2003 Student Loan Finance And Legal Issues Meeting Legal Issues in Alternative Student Loan Securiti

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2003 Student Loan FinanceAnd Legal Issues
Meeting Legal Issues in Alternative Student
Loan Securitization

• August 5, 2003
• New York City, New York
• Education Finance Council
• Lauris G. L. Rall, Partner
• Thacher Proffitt Wood
• Structured Finance Group

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Diversity Within The Asset Class

• Alternative Student Loans Are Very Different
• Unsecured consumer receivables
• Guaranteed by a private guarantor?
• Payment terms, including interest only,
  deferment, and forbearance periods can vary
  significantly among programs
• Single loan promissory notes, master promissory
  notes with varied principal drawdowns (each
  academic semesters borrowing), or credit
  obligations extended under an open ended credit
  agreement

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Disclosure Documents

• Diligence and Review of Origination Procedures
• Summarizing the material terms of the lending
  program requires careful review of the
  origination and servicing guidelines
• Program lender will also determine the extent of
  diligence necessary to determine compliance with
  applicable consumer lending laws and regulations

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Disclosure Documents (Cont.)

• Bankruptcy of Student Borrowers
• Alternative student loans may be dischargeable in
  bankruptcy unless issued or guaranteed by a
  nonprofit institution

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Servicing

• Servicing Agreements
• Servicer experienced in alternative loans, not
  just government guaranteed loans, and if a
  private guarantor is involved, experienced with
  the claim procedures applicable to that guarantor
  
• Servicer acceptability to the rating agencies who
  will rate the asset backed securities

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Servicing (Cont.)

• Special Servicing
• Delinquency collection activity - special
  diligence support providing supplementary
  notification and pre-default procedures
• Special Contract Provisions
• Termination rights
• Assignment rights
• Application of Collection Proceeds - Master Note
  Enforcement

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Master Note

• Structure of Note
• Use of the master note raises issues in
  connection with creation and perfection of a
  security interest in the loans made under the
  note
• Security Interests
• If all obligations under master note pledged to a
  single indenture trustee, then perfection of
  security interest through master indenture
• If various payment obligations assigned to
  different entities or trustees, use new UCC
  Article 9 payment intangibles - file financing
  statements against discrete debtors pledging
  those obligations

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Master Note (Cont.)

• Rating Agencies
• Will rely on the automatic perfection provision
  of revised Article 9 for the perfection of sales
  of promissory notes in alternative student loan
  structured transactions
• Require a "true sale" opinion for each sale

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Thank you!

• Questions?
• Comments?