The First Marblehead Corp. sold its ownership interest in NC Residuals Owners Trust. The Trust is the owner of the residual interests in all fifteen of the student loan lender's National Collegiate Student Loan Trusts ("NCSLT").

A press release from the firm said that this deal does not impact any of First Marblehead's interests in securitization trusts relating to its GATE transactions. Deutsche Bank Securities, Orrick, Herrington & Sutcliffe and Sonnenschein Nath & Rosenthal advised First Marblehead on the transaction.

The sale is expected to generate a cash refund for taxes previously paid, as the student loan lender has been required to pay taxes on the expected residual cash flows from the NCSLT Trusts before it actually receives those cash flows.

Before this deal, First Marble head paid over $195 million on taxable income associated with their interests in the NCSLT residuals over the past seven years. The Company estimates that it would be required to pay approximately $430 million in additional taxes over the remaining life of the residuals, with around $370 million to be paid prior to the residuals generating enough annual cash flows to offset the tax payments. As a result of the deal, First Marblehead expects to remove any tax obligations from these residuals in their entirety.

The refund is expected to be received by the Company in 2009 and 2010.

The Company has also entered into an asset services agreement with the trust's purchaser pursuant to which First Marblehead has agreed to offer certain portfolio services for an annual fee based on the aggregate outstanding principal balance of the student loans owned by the NCSLT Trusts. The advisory fee will be earned but will not be paid until residual cash flows are distributed by the NCSLT trusts, according to the release.

If First Marblehead completes its obligations under the asset services agreement as expected, the firm expects total revenues between the years 2009 and 2038, to be around $500 million, on an undiscounted, pre-tax basis, utilizing current management assumptions regarding loan performance.

First Marblehead continues to have rights to additional structural advisory fees from the NCSLT Trusts and will continue to publish on its website its management assumptions as well as static pool data regarding performance of these trusts. In addition, First Marblehead Data Services will still be acting as administrator of the NCSLT trusts.

"Management is pleased to have completed this transaction, which will significantly enhance our unrestricted cash," Daniel Meyers, First Marblehead's chief executive officer and president, said. "With respect to the residual interests, the Company has paid income taxes on these residual interests without receiving any cash from these trusts. By completing this transaction, we expect not only to stop the cash burn from these tax payments, but also to recapture a significant portion of the taxes that the company has paid to date on these residuals. In addition, we will assist the purchaser with a host of portfolio management and data services throughout the life of the NCSLT trusts, for which we expect to receive contractual fees. This ensures that First Marblehead's interests continue to be aligned with those of the bondholders of these trusts."

First Marblehead filed with the Securities and Exchange Commission a current report on form 8-K with additional transaction details.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.