
or the eligible lender trustee or (2) to the administrator,
the master servicer and to the indenture trustee and the
eligible lender trustee by holders of notes or certificates,
as applicable, evidencing not less than 25% in principal
amount of the outstanding notes or certificates; and
- certain events of insolvency, readjustment of debt, marshaling
of assets and liabilities, or similar proceedings with respect
to the administrator and certain actions by the administrator
indicating its insolvency or inability to pay its obligations.
RIGHTS UPON MASTER SERVICER DEFAULT AND ADMINISTRATOR DEFAULT
As long as a master servicer default under a sale and servicing
agreement or an administrator default under a sale and servicing agreement or an
administration agreement, as the case may be, remains unremedied, the indenture
trustee or holders of the specified senior class(es) of notes evidencing not
less than 25% in aggregate outstanding principal amount of the specified senior
class(es) of notes may terminate all the rights and obligations of the master
servicer under that sale and servicing agreement and/or the administrator under
that sale and servicing agreement or administration agreement, as the case may
be, and a successor servicer or administrator appointed by the related indenture
trustee, or the related indenture trustee, will succeed to all of the
responsibilities, duties and liabilities of the applicable master servicer under
that sale and servicing agreement or the administrator under that sale and
servicing agreement and administration agreement, as the case may be, and will
be entitled to similar compensation arrangements. If, however, a bankruptcy
trustee or similar official has been appointed for the master servicer or the
administrator, as applicable, and no master servicer default or administrator
default, as the case may be, other than this appointment has occurred, that
trustee or official may have the power to prevent the indenture trustee or the
specified senior noteholders from effecting this transfer. If the indenture
trustee is unwilling or unable to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer whose
regular business includes the servicing of student loans or a successor
administrator whose regular business includes administering trusts containing
pools of loans or receivables. The indenture trustee may make these arrangements
for compensation to be paid, which may not be greater than the compensation to
the master servicer under that sale and servicing agreement or the administrator
under that sale and servicing agreement and administration agreement, as the
case may be, unless the compensation arrangements will result in a downgrading
of any related class of notes or certificates by any rating agency. If a master
servicer default or an administrator default, as the case may be, occurs and is
continuing, the indenture trustee or the holders of the specified senior
class(es) of notes, as described above, may cause the removal of the master
servicer or the administrator, as the case may be, without the
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consent of the related eligible lender trustee or any of the holders of any
other class(es) of notes or certificates. Also, only the indenture trustee or
the holders of the specified senior class(es) of notes, and not the eligible
lender trustee or the holders of any other class(es) of notes or certificates,
have the ability to remove the master servicer or the administrator, as the case
may be, if a master servicer default or an administrator default, as the case
may be, occurs and is continuing.
WAIVER OF PAST DEFAULTS
With respect to each trust, the holders of notes evidencing at least a
majority in principal amount of the then specified senior class(es) of
outstanding notes (or the holders of a more junior class of notes evidencing not
less than a majority of the outstanding principal balance of those class of
notes, in the case of any master servicer default which does not adversely
affect the indenture trustee or the noteholders of each more senior class of
notes of the related series, or the holders of certificates evidencing not less
than a majority of the outstanding certificate balance, in the case of any
master servicer default which does not adversely affect the indenture trustee or
the noteholders of any class of the related series), may, on behalf of all
noteholders and certificateholders, waive any default by the master servicer, in
the performance of its obligations under the related sale and servicing
agreement, or any default by the administrator of its obligations under the
related sale and servicing agreement and the related administration agreement,
as the case may be, and their respective consequences, except a default in
making any required deposits to or payments from any of the trust accounts or
giving instructions regarding those matters in accordance with the sale and
servicing agreement. Therefore, the noteholders have the ability, except as
noted above, to waive defaults by the master servicer or the administrator, as
the case may be, which could materially adversely affect the certificateholders.
No waiver will impair the noteholders' or the certificateholders' rights with
respect to subsequent defaults.
Unless and until definitive securities are issued, holders of notes and
certificates will not be recognized by the indenture trustee or the eligible
lender trustee as "noteholders" or "certificateholders," as the case may be.
Hence, until definitive securities are issued, holders of those securities will
only be able to exercise the rights of securityholders indirectly through DTC,
Clearstream or Euroclear and their respective participating organizations.
INSOLVENCY EVENT
If specified in a related prospectus supplement, if a seller insolvency
event occurs, the student loans will be liquidated and the related trust will be
terminated 90 days after the date of the seller insolvency event, unless, before
the end of that 90-day period, the eligible lender trustee has received written
instructions from the holders of the certificates (other than the seller or the
depositor, as applicable) representing more than 50% of the aggregate unpaid
principal amount of the certificates (not including the principal amount of
certificates held by the seller or the depositor, as applicable) to the effect
that the group disapproves of the liquidation of the student loans and
termination of the related trust. Promptly after the occurrence of any seller
insolvency event, notice is required to be given to noteholders and
certificateholders; provided that any failure to give the required notice will
not prevent or delay termination of the related trust. Upon termination of the
related trust, the eligible lender trustee will direct the indenture trustee
promptly to sell the assets of the related trust (other than the trust accounts)
in a commercially reasonable
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manner and on commercially reasonable terms. Each of the guarantors and certain
other unrelated third parties will be given the opportunity, upon 30 days' prior
notice of any such proposed sale, to bid to purchase the student loans and, if
any of these entities is the highest bidder, the student loans must be sold to
that entity. The proceeds from any sale, disposition or liquidation of the
student loans will be treated as collections thereon and deposited in the
collection account. If the proceeds from the liquidation of the student loans
and any amounts on deposit in the reserve account (if any) are not sufficient to
pay the notes in full, the amount of principal returned to the holders of notes
will be delayed and the holders of notes will incur a loss. If these amounts are
not sufficient to pay the notes and the certificates in full, the amount of
principal returned to the holders of certificates will be delayed and the
holders of certificates will incur a loss.
A seller insolvency event will be the occurrence of any of certain
events of insolvency or receivership, readjustment of debt, marshaling of assets
and liabilities, or similar proceedings with respect to the seller, the
depositor, or a special purpose affiliate of the seller or certain actions by
the seller or the depositor or this affiliate indicating its insolvency or
inability to pay its obligations.
Each trust agreement will provide that the eligible lender trustee does
not have the power to commence a voluntary proceeding in bankruptcy relating to
the trust without the unanimous prior approval of all holders of certificates
and the delivery to the eligible lender trustee by each holder of certificates
of a certificate certifying that the holder reasonably believes that the related
trust is insolvent.
AMENDMENT
Each of the transfer and servicing agreements may be amended by the
parties to them, without the consent of the related noteholders or the
certificateholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of those transfer and servicing
agreements or of modifying in any manner the rights of the noteholders or
certificateholders as long as this action will not, in the opinion of counsel
satisfactory to the related indenture trustee and the related eligible lender
trustee, materially and adversely affect the interest of any noteholder or
certificateholder. Each of the transfer and servicing agreements may also be
amended by the seller or the depositor, as applicable, the administrator, the
master servicer, the related eligible lender trustee and the related indenture
trustee, as applicable, with the consent of the holders of notes of the related
series evidencing at least a majority in principal amount of each class of then
outstanding notes rated in a similar category by the applicable rating agencies
and the holders of certificates of the related series evidencing at least a
majority of the certificate balance for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the transfer
and servicing agreements or of modifying in any manner the rights of the holders
of notes or the holders of certificates, but no amendment may (x) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments (including any guarantee payments) with respect to the
student loans or distributions that are required to be made for the benefit of
the holders of notes or the holders of certificates or (y) reduce the percentage
of the notes or certificates described above which are required to consent to
any amendment, without the consent of the holders of all the outstanding notes
and certificates.
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PAYMENT OF NOTES
Upon the payment in full of all outstanding notes of a given series and
the satisfaction and discharge of the related indenture, the eligible lender
trustee will succeed to all the rights of the indenture trustee, and the
certificateholders of that series will succeed to all the rights of the
noteholders of that series, under the related sale and servicing agreement,
except as otherwise provided in that sale and servicing agreement.
TERMINATION
With respect to each trust, the obligations of the seller or the
depositor, as applicable, the master servicer, the administrator, the related
eligible lender trustee and the related indenture trustee under the related
transfer and servicing agreements will terminate upon (x) the maturity or other
liquidation of the last related student loan and the disposition of any amount
received upon liquidation of any such remaining student loans and (y) the
payment to the noteholders and the certificateholders of the related series of
all amounts required to be paid to them under those transfer and servicing
agreements.
If specified in the related prospectus supplement, in order to avoid
excessive administrative expense, the master servicer will be permitted at its
option to purchase from the related eligible lender trustee, as of the end of
any collection period immediately before a distribution date, if the then
outstanding Pool Balance is less than the percentage specified in the related
prospectus supplement of the initial Pool Balance, all remaining related student
loans at a price equal to their aggregate repurchase prices as of the end of
that collection period, which will be used to retire the related notes and
certificates at the same time. Upon termination of a trust, as more fully
described in the related prospectus supplement, all right, title and interest in
the student loans and other funds of that trust, after giving effect to any
final distributions to noteholders and certificateholders of the related series,
will be conveyed and transferred to the seller or the depositor, as applicable,
or the other party identified in the prospectus supplement.
If so provided in the related prospectus supplement, any student loans
remaining in the related trust as of the end of the collection period
immediately before the put date, which will be the distribution date occurring
immediately after the 10th anniversary of the closing date, will be sold upon a
vote by the holders of more than 50% of all then outstanding securities of that
series (excluding for this purpose all securities owned by the seller or any of
its affiliates or agents) to an affiliate of the seller, on terms and at a price
provided in the related prospectus supplement (who will be contractually
required to purchase those student loans); and if that affiliate does not
purchase the student loans, then the student loans will be offered for sale on
the auction date, which will be the next distribution date following the put
date, in one or more pools by the related indenture trustee if so instructed by
the holders of more than 50% of all then outstanding securities of that series
(excluding for such purpose all securities owned by the seller or any of its
affiliates or agents). Neither the seller nor any of its affiliates may offer
bids to purchase the student loans on that auction date. If at least two bids
are received, the indenture trustee will solicit and resolicit bids from all
participating bidders until only one bid remains or the remaining bidders
decline to resubmit bids. The indenture trustee will accept the highest
remaining bids if it or they, if for separate pools, are equal to or greater
than the minimum purchase amount. The minimum purchase amount is the greatest
of:
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- the aggregate unpaid principal balance owed by the applicable
borrowers on the student loans plus accrued interest to the
date of purchase less the amount on deposit in the applicable
reserve account as of that date,
- the fair market value of those student loans as of the end of
the collection period immediately preceding that distribution
date, and
- the aggregate unpaid principal amount of the related notes and
principal balance of the related certificates plus, in each
case, accrued and unpaid interest payable on that distribution
date (other than any interest index carryover).
If at least two bids are not received or the highest bid or combination
of bids after the resolicitation process is completed is not equal to or in
excess of the minimum purchase amount, the indenture trustee will not consummate
the sale. In connection with the determination of the minimum purchase amount,
the indenture trustee may consult and, at the direction of the seller or the
depositor, as applicable, shall consult, with a financial advisor, including the
underwriters or the administrator, to determine if the fair market value of the
student loans has been offered. The net proceeds of any sale will be used to
redeem any outstanding notes and to retire any outstanding certificates on that
distribution date. If the sale is not consummated as described above, the
indenture trustee will, if instructed by holders of more than 50% of all then
outstanding securities of that series (excluding for such purpose all securities
owned by the seller or any of its affiliates or agents), solicit bids to
purchase the student loans on future distribution dates upon terms similar to
those described above. We can give you no assurance as to whether the indenture
trustee will be successful in soliciting acceptable bids to purchase the student
loans on either the auction date or any subsequent distribution date. The
related prospectus supplement will specify what will happen if the student loans
are not sold as described above.
ADMINISTRATOR
The administrator will enter into an administration agreement with each
trust and the related indenture trustee and a sale and servicing agreement with
the related trust, the seller or the depositor, as applicable, the master
servicer and the eligible lender trustee, under which the administrator will
agree, to the extent provided therein,
- if daily deposits into the collection account are not
required, to deliver to the indenture trustee for deposit in
any of the trust accounts any required payment on or before
the business day prior to any monthly servicing payment date
or any distribution date, as applicable,
- to direct the indenture trustee to make the required
distributions from the trust accounts on each monthly
servicing payment date and each distribution date,
- to prepare and file with the Department of Education all
appropriate claim forms and other documents and filings on
behalf of the eligible lender trustee in order to claim any
interest subsidy payments and special allowance payments that
may be payable in respect of each collection period with
respect to the federal loans,
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- to prepare (based on the periodic reports received from the
master servicer or the sub-servicers) and provide periodic
statements to the eligible lender trustee and the indenture
trustee with respect to distributions to noteholders and
certificateholders and any related federal income tax
reporting information as required by the related sale and
servicing agreement, and
- to provide the notices and to perform other administrative
obligations required by the indenture, the trust agreement and
the sale and servicing agreement.
As compensation for the performance of the administrator's obligations
under the administration agreement and the sale and servicing agreement and as
reimbursement for its related expenses, the administrator will be entitled to an
administration fee in an amount set forth in the related prospectus supplement.
STUDENT LOAN TRANSFER AGREEMENT
If the depositor is selling the student loans with respect to any given
series, on or prior to the closing date specified with respect to any given
trust in the related prospectus supplement, the seller, certain affiliates of
the seller, certain third party originators and/or affiliates of these third
party originators will sell and assign to the depositor, without recourse,
except as provided in the student loan transfer agreement, their respective
entire interest in the student loans, all collections received and to be
received with respect to those student loans for the period on and after the
cutoff date and all the related assigned rights under the related student loan
transfer agreement. Each student loan will be identified in a schedule appearing
as an exhibit to that student loan transfer agreement. The seller will make
certain representations and warranties with respect to the student loans
transferred by it to the depositor in the related student loan transfer
agreement. If one or more affiliates of the seller, or a third party originator
or one or more of its affiliate(s), is selling student loans to the depositor
with respect to a given series, those persons may not make any representations
or warranties with respect to those student loans. However, in that case, the
master servicer or another entity identified in the related prospectus
supplement will make certain representations and warranties relating to the
student loans transferred by those persons to the depositor and the trustee in
the related sale and servicing agreement. All representations, warranties and
covenants made by the seller in, and all rights of the depositor in and to each
student loan transfer agreement will be assigned by the depositor to the trustee
in the sale and servicing agreement. The proceeds of the sale of the related
notes and certificates received by the depositor will be applied to the purchase
of the student loans.
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
TRANSFER OF STUDENT LOANS
The seller (and any other transferor of student loans to the depositor)
intends that the transfer of the student loans by it to the related eligible
lender trustee on behalf of each trust or to the depositor under the related
student loan transfer agreement and by the depositor to the related eligible
lender trustee, if applicable, will each be a valid sale and assignment of those
student loans. Also, the seller (and any other transferor of student loans to
the depositor) has taken and will take all actions that are required under
applicable state law to perfect the depositor's and/or
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the eligible lender trustee's, as applicable, ownership interest in the student
loans and the related collections. Notwithstanding the foregoing, if the
transfer of the student loans is deemed to be an assignment of collateral as
security for the benefit of a trust, a security interest in the student loans
may, under the provisions of 20 U.S.C. Section 1087-2(d)(3), be perfected either
through the taking of possession of the loans or by the filing of notice of the
security interest in the manner provided by the applicable Uniform Commercial
Code (or UCC) for perfection of security interests in accounts. A financing
statement or statements covering the student loans will be filed under the UCC
to protect the interest of the depositor and/or the eligible lender trustee, as
applicable, if the transfer by the seller or another transferor is deemed to be
an assignment of collateral as security for the benefit of the trust.
If the transfer of the student loans is deemed to be an assignment as
security for the benefit of a trust, there are certain limited circumstances
under the UCC in which past or future transferees of student loans coming into
existence after the closing date could have an interest in the student loans
with priority over the related eligible lender trustee's interest. A tax or
other government lien on property of the seller arising before the time a
student loan comes into existence may also have priority over the interest of
the depositor and/or the related eligible lender trustee, as applicable, in that
student loan. Also, if the FDIC were appointed as a receiver or conservator of
the seller, the FDIC's administrative expenses may also have priority over the
interest of the depositor and/or the eligible lender trustee, as applicable, in
those student loans. Under the related sale and servicing agreement or student
loan transfer agreement, however, the seller will warrant that it has caused the
student loans to be transferred to the related eligible lender trustee on behalf
of a trust or the depositor, as applicable, free and clear of the lien of any
third party. In addition, the seller will covenant that it will not sell,
pledge, assign, transfer or grant any lien on any student loan held by a trust
or the depositor (or any interest therein) other than to the related eligible
lender trustee on behalf of a trust or the depositor, as applicable, except as
provided below.
Under each sale and servicing agreement, the master servicer as
custodian on behalf of the related trust, or the sub-servicer as custodian on
behalf of the master servicer and the related trust, will have custody of the
promissory notes evidencing the student loans following the sale of the student
loans to the depositor or and the related eligible lender trustee. Although the
accounts and computer records of the seller, the depositor, if applicable, and,
the master servicer and the related sub-servicer will be marked to indicate the
sale and although the seller and the depositor, if applicable, 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 or that eligible lender
trustee, as applicable. If, through inadvertence or otherwise, any of the
student loans were sold to another party, or a security interest therein were
granted to another party, that purchased (or took such security interest in) any
of those student loans in the ordinary course of its business and took
possession of those student loans, then the purchaser (or secured party) might
acquire an interest in the student loans superior to the interest of the
depositor or the eligible lender trustee, as applicable, if the purchaser (or
secured party) acquired (or took a security interest in) the student loans for
new value and without actual knowledge of the depositor's or related eligible
lender trustee's interest, as applicable. See "Description of the Transfer and
Servicing Agreements--Sale of Student Loans; Representations and Warranties."
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With respect to each trust, if a master servicer default occurs
resulting solely from certain events of insolvency or bankruptcy that may occur
with respect to the seller, the depositor, the master servicer, a court,
trustee-in-bankruptcy, conservator, receiver or liquidator may have the power to
prevent either the related indenture trustee or noteholders of the related
series from appointing a successor master servicer. See "Description of the
Transfer and Servicing Agreements--Rights Upon Master Servicer Default;
Administrator Default."
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Federal Deposit Insurance Act (or "FDIA"), as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (or
"FIRREA"), sets forth certain powers that the FDIC could exercise if it were
appointed as receiver or conservator of the seller.
Subject to clarification by FDIC regulations or interpretations, it
would appear from the positions taken by the FDIC that the FDIC, in its capacity
as a receiver or conservator for the seller, would not interfere with the timely
transfer to the trust of collections with respect to the student loans. To the
extent that the transfer of the student loans is deemed to create a security
interest, and that interest was validly perfected before the seller's insolvency
and was not taken in contemplation of insolvency or with the intent to hinder,
delay or defraud the seller or its creditors, based upon opinions and statements
of policy issued by the general counsel of the FDIC addressing the
enforceability against the FDIC, as conservator or receiver for a depository
institution, of a security interest in collateral granted by that depository
institution, that security interest should not be subject to avoidance and
payments to the trust with respect to the student loans should not be subject to
recovery by the FDIC as receiver or conservator of the seller. If, however, the
FDIC were to assert a contrary position, certain provisions of the FDIA which,
at the request of the FDIC, have been applied in recent lawsuits to avoid
security interests in collateral granted by depository institutions, would
permit the FDIC to avoid that security interest, thereby resulting in possible
delays and reductions in payments on the notes and the certificates. In
addition, if the FDIC were to require the depositor, the indenture trustee or
the eligible lender trustee to establish its right to those payments by
submitting to and completing the administrative claims procedure under the FDIA,
as amended by FIRREA, delays in payments on the notes and the certificates and
possible reductions in the amount of those payments could occur.
In the event of a master servicer default or an administrator default
resulting solely from certain events of insolvency or bankruptcy that may occur
with respect to the master servicer or the administrator, a court, conservator,
receiver or liquidator may have the power to prevent either the indenture
trustee or noteholders from appointing a successor master servicer or
administrator, as the case may be. See "Description of the Transfer and
Servicing Agreements--Rights Upon Master Servicer Default; Administrator
Default."
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 certain consumer transactions and require contract
disclosures in addition to those required under federal law. These
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requirements impose specific statutory liabilities upon lenders who fail to
comply with their provisions. These requirements are generally inapplicable to
federal loans, but in certain circumstances, a trust may be liable for certain
violations of consumer protection laws that may apply to the student loans,
either as assignee 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 "Description of the Transfer and Servicing Agreements--Sale
of Student Loans; Representations and Warranties" and "--Master Servicer
Covenants."
In addition, the so-called "Holder-in-Due-Course" Rule of the Federal
Trade Commission, 16 C.R.R. Section 433.2, the provisions of which are generally
duplicated by the Uniform Consumer Credit Code, other statutes or the common law
in some states, requires sellers to include language in loan documents that
waives the holder in due course defense, which could have the effect of
subjecting a lender (and specified creditors and their assignees, including a
trust) in a consumer credit transaction to all claims and defenses that the
borrower in the transaction could assert against the seller of the related goods
or services (in this case, the related school as a seller of educational
services). Recently certain litigation has arisen under which the related
borrowers of student loans have asserted that the "Holder-in-Due-Course" Rule
applies to student loans made by lenders, even though the waiver language was
not included in the related promissory notes, in instances where the related
educational institution (the seller of educational services) went out of
business before the completion of such borrowers' education. These borrowers
argue that since the applicable schools did not provide the borrowers with the
educational services they contracted for using the related student loan
proceeds, they claim that they should be able to raise as a defense to a claim
for payment by the lender all defenses or claims they have against the school,
including but not limited to failure of consideration (i.e. the failure to
provide the contracted educational services). If a borrower is successful in his
or her claims, and if the related student loan is included in the related trust,
the trust may not be able to require repayment from the borrower and given that
the related educational institution no longer exists, it is likely that the
trust would suffer a realized loss on that student loan.
LOAN ORIGINATION AND SERVICING PROCEDURES APPLICABLE TO STUDENT LOANS
The Higher Education Act, including its implementing regulations,
imposes specified requirements, guidelines and procedures with respect to
originating and servicing student loans such as the federal loans. Generally,
those procedures require that completed loan applications be processed, a
determination of whether an applicant is an eligible borrower under applicable
standards (including a review of a financial need analysis) be made, the
borrower's responsibilities under the loan be explained to him or her, the
promissory note evidencing the loan be executed by the borrower and then that
the loan proceeds be disbursed in a specified manner by the lender. After the
loan is made, the lender or servicing agent 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 or a servicing agent must perform certain collection procedures
(primarily telephone calls and demand letters) which vary depending upon the
length of time a loan is delinquent. The master servicer has agreed under the
related sale and servicing agreement to perform (or to cause a sub-servicer to
perform) collection and servicing procedures on behalf of the related trust.
However, failure to follow these procedures or failure of the originator of the
loan to follow procedures
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relating to the origination of any federal loans could result in adverse
consequences. Any such failure could result in the Department of Education's
refusal to make reinsurance payments to the federal guarantors or to make
interest subsidy payments and special allowance payments to the eligible lender
trustee with respect to those federal loans or in the federal guarantors'
refusal to honor their guarantee agreements with the eligible lender trustee
with respect to those federal loans. Failure of the federal guarantors to
receive reinsurance payments from the Department of Education could adversely
affect the federal guarantors' ability or legal obligation to make Guarantee
Payments to the related eligible lender trustee with respect to those federal
loans.
Loss of any guarantee payments, interest subsidy payments or special
allowance payments could adversely affect the amount of Available Funds (as
defined in the related prospectus supplement) on any distribution date and the
related trust's ability to pay principal and interest on the notes of the
related series and to make distributions in respect of the certificates of the
related series. Under certain circumstances, unless otherwise specified in the
related prospectus supplement, the related trust has the right, under the
related sale and servicing agreement, to cause the seller and/or the depositor,
as applicable, to repurchase any student loan, or to cause the master servicer
to arrange for the purchase of any student loan, if a breach of the
representations, warranties or covenants of the seller and/or the depositor
and/or the master servicer or another entity identified in the related
prospectus supplement, as the case may be, with respect to that student loan has
a material adverse effect on the interest of the trust therein and the breach is
not cured within any applicable cure period. See "Description of the Transfer
and Servicing Agreements--Sale of Student Loans; Representations and Warranties"
and "--Servicer Covenants." The failure of the seller (or of the depositor to
cause the seller or the master servicer or such other entity identified in the
related prospectus supplement, as applicable) to purchase, or of the master
servicer to arrange for the purchase of, a student loan, if so required, would
constitute a breach of the related sale and servicing agreement, enforceable by
the related eligible lender trustee on behalf of the related trust or by the
related indenture trustee on behalf of the noteholders of the related series,
but would not constitute an event of default under the indenture.
FAILURE TO COMPLY WITH THIRD-PARTY SERVICER REGULATIONS MAY ADVERSELY AFFECT
LOAN SERVICING
On November 29, 1994, the Secretary of Education published final
regulations amending FFELP. These regulations, among other things, establish
requirements governing contracts between holders of federal loans and
third-party servicers, establish standards of administrative and financial
responsibility for third-party servicers that administer any aspect of a
guarantee agency's or lender's participation in the FFELP and establish
sanctions for third-party servicers.
Under these regulations, a third-party servicer (such as one of the
sub-servicers) is jointly and severally liable with its client lenders for
liabilities to the Department of Education arising from the servicer's violation
of applicable requirements. Also, if the servicer fails to meet standards of
financial responsibility or administrative capability included in the
regulations, or violates other FFELP requirements, the regulations authorize the
Department of Education to fine the servicer and/or limit, suspend, or terminate
the servicer's eligibility to contract to service FFELP loans. The effect of
this type of limitation or termination on the servicer's eligibility to service
loans already on its system, or to accept new loans for servicing under existing
contracts, is unclear. We can
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give you no assurance that a sub-servicer will not be fined or held liable by
the Department of Education liabilities arising out of its FFELP activities for
the master servicer or other client lenders, or that its eligibility will not be
limited, suspended, or terminated in the future. If a sub-servicer were fined or
held liable, or its eligibility were limited, suspended, or terminated, its
ability to properly service the federal loans and to satisfy its obligation to
purchase federal loans with respect to which it breaches its representations,
warranties or covenants under its related sub-servicing agreement could be
adversely affected. However, in the event of a termination of eligibility, each
sub-servicing agreement will provide for the removal of the applicable
sub-servicer and the appointment of a successor sub-servicer.
BANKRUPTCY CONSIDERATIONS
Effective for bankruptcy actions commenced on or after October 8, 1998,
federal loans are generally not dischargeable by a borrower in bankruptcy
pursuant to the United States Bankruptcy Code, as amended, as codified in 11
U.S.C. Sections 101-1330 (or Bankruptcy Code), unless excepting such debt from
discharge will impose an undue hardship on the debtor and the debtor's
dependents. However, private loans are generally dischargeable by a borrower in
bankruptcy unless the private loan has been made under any program funded in
whole or in part by a governmental unit or a non-profit institution.
OTHER APPLICABLE LEGISLATION
EMERGENCY STUDENT LOAN CONSOLIDATION ACT OF 1997. On November 13, 1997,
former President Clinton signed into law the Emergency Student Loan
Consolidation Act of 1997, which made significant changes to the Federal
Consolidation Loan Program. These changes include:
- providing that federal direct student loans are eligible to be
included in a federal consolidation loan;
- changing the borrower interest rate on new federal
consolidation loans (previously a fixed rate based on the
weighted average of the loans consolidated, rounded up to the
nearest whole percent) to the annually variable rate
applicable to Stafford Loans (i.e., the bond equivalent rate
at the last auction in May of 91-day Treasury Bills plus
3.10%, not to exceed 8.25% per annum);
- providing that the portion of a federal consolidation loan
that is comprised of subsidized Stafford Loans retains its
subsidy benefits during periods of deferment; and
- establishing prohibitions against various forms of
discrimination in the making of federal consolidation loans.
Except for the last of the above changes, all of these provisions expired on
September 30, 1998. The combination of the change to a variable rate and the
8.25% interest cap reduced the lender's yield in most cases below the rate that
would have been applicable under the previous weighted average formula.
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FY 1998 BUDGET. In the 1997 Budget Reconciliation Act (P.L. 105-33),
several changes were made to the Higher Education Act that impact the FFELP.
These provisions include, among other things, requiring federal guarantors to
return $1 billion of their reserves to the U.S. Treasury by September 1, 2002
(to be paid in annual installments), greater restrictions on use of reserves by
federal guarantors and a continuation of the administrative cost allowance
payable to federal guarantors (which is a fee paid to federal guarantors equal
to 0.85% of new loans guaranteed).
STUDENT LOAN PROVISIONS IN THE INTERMODAL SURFACE TRANSPORTATION
EFFICIENCY ACT OF 1998. On May 22, 1998, Congress passed, and on June 9, 1998,
the President signed into law, a temporary measure relating to the Higher
Education Act and FFELP loans as part of the Intermodal Surface Transportation
Efficiency Act of 1998 that revised interest rate changes under the FFELP that
were scheduled to become effective on July 1, 1998. For loans made during the
period July 1, 1998 through September 30, 1998, the borrower interest rate for
Stafford Loans and Unsubsidized Stafford Loans is reduced to a rate of 91-day
Treasury Bill rate plus 2.30% (1.70% during school, grace and deferment),
subject to a maximum rate of 8.25%. As described below, the formula for special
allowance payments on Stafford Loans and Unsubsidized Stafford Loans is
calculated to produce a yield to the loan holder of 91-day Treasury Bill rate
plus 2.80% (2.20% during school, grace and deferment).
1998 REAUTHORIZATION BILL. On October 7, 1998, former President Clinton
signed into law the 1998 Reauthorization Bill, which enacted significant reforms
in FFELP. The major provisions of the 1998 Reauthorization Bill include the
following:
- All references to a "transition" to full implementation of the
Federal Direct Student Loan Program were deleted from the
FFELP statute.
- Guarantor reserve funds were restructured so that federal
guarantors are provided with additional flexibility in
choosing how to spend certain funds they receive.
- Additional recall of reserve funds by the Secretary of
Education was mandated, amounting to $85 million in fiscal
year 2002, $82.5 million in fiscal year 2006, and $82.5
million in fiscal year 2007. However, certain minimum reserve
levels are protected from recall.
- The administrative cost allowance was replaced by two (2) new
payments, a student loan processing and issuance fee equal to
65 basis points (40 basis points for loans made on or after
October 1, 2003) paid at the time a loan is guaranteed, and an
account maintenance fee of 12 basis points (10 basis points
for fiscal years 2001-2003) paid annually on outstanding
guaranteed student loans.
- The percentage of collections on defaulted student loans a
federal guarantor is permitted to retain is reduced from 27%
to 24% (23% beginning on October 1, 2003) plus the complement
of the reinsurance percentage applicable at the time a claim
was paid to the lender on the student loan.
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- Federal reinsurance provided to federal guarantors is reduced
from 98% to 95% for student loans first disbursed on or after
October 1, 1998.
- The delinquency period required for a loan to be declared in
default is increased from 180 days to 240 days for loans on
which the first day of delinquency occurs on or after the date
of enactment of the 1998 Reauthorization Bill.
- Interest rates charged to borrowers on Stafford Loans, and the
yield for Stafford Loan holders established by the 1998
Amendments, were made permanent.
- Federal consolidation loan interest rates were revised to
equal the weighted average of the loans consolidated rounded
up to the nearest one-eighth of 1%, capped at 8.25%. When the
91-day Treasury Bill rate plus 3.1% exceeds the borrower's
interest rate, special allowance payments are made to make up
the difference.
- The lender-paid offset fee on federal consolidation loans of
1.05% is reduced to .62% for loans made pursuant to
applications received on or after October 1, 1998 and on or
before January 31, 1999.
- The federal consolidation loan interest rate calculation was
revised to reflect the rate for federal consolidation loan,
and will be effective for loans on which applications are
received on or after February 1, 1999.
- Lenders are required to offer extended repayment schedules to
new borrowers after the enactment of the 1998 Reauthorization
Bill who accumulate after that date outstanding loans under
FFELP totaling more than $30,000, under these extended
schedules the repayment period may extend up to 25 years
subject to certain minimum repayment amounts.
- The Secretary of Education is authorized to enter into six (6)
voluntary flexible agreements with federal guarantors under
which various statutory and regulatory provisions can be
waived.
- Federal consolidation loan lending restrictions are revised to
allow lenders who do not hold one of the borrower's underlying
federal loans to issue a federal consolidation loan to a
borrower whose underlying federal loans are held by multiple
holders.
- Inducement restrictions were revised to permit federal
guarantors and lenders to provide assistance to schools
comparable to that provided to schools by the Secretary of
Education under the Federal Direct Student Loan Program.
- The Secretary of Education is now required to pay off student
loan amounts owed by borrowers due to failure of the
borrower's school to make a tuition refund allocable to the
student loan.
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- Discharge of FFELP and certain other student loans in
bankruptcy is now limited to cases of undue hardship
regardless of whether the student loan has been due for more
than seven (7) years prior to the bankruptcy filing.
DEPARTMENTS OF LABOR, HEALTH AND HUMAN SERVICES, AND EDUCATION, AND
RELATED AGENCIES APPROPRIATIONS ACT, 2001. On December 21, 2000, former
President Clinton signed into law the Departments of Labor, Health and Human
Services, and Education, and Related Agencies Appropriations Act, 2001 (P.L. No.
106-554) (or Consolidated Appropriations Act). In response to the Department of
Treasury's announced intention to discontinue auctions of new 52-week Treasury
Bills, the Consolidated Appropriations Act amended the Higher Education Act to
tie the calculation of interest rates on variable rate SLS and PLUS Loans for
periods beginning on or after July 1, 2001 to the weekly average 1-year constant
maturity Treasury yield. This revision is not expected to materially affect the
yield to holders of SLS or PLUS loans.
ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. The
Electronic Signatures in Global and National Commerce Act, commonly referred to
as the "E-Sign Act," became law on June 30, 2000. The E-Sign Act generally
covers all transactions and related records required to be in writing. Under the
E-Sign Act, FFELP guaranty agencies, lenders, schools and borrowers are
authorized to use electronic records and electronic signatures in lieu of
traditional paper records and handwritten signatures. This authority took effect
June 30, 2001. In April 2001, the Department of Education issued standards for
electronic signatures in electronic student loan transactions. In these
standards, the Department of Education stated that a lender or holder whose
processes for electronic signatures and related electronic records satisfy the
standards will be protected from the loss of Federal benefits on a student loan
if the student loan is determined to be legally unenforceable by a court based
solely on the processes used for the electronic signature or related records.
2002 STUDENT LOAN INTEREST RATE LEGISLATION. On February 8, 2002,
President Bush signed legislation that extends currently applicable borrower
interest rates for Stafford and PLUS Loans until loans disbursed on or after
July 1, 2006. The legislation establishes a fixed borrower interest rate of 6.8
% on Subsidized Stafford Loans and Unsubsidized Stafford Loans made on or after
July 1, 2006 and a fixed borrower interest rate of 7.9% on PLUS Loans made on or
after July 1, 2006. The legislation also provides that as of July 1, 2006, a
lender would not receive a special allowance payment on a PLUS Loan until the
3-month commercial paper rate plus 2.64 percent exceeds 9.0%.
INCOME TAX CONSEQUENCES
Set forth below is a general summary of the material federal and
certain material Pennsylvania state income tax consequences of the purchase,
ownership and disposition of the notes and the certificates. Thompson Hine LLP,
federal tax counsel to the trusts, has reviewed this summary with respect to
federal income tax matters and is of the opinion that the descriptions of the
law and legal conclusions contained in this prospectus are correct in all
material respects and the discussions in this prospectus fairly summarize the
federal income tax considerations that are likely to be material to noteholders
and certificateholders. Kirkpatrick & Lockhart LLP, Pennsylvania tax counsel to
the trusts, has reviewed this summary with respect to certain material
Pennsylvania income and franchise tax matters and is of the opinion that the
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descriptions of the law and legal conclusions contained in this prospectus with
respect to such Pennsylvania income and franchise tax matters are correct in all
material respects. The summary is intended as an explanatory discussion of the
possible effects of certain federal and Pennsylvania income tax consequences to
holders generally, but does not purport to furnish information in the level of
detail or with the attention to a holder's specific tax circumstances that would
be provided by a holder's own tax advisor. For example, it does not discuss the
tax treatment of noteholders or certificateholders that are insurance companies,
regulated investment companies or dealers in securities. Also, any discussion
regarding the notes is limited to the federal and Pennsylvania income tax
consequences of the initial noteholders and not a purchaser in the secondary
market. Furthermore, there are no cases or Internal Revenue Service (or IRS) or
Pennsylvania Department of Revenue (or DOR) rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the notes and the certificates. As a result, the IRS may disagree with
all or a part of the discussion below. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the notes and the certificates.
With respect to federal tax matters, the following summary is based
upon current provisions of the Internal Revenue Code of 1986, as amended (or the
Code), the Treasury Regulations promulgated under the Code and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. With respect to Pennsylvania tax matters, the following summary is
based upon current provisions of the Pennsylvania Tax Reform Code of 1971, as
amended (or the Pennsylvania Code), the regulations promulgated under the
Pennsylvania Code, and judicial or ruling authority, all of which are subject to
change, which changes may be retroactive. Each trust will be provided with an
opinion of federal tax counsel regarding certain federal income tax matters
discussed below and an opinion of Pennsylvania tax counsel regarding certain
Pennsylvania State income tax matters discussed below, which opinions will be
filed with the Commission on a Form 8-K prior to the sale of the securities
issued by that trust. An opinion of federal tax counsel, however, is not binding
on the IRS or the courts, and the opinion of Pennsylvania tax counsel also is
not binding on the DOR or the courts. No ruling on any of the issues discussed
below will be sought from the IRS or the DOR, or any other relevant Pennsylvania
tax authority. For purposes of the following summary, references to the trust,
the notes, the certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each trust and the notes,
certificates and related terms, parties and documents applicable to that trust.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS TAX ADVISOR AS TO THE FEDERAL,
STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF SECURITIES SPECIFIC TO THAT PROSPECTIVE INVESTOR.
FEDERAL TAX CONSEQUENCES FOR TRUSTS
FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST
Federal tax counsel will deliver its opinion that the trust will not be
an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the trust agreement and related documents will be complied with.
There is, however, no specific authority with respect to the
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characterization for federal income tax purposes of securities having the same
terms as the notes and the certificates.
POSSIBLE ALTERNATIVE TREATMENT OF THE TRUST. If, contrary to the
opinion of federal tax counsel, the trust were taxable for federal income tax
purposes as a corporation, the income from the student loans (reduced by
deductions, possibly including interest on the notes) would be subject to
federal income tax at corporate income tax rates, which could materially reduce
or eliminate the cash that would otherwise be available to make payments on the
notes and the certificates (and the certificateholders could be liable for any
tax that is unpaid by the trust).
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. Federal tax counsel will
deliver an opinion to the trust that the notes will be classified as debt for
federal income tax purposes. The seller or the depositor, as applicable, will
agree, and the noteholders will agree by their purchase of notes, to treat the
notes as debt for federal income tax purposes. The discussion below assumes this
characterization of the notes is correct.
ORIGINAL ISSUE DISCOUNT. The discussion below assumes that all payments
on the notes are denominated in U.S. dollars, that the interest formula for the
notes meets the requirements for "qualified stated interest" under the Treasury
Department's OID Regulations relating to original issue discount (or OID), and
that any OID on the notes (i.e., any excess of the stated redemption price at
maturity of the notes, generally the principal amount of the notes, over their
issue price) is less than a de minimis amount (i.e., 0.25% of their principal
amount multiplied by the weighted number of full years included in their term),
all within the meaning of the OID Regulations. If these conditions are not
satisfied with respect to any given series of notes, additional federal income
tax considerations with respect to those notes will be disclosed in the related
prospectus supplement.
INTEREST INCOME ON THE NOTES. The stated interest on the notes will be
taxable to a noteholder as ordinary income when received or accrued in
accordance with the noteholder's method of tax accounting. Based on the above
assumptions, the notes will not be considered issued with OID. However, because
of limitations on the payment of interest on the notes to the extent of the
trust's having insufficient Available Funds, the IRS may contend that the notes
should be treated as having been issued with OID. In this case, noteholders
(regardless of whether they otherwise use the cash or accrual method of
accounting) would be required to include interest on the notes in taxable income
on a constant-yield accrual basis. However, until the IRS determines otherwise,
the trust intends to take the position that the notes are not issued with OID.
Under the OID Regulations, a holder of a note that was issued with a de
minimis amount of OID must include this OID generally in income, on a pro rata
basis, as principal payments are made on the note. Alternatively, a noteholder
may elect to accrue all interest, discount (including de minimis market discount
or OID) and premium in income as interest, based on a constant-yield method. A
purchaser who buys a note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
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SALE OR OTHER DISPOSITION. If a noteholder sells a note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
and gain previously included by that noteholder in income with respect to the
note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by that noteholder
with respect to that note. Any such gain or loss will be capital gain or loss if
the note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Any such
gain or loss would be long-term capital gain or loss if the noteholder's holding
period exceeded one year. Capital losses generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
FOREIGN HOLDERS. Interest paid (or accrued) to a noteholder who is a
foreign person (a nonresident alien, foreign corporation or other person that is
not a United States person as defined in the Code and the Treasury Regulations
under the Code) generally will be considered "portfolio interest", and generally
will not be subject to United States federal income tax and withholding tax,
provided, that
- the interest is not effectively connected with the conduct of
a trade or business within the United States by the foreign
person
- the foreign person is not actually or constructively a "10
percent shareholder" of the trust or the seller or the
depositor, as applicable, (including a holder of 10% of the
outstanding certificates) or a "controlled foreign
corporation" with respect to which the trust or the seller or
the depositor, as applicable, is a "related person" within the
meaning of the Code, and
- the foreign person provides the trustee or other person who is
otherwise required to withhold U.S. tax with respect to the
notes with an appropriate statement (on Form W-8BEN or other
successor form), signed under penalty of perjury, certifying
that the beneficial owner of the note is a foreign person and
providing the foreign person's name and address.
In the case of a note held on behalf of the beneficial owner by a
securities clearing organization, bank, or other financial institution holding
customers' securities in the ordinary course of its trade or business, the
financial institution:
- files with the withholding agent a statement that it has
received the Form W-8BEN or other successor form from the
holder and furnishes the withholding agent with a copy
thereof, or
- files Form W-8IMY and has entered into an agreement with the
IRS to be treated as a qualified intermediary.
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For purposes of the certification requirements, the beneficial owners
of payments on a note are those persons that, under United States tax
principles, are the taxpayers with respect to which such payments, rather than
persons such as nominees or agents legally entitled to such payments.
With respect to notes held by a foreign partnership, unless the foreign
partnership has entered into a withholding agreement with the IRS, the foreign
partnership will generally be required to provide a Form W-8IMY or other
successor form and to associate with such form an appropriate certification or
other appropriate documentation from each partner. With respect to a note held
by a United States partnership, payments on the note are treated as payments to
a United States payee, even if the partnership has one or more foreign partners.
Prospective investors, including foreign partnerships and their
partners, should consult their tax advisers regarding possible additional
reporting requirements.
If this interest is not portfolio interest, then it will be subject to
United States federal income and withholding tax at a rate of 30%, unless
reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person generally will be exempt from
United States federal income and withholding tax, provided that (x) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (y) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement on Form
W-8ECI), the holder generally will be subject to United States federal income
tax on the interest, gain or income at regular federal income tax rates. In
addition, if the foreign person is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty (as modified by the branch profits tax rules).
BACKUP WITHHOLDING. Each holder of a note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalty of perjury, a certificate setting forth the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
noteholder fail to provide the required certification, the related trust will be
required to withhold 28% through 2010 and 31% thereafter of the amount otherwise
payable to the holder and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
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POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of federal tax counsel, the IRS successfully asserted that one or more
classes of notes did not represent debt for federal income tax purposes, such
class or classes of notes might be treated as equity interests in the trust. If
so treated, the trust might be treated as a publicly traded partnership but it
would not be taxable as a corporation because it would meet certain qualifying
income tests.
Nonetheless, even if the trust were not taxable as a corporation, the
treatment of notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders of those notes. For
example, income from certain classes of notes to certain tax-exempt entities
(including pension funds) might be "unrelated business taxable income," income
to foreign holders may be subject to U.S. withholding tax and U.S. tax return
filing requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of trust expenses.
Furthermore, this characterization could subject noteholders to state or local
taxation in jurisdictions in which they are not currently subject to tax. If one
or more classes of notes were treated as interests in a partnership, the
consequences governing the certificates as equity interests in a partnership
described below under "Federal Tax Consequences For Trusts For Which a
Partnership Election is Made--Tax Consequences to Holders of the Certificates"
would generally apply to the holders of those notes.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
The following discussion only applies to a trust which issues one or
more classes of certificates and assumes that all payments on the certificates
are denominated in U.S. dollars, that a series of securities includes a single
class of certificates and that the certificates are sold to both the seller or
the depositor, as applicable, and to persons other than the seller or the
depositor, as applicable. If these conditions are not satisfied with respect to
any given series of certificates, any additional tax considerations with respect
to such certificates will be disclosed in the applicable prospectus supplement.
CLASSIFICATION AS A PARTNERSHIP
TREATMENT OF THE TRUST AS A PARTNERSHIP. The seller or the depositor,
as applicable, and the master servicer will agree, and the certificateholders
will agree by their purchase of certificates, to treat the trust as a
partnership for purposes of federal, state and local income and franchise tax
and any other tax measured in whole or in part by income, with the assets of the
partnership being the assets held by the trust, the partners of the partnership
being the certificateholders (including the seller or the depositor, as
applicable, both in its capacity as owner of certificates and as recipient of
distributions from the reserve account, if any), and the notes being debt of the
partnership. There is, however, no specific authority with respect to the proper
characterization of the arrangement involving the trust, the certificateholders,
the noteholders, the seller or the depositor, as applicable, and the master
servicer.
Under the provisions of Subchapter K of the Code, a partnership is not
considered a separate taxable entity. Instead, partnership income is allocated
to each of the partners and taxed in each partner's hands. The partnership is
generally treated as an entity, however, for computing partnership income,
determining the tax consequences of transactions between a partner and the
partnership, and characterizing the gain on the sale or exchange of a
partnership interest.
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PARTNERSHIP TAXATION. As a partnership, the trust will not be subject
to federal income tax. Rather, each certificateholder will be required to
separately take into account the holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the student loans (including
appropriate adjustments for market discount, OID and bond premium), investment
income from investments of amounts on deposit in any related trust Accounts and
any gain upon collection or disposition of student loans. The trust's deductions
will consist primarily of interest accruing with respect to the notes, servicing
and other fees, and losses or deductions upon collection or disposition of
student loans.
GUARANTEED PAYMENTS. Under the trust agreement, payments on the
certificates at the pass-through rate (including accruals on amounts previously
due on the certificates but not yet distributed) will be treated as "guaranteed
payments" under Section 707(c) of the Code. Guaranteed payments are payments to
partners for the use of their capital and, in the present circumstances, are
treated as deductible to the trust and ordinary income to the
certificateholders. The trust will have a calendar year and will deduct the
guaranteed payments under the accrual method of accounting. Certificateholders
with a calendar tax year are required to include the payments in income in their
taxable year that corresponds to the year in which the trust deducts the
payments, and the certificateholders with a different taxable year are required
to include the payments in income in their taxable year that includes the
December 31st of the year in which the trust deducts the payments. It is
possible that guaranteed payments will not be treated as interest for all
purposes of the Code.
ALLOCATION OF TAX ITEMS. The tax items of a partnership are allocable
to the partners in accordance with the Code, Treasury Regulations and the
partnership agreement (here, the trust agreement and related documents). The
trust agreement will provide, in general, that in addition to the guaranteed
payments described above, the certificateholders will be allocated the following
tax items of the trust for each interest period:
- any trust income attributable to discount on the student loans
that corresponds to any excess of the principal amount of the
certificates over their initial issue price;
- any trust expense attributable to the amortization by the
trust of premium on student loans that corresponds to any
excess of the issue price of certificates over their principal
amount; and
- all other amounts of income payable to the certificateholders
for that interest period.
All remaining taxable income of the trust will be allocated to the
seller or the depositor, as applicable. Losses will generally be allocated in
the manner in which they are borne. Based on the economic arrangement of the
parties, this approach for allocating trust tax items should be permissible
under applicable Treasury Regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders may be allocated income equal to the entire amount of
interest accruing on the certificates for an interest period, based on the
pass-through rate plus the other items described above, even though the trust
might
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not make (or have sufficient cash to make) current cash distributions of such
amount. Thus, cash basis holders will, in effect, be required to report income
from the certificates on the accrual basis, and certificateholders may become
liable for taxes on trust income even if they have not received cash from the
trust to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all certificateholders but
certificateholders may be purchasing certificates at different times and at
different prices, certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the trust.
Also, all of the guaranteed payments and the taxable income allocated
to a certificateholder that is a tax-exempt entity may constitute "unrelated
business taxable income," which, under the Code, is generally taxable to such a
holder despite the holder's tax exempt status.
An individual taxpayer's share of expenses of the trust (including fees
to the master servicer but not interest expenses) are miscellaneous itemized
deductions which are deductible only to the extent they exceed two percent of
the individual's adjusted gross income (and not at all for alternative minimum
tax purposes). Accordingly, these deductions might be disallowed to the
individual in whole or in part and might result in such holder being taxed on an
amount of income that exceeds the amount of cash actually distributed to such
holder over the life of the trust. These deductions may also be subject to
reduction under Section 68 of the Code if an individual taxpayer's adjusted
gross income exceeds certain limits.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that these calculations be made separately for each of the student
loans, the trust might be required to incur additional expense, but it is
believed that there would not be a material adverse effect on
certificateholders.
COMPUTATION OF INCOME. Taxable income of the trust will be computed at
the trust level and the portion allocated to the certificateholders will be
allocated to them pro rata. Consequently, the method of accounting for taxable
income will be chosen by, and any elections (such as those described below with
respect to the market discount rules) will be made by the trust rather than the
certificateholders. The trust intends, to the extent possible, to (x) have the
taxable income of the trust computed under the accrual method of accounting and
(y) adopt a calendar-year taxable year for computing the taxable income of the
trust. The tax year of the trust, however, is generally determined by reference
to the tax years of the certificateholders. An owner of a certificate is
required to include its pro rata share of trust income for a taxable year as
determined by the trust in such certificateholder's gross income for its taxable
year in which the taxable year of the trust ends.
SECTION 708 TERMINATION. Under Section 708 of the Code, if 50% or more
of the outstanding interests in the trust are sold or exchanged within any
12-month period, the trust will be deemed to terminate and then be reconstituted
for federal income tax purposes. If a termination occurs, the trust will be
considered to contribute all of its assets and liabilities to the trust, as a
new partnership, for an interest in the new partnership; and immediately
thereafter, the trust, as the former partnership, will be considered to
distribute interests in the new partnership to the certificateholders in
proportion to their respective interests in the former partnership in
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liquidation of the former partnership. If a sale of the certificates terminates
the trust under Section 708 of the Code, a certificateholder's basis in its
ownership interest would not change. The trust's taxable year would also
terminate as a result of a constructive termination and, if the
certificateholder's taxable year is different from the trust's, the termination
could result in the "bunching" of more than 12 month's income or loss of the
trust in such certificateholder's income tax return for the year in which the
trust was deemed to terminate. A liquidation of interests is not considered a
sale or exchange of interests for purposes of applying this constructive
termination rule.
The trust will not comply with certain technical requirements that
might apply if a constructive termination were to occur. As a result, the trust
may be subject to certain tax penalties and may incur additional expenses if it
is required to comply with those requirements. Furthermore, the trust might not
be able to comply due to a lack of data.
DISCOUNT AND PREMIUM. To the extent that OID, if any, on the student
loans exceeds a de minimis amount, the trust would have OID income. As indicated
above, a portion of this OID income may be allocated to the certificateholders.
Also, the purchase price paid by the trust for the student loans may be
greater or less than the remaining aggregate principal balances of the student
loans at the time of purchase. If so, the student loans will have been acquired
at a premium or discount, as the case may be. (As indicated above, the trust
will make this calculation on an aggregate basis, but might be required to
recompute it on a loan by loan basis.)
If the trust acquires the student loans at a market discount or
premium, the trust will elect to include any such discount in income currently
as it accrues over the life of the student loans or to offset any such premium
against interest income over the life of the student loans. As indicated above,
a portion of such market discount income or premium deduction may be allocated
to certificateholders.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's adjusted tax basis in the
certificates sold. Any such gain or loss generally would be long-term capital
gain or loss if the certificateholder's holding period exceeded one year.
However, if at the time of sale, the trust holds "unrealized receivables" or
"inventory items" (as those terms are defined in Section 751 of the Code), the
seller of the certificates will recognize ordinary income (or loss) under
Section 751 of the Code equal to the seller's allocable share of income (or
loss) attributable to "unrealized receivables" or "inventory items" that would
result from a hypothetical asset sale by the trust. In this situation, the
excess of the amount of capital gain (or loss) that the seller of the
certificates would have realized in the absence of Section 751 of the Code over
the amount of ordinary income (or loss) that the seller must recognize under
Section 751 of the Code will be treated as capital gain (or loss) from the sale
of the certificates. A certificateholder's adjusted tax basis in a certificate
will generally equal the holder's cost increased by the holder's share of trust
income (includible in gross income) and decreased by any distributions received
or losses allocated with respect to the certificate. In addition, both the
adjusted tax basis in the certificate and the amount realized on a sale of a
certificate would include the holder's share of the notes and other liabilities
of the trust. A holder acquiring
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certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in the certificates and, upon sale or other disposition of
some of the certificates, allocate a pro rata portion of this aggregate adjusted
tax basis to the certificates sold (rather than maintaining a separate tax basis
in each certificate for purposes of computing gain or loss on a sale of that
certificate).
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the student loans would
generally be treated as ordinary income to the holder. Since the trust will make
an election to include market discount, if any, in income currently as it
accrues over the life of the student loans, there may be little, if any,
unrecognized accrued market discount at the time a certificate is sold.
If a certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, this excess will generally give rise to
a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be allocated among the certificateholders
in proportion to the principal amount of certificates owned by each of them as
of the close of the last day of such month. As a result, a purchaser of
certificates may be allocated tax items (which will affect the tax liability and
tax basis of the holder) attributable to periods before the actual purchase
takes place.
The use of such a monthly convention may not be permitted by existing
laws and regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust might be reallocated among the certificateholders. The seller or
the depositor, as applicable, is authorized to revise the trust's method of
allocation between transferors and transferees to conform to a method permitted
by future laws, regulations or other IRS guidance.
SECTION 754 ELECTION. If a certificateholder sells a certificate at a
profit (or loss), the purchasing certificateholder will have a higher (or lower)
basis in the certificate than the selling certificateholder had. The adjusted
tax basis of the trust's assets will not be adjusted to reflect that higher (or
lower) basis unless the trust were to file an election under Section 754 of the
Code. In order to avoid the administrative complexities that would be involved
in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make this election. As a
result, certificateholders might be allocated a greater or lesser amount of
trust income than would be appropriate based on their own purchase price for
certificates.
ADMINISTRATIVE MATTERS. The eligible lender trustee is required to keep
or cause to be kept complete and accurate books of the trust. The eligible
lender trustee will file a partnership information return (IRS Form 1065) with
the IRS for each taxable year of the trust and will report each
certificateholder's allocable share of items of trust income and expense to
holders and the IRS on Schedule K-1. The trust will provide the Schedule K-1
information to nominees that fail to provide the trust with the information
statement described below and such nominees will
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be required to forward such information to the beneficial owners of the
certificates. Generally, holders must file tax returns that are consistent with
the information returns filed by the trust or be subject to penalties unless the
holder timely notifies the IRS of all of these inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. This information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (a) the name, address and taxpayer identification number of the person,
(b) whether the person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
certificates that were held, bought or sold on behalf of the person throughout
the year. Also, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act that holds certificates as a nominee is
not required to furnish this information statement to the trust. The information
referred to above for any calendar year must be furnished to the trust on or
before the following January 31st. Nominees, brokers and financial institutions
that fail to provide the trust with the information described above may be
subject to penalties.
The seller or the depositor, as applicable, will be designated as "tax
matters partner" in the related trust agreement and, as such, will be
responsible for representing the certificateholders in certain disputes with the
IRS. The Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before the later of three
years after the date on which the partnership information return is filed or the
last day for filing such return for such year (determined without regard to
extensions). Any adverse determination following an audit of the return of the
trust by the appropriate taxing authorities could result in an adjustment of the
returns of the certificateholders, and, under certain circumstances, a
certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related to
the income and losses of the trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether
the trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to foreign
certificateholders because there is no clear authority dealing with that issue
under facts substantially similar to those described in this prospectus.
Accordingly, the trust will withhold as if it were so engaged in order to
protect the trust from possible adverse consequences of a failure to withhold.
The trust expects to withhold on the portion of its taxable income that is
allocable to foreign certificateholders pursuant to Section 1446 of the Code, as
if this income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and at the highest
marginal rate set forth in Section 1(c) of the Code for all other foreign
holders. Proposed regulations under Section 1446 of the Code were published in
September 2003 and will be effective for taxable years beginning after the date
that final Treasury Regulations are published. The adoption and publication of
final Treasury Regulations or the issuance of other administrative
pronouncements may require the trust to change its withholding procedures.
105
Each foreign certificateholder may be required to file a U.S.
individual or corporate income tax return and pay U.S. federal income tax
(including in the case of a corporation, the branch profits tax) on its share of
the trust's income. Each foreign certificateholder must obtain a taxpayer
identification number from the IRS and submit that number to the trust in order
to assure appropriate crediting of the taxes withheld pursuant to Section 1446
of the Code.
If it were determined that the trust is not engaged in a U.S. trade or
business, each foreign certificateholder's allocable share of trust income
generally would not be effectively connected with a U.S. trade or business.
Consequently, each foreign certificateholder generally would not be liable for
U.S. federal income tax as described in the immediately preceding paragraphs.
But, instead, each foreign certificateholder likely would be subject to United
States federal income tax and withholding tax at a rate of 30 percent on the
certificateholder's share of guaranteed payments (unless reduced or eliminated
pursuant to an applicable treaty) because the guaranteed payments likely would
be U.S. source income. A foreign certificateholder generally would be entitled
to file with the IRS a claim for refund with respect to taxes withheld by the
trust in excess of those that are withheld with respect to guaranteed payments,
taking the position that those taxes were not due because the trust was not
engaged in a U.S. trade or business.
EACH POTENTIAL FOREIGN CERTIFICATEHOLDER SHOULD CONSULT ITS TAX ADVISOR
AS TO WHETHER THE TAX CONSEQUENCES OF HOLDING A CERTIFICATE MAKE IT AN
UNSUITABLE INVESTMENT.
BACKUP WITHHOLDING. Distributions made on the certificates will be
subject to a "backup" withholding tax (at a rate of 28% through 2010 and 31%
thereafter) if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. Proceeds from the sale of certificates may
also be subject to "backup" withholding tax.
FEDERAL TAX CONSEQUENCES FOR TRUSTS IN WHICH ALL
CERTIFICATES ARE RETAINED BY THE SELLER, THE DEPOSITOR OR A THIRD
PARTY ORIGINATOR
TAX CHARACTERIZATION OF THE TRUST
Federal tax counsel will deliver its opinion that a trust which issues
one or more classes of notes to investors and all the certificates of which are
retained by the seller, the depositor, a third party transferor of student loans
to that trust or an affiliate of any of them, as applicable, will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes, assuming that no election will be made to treat the
trust as a corporation for federal income tax purposes. In this case, the
seller, the depositor, the third party transferor or the applicable affiliate,
and the master servicer will agree to treat the trust as a division of the
seller, the depositor or the third party transferor, as applicable, for purposes
of federal, state and local income and franchise tax and any other tax measured
in whole or in part by income; consequently, the trust will be disregarded as an
entity separate from the seller, the depositor or the third party transferor, as
applicable.
106
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. As discussed above, federal tax
counsel will deliver an opinion to the trust that the notes will be classified
as debt for federal income tax purposes. The seller, the depositor or an
affiliate of the seller or the depositor, as applicable, will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Assuming this characterization of the notes is
correct, the federal income tax consequences to noteholders described above
under "Federal Tax Consequences For Trusts For Which a Partnership Election is
Made--Tax Consequences to Holders of the Notes" would apply to the noteholders.
PENNSYLVANIA STATE TAX CONSEQUENCES
PENNSYLVANIA INCOME AND FRANCHISE TAX CONSEQUENCES WITH RESPECT TO THE NOTES
If the student loans of a trust are serviced by the Pennsylvania Higher
Education Assistance Agency (or PHEAA), it may be argued that such trust will be
conducting business activities in the Commonwealth of Pennsylvania. There is no
authority in Pennsylvania addressing the question of whether the notes will be
treated as debt or equity for Pennsylvania purposes. Furthermore, Pennsylvania
does not necessarily adopt Federal income tax definitions in characterizing
income for state tax purposes. Nonetheless, subject to the foregoing
uncertainties, if a majority of the student loans of a trust are serviced by
PHEAA, Pennsylvania tax counsel will, before the issuance of the notes and
certificates, deliver its opinion to the trust that, assuming the notes are debt
for Federal income tax purposes, the notes will be debt for Pennsylvania income
tax purposes. Provided that the notes are debt for Pennsylvania income tax
purposes, noteholders not otherwise subject to taxation in Pennsylvania should
not become subject to taxation in Pennsylvania solely because of a holder's
ownership of notes. However, for Pennsylvania resident noteholders otherwise
subject to Pennsylvania tax, the interest on the notes will be included in
Pennsylvania taxable income.
PENNSYLVANIA INCOME AND FRANCHISE TAX CONSEQUENCES WITH RESPECT TO THE
CERTIFICATES
Because state and local income and franchise tax laws vary greatly, it
is impossible to predict the income and franchise tax consequences to the
certificateholders in all of the state and local taxing jurisdictions in which
they are already subject to tax. Certificateholders are urged to consult their
own advisors with respect to state and local income and franchise taxes. If the
student loans of a trust are serviced by PHEAA, it may be argued that such trust
will be conducting business activities in the Commonwealth of Pennsylvania.
There is no authority in Pennsylvania that addresses whether PHEAA's servicing
activities on behalf of the trust would cause the trust to have nexus with
Pennsylvania for Pennsylvania income and franchise tax purposes. If the trust is
treated as a partnership for Pennsylvania income tax purposes and if the DOR
successfully asserts that the trust is conducting business in Pennsylvania as a
result of PHEAA's servicing activities, Pennsylvania non-resident
certificateholders not otherwise subject to taxation in Pennsylvania could
become subject to taxation in Pennsylvania solely because of their ownership of
certificates. Regardless of whether the trust is considered to be conducting
business in Pennsylvania, Pennsylvania resident certificateholders otherwise
subject to Pennsylvania tax would include their allocable share of the trust's
income and gains in
107
Pennsylvania taxable income. Pennsylvania tax counsel will, before the issuance
of the notes and certificates, deliver its opinion that the entity
classification of the trust for Pennsylvania state income tax purposes would be
the same as the entity classification of the trust for federal income tax
purposes. We can provide you no assurance, however, that this conclusion will
not be challenged by the Pennsylvania taxing authorities or, if challenged, that
the taxing authorities will not be successful. If the trust were subject to an
entity level tax in Pennsylvania, any such tax could materially reduce or
eliminate cash that would otherwise be distributable with respect to the
certificates (and certificateholders could be liable for any such tax that is
unpaid by the trust).
THE FEDERAL AND PENNSYLVANIA TAX DISCUSSIONS SET FORTH ABOVE ARE
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'S OR CERTIFICATEHOLDER'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 SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL, PENNSYLVANIA OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended (or
ERISA), and/or the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which these plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
(collectively referred to as plans) and on persons who are fiduciaries with
respect to these plans in connection with the investment of plan assets. Certain
employee benefit plans, such as governmental plans (as defined in ERISA Section
3(32)), 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 ERISA
requirements. Accordingly, assets of these plans may be invested in notes
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
ERISA generally imposes on plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a plan's investments be made in accordance with the documents
governing the plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a plan and
persons (generally referred to as parties in interest) who have certain
specified relationships to the plan unless a statutory, regulatory or
administrative exemption is available. Certain parties in interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory, regulatory or administrative exemption is
available. These prohibited transactions generally are set forth in Section 406
of ERISA and Section 4975 of the Code.
108
THE NOTES
Unless otherwise specified in the related prospectus supplement, the
notes of each series may be purchased by a plan. The trust, any underwriter, the
eligible lender trustee, the indenture trustee, the master servicer, the
administrator, any provider of credit support or any of their affiliates may be
considered to be or may become parties in interest with respect to certain
plans. Prohibited transactions under Section 406 of ERISA and Section 4975 of
the Code may arise if a note is acquired by a plan with respect to which such
persons are parties in interest unless these transactions are subject to one or
more statutory or administrative exemptions, such as:
- Prohibited Transaction Class Exemption (or PTCE) 96-23, which
exempts certain transactions effected on behalf of a plan by
an "in-house asset manager";
- PTCE 90-1, which exempts certain transactions between
insurance company separate accounts and parties in interest;
- PTCE 91-38, which exempts certain transactions between bank
collective investment funds and parties in interest;
- PTCE 95-60, which exempts certain transactions between
insurance company general accounts and parties in interest; or
- PTCE 84-14, which exempts certain transactions effected on
behalf of a plan by a "qualified professional asset manager."
We can give you no assurance that any of these class exemptions will apply with
respect to any particular plan investment in notes or, even if it were deemed to
apply, that any exemption would apply to all prohibited transactions that may
occur in connection with that investment. Accordingly, prior to making an
investment in the notes, investing plans should determine whether the trust, any
underwriter, the eligible lender trustee, the indenture trustee, the master
servicer, the administrator, or any provider of credit support or any of their
affiliates is a party in interest with respect to that plan and, if so, whether
the transaction is subject to one or more statutory, regulatory or
administrative exemptions.
The purchaser of notes is deemed to have represented that either: (A)
the purchaser is not acquiring the notes directly or indirectly for, or on
behalf of, a benefit plan or any entity whose underlying assets are deemed to be
plan assets of that benefit 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 some other
applicable exemption.
Any plan fiduciary considering whether to invest in notes on behalf of
a 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. Each plan fiduciary also should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the notes is appropriate for the plan,
considering the overall
109
investment policy of the plan and the composition of the plan's investment
portfolio, as well as whether such investment is permitted under the governing
plan instruments.
THE CERTIFICATES
Unless otherwise specified in the prospectus supplement, the
certificates of each series may not be purchased by a benefit plan. A benefit
plan is a plan or any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity. The purchase of an equity interest
in the trust will result in the assets of the trust being deemed assets of a
benefit plan for the purposes of ERISA and the Code and certain transactions
involving the trust may then be deemed to constitute prohibited transactions
under Section 406 of ERISA and Section 4975 of the Code. A violation of the
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for those persons.
By its acceptance of a certificate, each certificateholder will be
deemed to have represented and warranted that it is not a benefit plan.
If a given series of certificates may be acquired by a benefit plan
because of the application of an exception contained in a regulation or
administrative exemption issued by the United States Department of Labor, such
exception will be discussed in the related prospectus supplement.
* * *
A plan fiduciary considering the purchase of securities of a given
series should consult its tax and/or legal advisors regarding whether the assets
of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement
relating to the notes of a given series and an underwriting agreement relating
to the certificates of that series, the seller or the depositor, as applicable,
will agree to cause the related trust to sell to the underwriters named in the
underwriting agreements and in the related prospectus supplement, and each of
those underwriters will severally agree to purchase, the principal amount of
each class of notes and certificates, as the case may be, of the related series
set forth in the underwriting agreements and in the related prospectus
supplement.
In each of the underwriting agreements relating to any given series of
securities, the several underwriters will agree, subject to the terms and
conditions of the underwriting agreements, to purchase all the notes and
certificates, as the case may be, described therein which are offered by this
prospectus and by the related prospectus supplement if any of those notes and
certificates, as the case may be, are purchased.
Each prospectus supplement will either (1) set forth the price at which
each class of notes and certificates, as the case may be, being offered by the
prospectus supplement will be offered to the public and any concessions that may
be offered to certain dealers participating in the
110
offering of those notes and certificates, as the case may be, or (2) specify
that the related notes and certificates, as the case may be, are to be resold by
the underwriters in negotiated transactions at varying prices to be determined
at the time of sale. After the initial public offering of any notes and
certificates, as the case may be, these public offering prices and these
concessions may be changed.
Until the distribution of the securities is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the securities. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize the
price of the securities. These transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the securities.
If an underwriter creates a short position in the securities in
connection with the offering (i.e., if it sells more securities than are set
forth on the cover page of the related prospectus supplement), the underwriter
may reduce that short position by purchasing securities in the open market.
An underwriter may also impose a penalty bid on certain underwriters
and selling group members. This means that if the underwriter purchases
securities in the open market to reduce the underwriters' short position or to
stabilize the price of the securities, it may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
securities as part of the offering.
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 these 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 seller or the depositor, as applicable, 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
prices of the securities. Also, neither the seller or the depositor, as
applicable, nor the underwriters make any representation that the underwriters
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Each underwriting agreement will provide that the seller or the
depositor, as applicable, will indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the several underwriters may be required to make in respect thereof.
Each trust may, from time to time, invest the funds in its trust
accounts in eligible investments acquired from the underwriters.
Under each of the underwriting agreements with respect to a given
series of securities, the closing of the sale of any class of securities subject
to either of those underwriting agreements will be conditioned on the closing of
the sale of all other classes subject to either of those underwriting
agreements.
111
This prospectus may be used by KeyBanc Capital Markets, a Division of
McDonald Investments Inc., a wholly-owned subsidiary of KeyCorp and an affiliate
of the seller, the depositor and the master servicer, or its successors, in
connection with offers and sales related to market-making transactions in the
securities in which it acts as a principal. KeyBanc Capital Markets may also act
as agent in those transactions. McDonald Investments Inc. is a member of the New
York Stock Exchange, Inc. KeyBanc Capital Markets is not a legal entity; it is a
division of McDonald Investments Inc. Although McDonald Investments Inc. is an
affiliate of the seller, the depositor and the master servicer, it is an entity
separate from these affiliates, and is solely responsible for its own
contractual obligations and commitments.
The place and time of delivery for the securities in respect of which
this prospectus is delivered will be set forth in the related prospectus
supplement.
LEGAL MATTERS
Certain legal matters relating to the securities of any series will be
passed upon for the related trust, the seller and/or the depositor, as
applicable, and the administrator by Forrest F. Stanley, Esq., Associate General
Counsel and Senior Vice President of KeyBank National Association, as counsel
for the seller and the depositor, and by Thompson Hine LLP, Cleveland, Ohio.
Certain federal income tax and other matters will be passed upon for the trust
by Thompson Hine LLP. Certain Pennsylvania state income tax matters will be
passed upon for each trust by Kirkpatrick & Lockhart LLP.
MN # 101678
112
$[ ]
KEYCORP STUDENT LOAN
TRUST [ ]
KEY BANK USA, NATIONAL ASSOCIATION,
MASTER SERVICER
KEY CONSUMER RECEIVABLES LLC,
DEPOSITOR
PROSPECTUS SUPPLEMENT
JOINT LEAD MANAGER AND GLOBAL BOOKRUNNER
[ ]
JOINT LEAD MANAGER
[ ]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the expenses in connection with the
issuance and distribution of the Notes and the Certificates being registered,
other than underwriting discounts and commissions. All of the amounts shown are
estimates, except the SEC registration fee.
SEC registration fee......................................... $179,492
Legal fees and expenses...................................... 200,000
Accounting fees and expenses................................. 55,000
Rating Agency fees........................................... 300,000
Eligible Lender Trustee fees and expenses.................... 25,000
Indenture Trustee fees and expenses.......................... 15,000
Servicer conversion fees..................................... 40,000
Printing and engraving....................................... 65,000
Miscellaneous................................................ 15,000
Total............................................... $894,492
* All amounts are estimates of expenses incurred or to be incurred in connection
with the issuance and distribution of a series of Securities in an aggregate
principal amount assumed for these purposes to be one-third of the principal
amount of the Securities offered hereby. Accordingly, one-third of the SEC
registration fee paid upon the filing of this Registration Statement is included
in the table above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
KEY BANK USA, NATIONAL ASSOCIATION
----------------------------------
Section 11 of Article VIII of the Amended and Restated Bylaws of Key Bank
USA, National Association (the "Bank") provides as follows:
(a) The Bank shall indemnify, to the full extent permitted or
authorized by the Ohio General Corporation Law as it may from time to time be
amended but subject to any and all conditions, limitations, and prohibitions
imposed pursuant to all applicable federal banking laws and regulations as may
be in effect from time to time (including 12 U.S.C. Section 1828(k), 12 C.F.R.
Section 7.2014, and 12 C.F.R. Part 359), any person made or threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that he or she is or was a director, officer, or employee of the Bank or a
member of the KeyCorp Audit and Risk Review Committee who serves or served as a
member of the Audit Committee of the Bank pursuant to 12 C.F.R. Part 363, or is
or was serving at the request of the Bank as a director, trustee, officer, or
employee of another bank, corporation, partnership, joint venture, trust, or
other enterprise. In the case of a merger into the Bank of a constituent entity
which, if its separate existence had continued, would have been required to
indemnify directors, officers, or employees in specified situations prior to the
merger, any person who served as a director, officer, or employee of the
constituent entity, or served at the request of the constituent entity as a
director, trustee, officer, or employee of another bank, corporation,
partnership, joint venture, trust, or other enterprise, shall be entitled to
indemnification by the Bank (as the surviving entity) for acts, omissions, or
other events or occurrences prior to the merger to the same extent he or she
would have been entitled to indemnification by the constituent entity if its
separate existence had continued. The indemnification provided by this Section
11 shall not be deemed exclusive of any other rights to which any person seeking
indemnification may be entitled by law or under the Articles of Association of
the Bank or these Bylaws, or any agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, trustee, officer,
employee, or member of the KeyCorp Audit and Risk Review Committee and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
II-1
(b) Subject to any and all conditions, limitations and prohibitions
imposed pursuant to all applicable federal banking laws and regulations as may
be in effect from time to time (including 12 U.S.C. Section 1828(k), 12 C.F.R.
Section 7.2014, and 12 C.F.R. Part 359), the Bank may purchase and maintain
insurance or furnish similar protection, including but not limited to trust
funds, letters of credit, or self-insurance on behalf of or for any person who
is or was a director, officer, employee, or agent of the Bank or a member of the
KeyCorp Audit and Risk Review Committee who serves or served as a member of the
Audit Committee of the Bank pursuant to 12 C.F.R. Part 363, or is or was serving
at the request of the Bank as a director, trustee, officer, employee, or agent
of another bank, corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against him or her and incurred by
him or her in any capacity, or arising out of his or her status as such, whether
or not the Bank would have the power to indemnify him or her against liability
under the provisions of this Section 11 or the Ohio General Corporation Law.
Insurance may be purchased from or maintained with a person in which the Bank
has a financial interest.
(c) Notwithstanding paragraphs (a) and (b) of this Section 11, all of the
provisions of this Section 11 are subject to the authority of the Office of the
Comptroller of the Currency to direct a modification of a specific
indemnification by a national bank through appropriate administrative action.
KEY CONSUMER RECEIVABLES LLC
----------------------------
Paragraphs (a), (b) and (c) of Section 19 of the Amended and Restated
Limited Liability Company Agreement of Key Consumer Receivables LLC (the
"Company" for this Item 15 only) provide as follows:
(a) Neither the Member nor the Special Member nor any Officer,
Director, Independent Director, employee or agent of the Company nor any
employee, representative, agent or Affiliate of the Member or the Special Member
(collectively, the "Covered Persons") shall be liable to the Company or any
other Person who has an interest in or claim against the Company for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Covered Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority conferred on such
Covered Person by this Agreement, except that a Covered Person shall be liable
for any such loss, damage or claim incurred by reason of such Covered Person's
gross negligence or willful misconduct.
(b) To the fullest extent permitted by applicable law, a Covered
Person shall be entitled to indemnification from the Company for any loss,
damage or claim incurred by such Covered Person by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of the
authority conferred on such Covered Person by this Agreement, except that no
Covered Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Covered Person by reason of such Covered
Person's gross negligence or willful misconduct with respect to such acts or
omissions; provided, however, that any indemnity under this Section 19 by the
Company shall be provided out of and to the extent of Company assets only, and
the Member and the Special Member shall not have personal liability on account
thereof; and provided further, that so long as any Obligation is outstanding, no
indemnity payment from funds of the Company (as distinct from funds from other
sources, such as insurance) of any indemnity under this Section 19 shall be
payable from amounts allocable to any other Person pursuant to the Transaction
Documents.
(c) To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by a Covered Person defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Company
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of the Covered
Person to repay such amount if it shall be determined that the Covered Person is
not entitled to be indemnified as authorized in this Section 19.
For the full text of Section 19 of the Company's Amended and Restated
Limited Liability Company Agreement, reference is hereby made to Exhibit 4.3
hereto.
ii_2
ITEM 16. EXHIBITS.
1.1* Form of Underwriting Agreement for Notes
1.2* Form of Underwriting Agreement for Certificates
3.1** Amended and Restated Articles of Association of Key Bank USA,
National Association
3.2** Amended and Restated Bylaws of Key Bank USA, National Association
4.1* Form of Indenture between KeyCorp Student Loan Trust ____-__ (the
"Trust") and the Indenture Trustee (including as exhibits thereto
a form of Asset Backed Note)
4.2* Form of Amended and Restated Trust Agreement between [Key Bank
USA, National Association or Key Consumer Receivables LLC] and
the Eligible Lender Trustee (including as an exhibit thereto a
form of Asset Backed Certificate).
4.3* Amended and Restated Limited Liability Company Agreement of Key
Consumer Receivables LLC
5.1* Opinion of Forrest F. Stanley, Esq. with respect to legality
8.1* Opinion of Thompson Hine LLP with respect to federal tax matters
8.2* Opinion of Kirkpatrick & Lockhart with respect to Pennsylvania
tax matters
10.1* Form of Sale and Servicing Agreement among [Key Bank USA,
National Association (in its capacity as the Seller) or Key
Consumer Receivables LLC (as Depositor)], the Master Servicer (or
the Servicers) and the Eligible Lender Trustee
10.2* Form of Administration Agreement among the Administrator, the
Master Servicer (or the Servicers), the Trust and the Indenture
Trustee
23.1* Consent of Forrest F. Stanley, Esq. (included as Exhibit 5.1)
23.2* Consent of Thompson Hine LLP (included as Exhibit 8.1)
23.3* Consent of Kirkpatrick & Lockhart (included as Exhibit 8.2)
24.1** Powers of Attorney of directors and officers of Key Bank USA,
National Association
24.2** Powers of Attorney of directors and officers of Key Consumer
Receivables LLC
25.1*** Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of the Indenture Trustee (Form T-1)
- ----------
* Filed herewith
** Previously filed
*** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act at the
time of an offering of debt securities
ITEM 17. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not
II-3
exceed that which is registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Registration Statement
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Securities Act"), each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To provide to the Underwriters, at the closing specified in the
Underwriting Agreements, Notes and Certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(f) For purposes of determining any liability under the Securities Act, each
filing of the Registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(g) To file an application for the purpose of determining the eligibility of
each trustee to act under subsection (a) of Section 310 of the Trust Indenture
Act in accordance with the rules and regulations prescribed by the Commission
under Section 305(b)(2) of the Trust Indenture Act
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on May 14, 2004.
KEY BANK USA, NATIONAL ASSOCIATION, as registrant
By: /s/ Michael W. Dvorak
---------------------------------------------------------
Michael W. Dvorak, Chief Financial Officer and Cashier
KEY CONSUMER RECEIVABLES LLC, as registrant
By: /s/ Michael W. Dvorak
---------------------------------------------------------
Michael W. Dvorak, Chief Financial Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to registration statement has been signed on May 14, 2004
by the following persons in the capacities indicated.
KEY BANK USA, NATIONAL ASSOCIATION:
SIGNATURE TITLE
--------- -----
PRINCIPAL EXECUTIVE OFFICER:
* Chief Executive Officer, President and
- ------------------------------------- Director
Jack L. Kopinsky
PRINCIPAL ACCOUNTING OFFICER:
* Chief Financial Officer and Cashier
- -------------------------------------
Michael W. Dvorak
* Director
- -------------------------------------
Patrick V. Auletta
* Director
- -------------------------------------
Kevin M. Blakely
* Director
- -------------------------------------
Thomas W. Bunn
* Director
- -------------------------------------
Linda A. Grandstaff
II-5
* Director
- -------------------------------------
Robert B. Heisler, Jr.
* Director
- -------------------------------------
Robert G. Jones
* Director
- -------------------------------------
David J. Schutter
* Director
- -------------------------------------
Jeffrey B. Weeden
* Director and Secretary
- -------------------------------------
Paul N. Harris
* By: /s/ Forrest F. Stanley
-----------------------------
Forrest F. Stanley
Attorney-in-Fact
KEY CONSUMER RECEIVABLES LLC:
SIGNATURE TITLE
--------- -----
PRINCIPAL EXECUTIVE OFFICER:
* President and Director
- -------------------------------------
Beth D. Rosenberg
PRINCIPAL ACCOUNTING OFFICER:
* Chief Financial Officer and Director
- -------------------------------------
Michael W. Dvorak
* Director
- -------------------------------------
Joseph M. Vayda
* Director
- -------------------------------------
Evelyn Echevarria
* By: /s/ Forrest F. Stanley
-----------------------------
Forrest F. Stanley
Attorney-in-Fact
II-6
EXHIBIT INDEX
1.1* Form of Underwriting Agreement for Notes
1.2* Form of Underwriting Agreement for Certificates
3.1** Amended and Restated Articles of Association of Key Bank USA,
National Association
3.2** Amended and Restated Bylaws of Key Bank USA, National Association
4.1* Form of Indenture between KeyCorp Student Loan Trust ____-__ (the
"Trust") and the Indenture Trustee (including as exhibits thereto
a form of Asset Backed Note)
4.2* Form of Amended and Restated Trust Agreement between [Key Bank
USA, National Association or Key Consumer Receivables LLC] and
the Eligible Lender Trustee (including as an exhibit thereto a
form of Asset Backed Certificate).
4.3* Amended and Restated Limited Liability Company Agreement of Key
Consumer Receivables LLC
5.1* Opinion of Forrest F. Stanley, Esq. with respect to legality
8.1* Opinion of Thompson Hine LLP with respect to federal tax matters
8.2* Opinion of Kirkpatrick & Lockhart with respect to Pennsylvania
tax matters
10.1* Form of Sale and Servicing Agreement among [Key Bank USA,
National Association (in its capacity as the Seller) or Key
Consumer Receivables LLC (as Depositor)], the Master Servicer (or
the Servicers) and the Eligible Lender Trustee
10.2* Form of Administration Agreement among the Administrator, the
Master Servicer (or the Servicers), the Trust and the Indenture
Trustee
23.1* Consent of Forrest F. Stanley, Esq. (included as Exhibit 5.1)
23.2* Consent of Thompson Hine LLP (included as Exhibit 8.1)
23.3* Consent of Kirkpatrick & Lockhart (included as Exhibit 8.2)
24.1** Powers of Attorney of directors and officers of Key Bank USA,
National Association
24.2** Powers of Attorney of directors and officers of Key Consumer
Receivables LLC
25.1*** Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of the Indenture Trustee (Form T-1)
- ----------
* Filed herewith
** Previously filed
*** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act at the
time of an offering of debt securities