The Education Resources Institute (TERI) filed for Chapter 11 yesterday. According to a report from Barclays Capital,  Moody’s Investors Service's downgrade of TERI to 'B2' from 'Baa3' on March 26 tripped a trigger in a loan contract. This resulted in the student loan firm’s having to post cash to cover its student loan guarantees.

Barclays said that TERI's bankruptcy filing has implications for First Marblehead’s securitizations that relate to note repayments, determining trigger events, and subordinate note ratings. Barclays explained that the NCSLT deals were structured with a fully funded TERI pledge fund that is available to be drawn upon as private student loans in the trust default. The pledge fund is considered an asset of the trust and, as such, should be considered outside the reach of the bankruptcy court, Barclays said. When the pledge fund is depleted, the trust would usually look to TERI to make payments on defaulted loans it insured.

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