<PAGE>
Prospectus Supplement
Filed Pursuant to Rule 424b(5)
Registration No. 333-85963
$130,200,000 Student Loan Asset-Backed Notes, Series 2000-1
EDUCATION LOANS INCORPORATED
Consider carefully the risk factors beginning on page 4 in the prospectus and
page S-10 of this prospectus supplement
The notes will represent obligations of EdLinc only and will not represent
interests in or obligations of the servicer, the transferor or any of their
affiliates. The notes are not a deposit and are not insured or guaranteed by any
person. Except as noted in this document and the accompanying prospectus, the
underlying accounts and student loans are not insured or guaranteed by any
governmental agency.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
Senior Senior Subordinate
Series Series Series
EdLinc will issue: 2000-1A Notes 2000-1B Notes 2000-1C Notes Total
----------------- ------------- ------------- ------------- -----
Principal Amount $54,100,000 $54,100,000 $22,000,000 $130,200,000
Interest Rate Auction rate Auction rate Auction rate
Interest Paid First business day following end of each interest period
Initial Interest Rate To be determined on December 4, 2000
Initial Interest
Period Closing date Closing date Closing date
through through through
1/3/01 1/10/01 1/3/01
First Interest
Payment Date 1/4/01 1/11/01 1/4/01
Initial Interest Rate
Adjustment Date 1/4/01 1/11/01 1/4/01
Stated Maturity
Date 12/1/35 12/1/35 12/1/35
Price to Public 100% 100% 100% $130,200,000
Underwriting
Discount 0.438% 0.438% 0.438% $569,970
Proceeds to Issuer 99.562% 99.562% 99.562% $129,630,030
____________
The subordinate notes are subordinated to the senior notes.
Neither the SEC nor any state securities commission has approved these
notes or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Salomon Smith Barney
November 28, 2000
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Important Notice About The Information in
Your Prospectus Supplement and Prospectus
EdLinc provides information to you about the notes in two separate
documents that progressively provide more detail:
. the accompanying prospectus, which provides general information, some
of which may not apply to your notes; and
. this prospectus supplement, which describes the specific terms of your
notes.
The terms of your series of notes disclosed in this prospectus supplement
may vary from, but will not contradict, the disclosure in the accompanying
prospectus. If these variances occur, you should rely on the information in this
prospectus supplement.
This prospectus supplement includes cross-references to captions in this
prospectus supplement or the accompanying prospectus where you can find further
related discussions. These cross-references are to sections contained in this
prospectus supplement unless you are told otherwise. The following table of
contents and the table of contents included in the accompanying prospectus
provide the pages on which these captions are located.
EdLinc will not list the notes on any trading exchange.
-----------------------
Until February 27, 2001, all dealers that effect transactions in the notes
of this series, whether or not participating in this offering, may be required
to deliver a prospectus and prospectus supplement. This requirement is in
addition to the dealers' obligation to deliver a prospectus and prospectus
supplement when acting as underwriters for their unsold allotments or
subscriptions.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY OF TERMS........................................................ S-4
RISK FACTORS............................................................ S-10
USE OF PROCEEDS......................................................... S-11
Proceeds of the Series 2000-1 Notes................................ S-11
Deposits to the Alternative Loan Guarantee Fund.................... S-12
THE FINANCED STUDENT LOANS.............................................. S-12
Incentive Programs................................................. S-21
SERVICING............................................................... S-21
General............................................................ S-21
AFSA Data Corporation.............................................. S-21
THE GUARANTEE AGENCIES.................................................. S-22
General............................................................ S-22
Education Assistance Corporation--EAC.............................. S-23
California Student Aid Commission--CSAC............................ S-24
Certain Historical Information for Guarantee Agencies.............. S-25
DESCRIPTION OF THE SERIES 2000-1 NOTES.................................. S-28
Generally.......................................................... S-28
Interest Rate on the Series 2000-1 Notes........................... S-29
Carry-Over Amounts on the Series 2000-1 Notes...................... S-32
Interest Limited to the Extent Permissible by Law.................. S-34
Redemption of Series 2000-1 Notes.................................. S-34
SOURCE OF PAYMENT AND SECURITY FOR THE SERIES 2000-1 NOTES.............. S-37
Subordination of the Subordinate Series 2000-1 Notes............... S-37
Prior Notes and Series 2000-1 Notes................................ S-37
Summary of Indenture Assets, Liabilities and Fund Balances
and Statement of Revenue, Expense and Changes in Fund
Balances of the Indenture....................................... S-37
THE TRUSTEE............................................................. S-44
RELATIONSHIPS AMONG FINANCING PARTICIPANTS.............................. S-44
UNDERWRITING............................................................ S-45
LEGAL MATTERS........................................................... S-46
RATINGS................................................................. S-46
APPENDIX I--Auction of the Series 2000-1 Notes
APPENDIX II-- Settlement Procedures
</TABLE>
S-3
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SUMMARY OF TERMS
This summary highlights selected information from this document and does not
contain all of the information you need to make your investment decision. To
understand all of the terms of this offering, read this entire document and the
accompanying prospectus.
EDLINC
Education Loans Incorporated, a Delaware corporation and wholly-owned subsidiary
of Student Loan Finance Corporation, will issue the notes and acquire student
loans with the proceeds. EdLinc's principal place of business is located at 105
First Avenue Southwest, Suite 200, Aberdeen, South Dakota 57401, and its phone
number is (605) 622-4400.
THE TRANSFEROR
GOAL Funding, Inc., a Delaware corporation and wholly-owned subsidiary of
Student Loan Finance Corporation, will transfer to EdLinc on the closing date
most of the student loans to be financed with proceeds of the notes of this
series. GOAL Funding, Inc., in its capacity as transferor of the initial
financed student loans and previously financed student loans under the
indenture, will be referred to in this prospectus supplement as the transferor.
STUDENT LOAN FINANCE CORPORATION
Student Loan Finance Corporation, a South Dakota corporation:
. has purchased alternative student loans from unaffiliated lenders and
transferred them to the transferor, which loans will be transferred to
EdLinc on the closing date;
. will purchase alternative student loans from unaffiliated lenders and
transfer them directly to EdLinc during the period from the closing date
through March 31, 2001;
. has previously purchased alternative student loans from unaffiliated
lenders and transferred them to the transferor, which loans were
transferred to EdLinc in connection with a previous series of notes; and
. will be the servicer and the administrator.
THE SERVICER
Student Loan Finance Corporation will be the servicer of the student loans
acquired by EdLinc from proceeds of the notes. It may, however, employ one or
more other institutions to service the loans on its behalf on a day-to-day
basis. Student Loan Finance Corporation, in its capacity as servicer of the
financed student loans, together with any successor in such capacity, will be
referred to in this prospectus supplement as the servicer.
THE ADMINISTRATOR
Student Loan Finance Corporation will perform various administrative activities
and obligations for EdLinc in connection with acquiring student loans and
meeting reporting and other requirements under the indenture.
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THE TRUSTEE
U.S. Bank National Association will be the trustee under the indenture. U.S.
Bank National Association, in its capacity as trustee under the indenture,
together with any successor in such capacity, will be referred to in this
prospectus supplement as the trustee. U.S. Bank National Association will also
be the eligible lender trustee for purposes of holding legal title to all FFELP
loans.
TRUST ESTATE ASSETS
The student loans that secure your notes will consist of:
. a portfolio of loans to be transferred by the transferor to EdLinc on the
closing date, which is anticipated to have an aggregate principal balance
when acquired of approximately $93,000,000 and be purchased at a price,
including accrued interest, of approximately $95,500,000;
. loans to be purchased or originated during the period from the closing date
through April 2, 2001, which will have an aggregate principal balance, plus
accrued interest, when acquired of approximately $30,990,000;
. loans acquired with proceeds of a previous series of notes, which had an
aggregate principal balance as of October 31, 2000, of approximately
$112,008,000; and
. loans to be acquired with proceeds of any subsequent series of notes and
other available moneys under the indenture.
Student Loan Finance Corporation, the transferor or EdLinc has originated or
will originate these loans, or has purchased or will purchase these loans from
unaffiliated lenders
. Any loans not originated by EdLinc or purchased by EdLinc directly from
unaffiliated lenders will be transferred to EdLinc by the transferor or Student
Loan Finance Corporation.
The moneys and investments in the funds and accounts under the indenture will
also secure your notes. EdLinc expects that the proceeds of the series 2000-1
notes that are deposited into the reserve fund and, pending use to purchase or
originate additional student loans, proceeds that are deposited into the
acquisition fund and not used on the closing date to acquire student loans will
be invested in one or more investment agreements. EdLinc also expects that
amounts deposited in the revenue fund, the note fund and the surplus fund
relating to the series 2000-1 notes also will be invested in one or more
investment agreements. Each investment agreement will require the financial
institution to which amounts are loaned to repay those amounts when requested by
EdLinc or the trustee, and to pay interest on them periodically. Each investment
agreement provider will be a party which meets the rating agencies' criteria for
creditworthiness or which has pledged collateral satisfactory to the rating
agencies to secure its repayment obligations.
FFELP LOANS
Approximately 80% of the initial financed student loans and previously financed
student loans are expected to be FFELP loans. Third party agencies guarantee the
payment of both principal and interest on FFELP loans. The extent of the
guarantee ranges from 98% to 100%. See "The Financed Student Loans" and "The
Guarantee Agencies" in this prospectus supplement and "Description of
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the FFEL Program" and "Description of the Guarantee Agencies" in the prospectus.
ALTERNATIVE LOANS
Approximately 20% of the initial financed student loans and previously financed
student loans are expected to be alternative loans. No third party guarantees
payment of the alternative loans. See "The Financed Student Loans" in this
prospectus supplement and "Description of the Alternative Loan Programs" in the
prospectus.
CLOSING DATE
Issuance of the notes is scheduled for December 5, 2000.
THE SERIES 2000-1 NOTES
The series 2000-1 notes are being issued in three series:
. the senior series 2000-1A notes and the senior series 2000-1B notes, each
in the original principal amount of $54,100,000, which are senior notes
under the indenture; and
. the subordinate series 2000-1C notes in the original principal amount of
$22,000,000, which are subordinate notes under the indenture.
INTEREST
The initial interest period for the series 2000-1A notes and the series 2000-1C
notes will be from the closing date through January 3, 2001. The initial
interest period for the series 2000-1B notes will be from the closing date
through January 10, 2001. During the initial interest period, each series of
series 2000-1 notes will bear interest at their respective initial rates to be
determined on December 4, 2000.
After the initial interest period , the interest period for each series will
generally consist of 28 days, subject to adjustment as described in this
prospectus supplement. The interest rates for each series of series 2000-1 notes
will be reset on each interest rate adjustment date at the auction rates
pursuant to the auction procedures described in Appendix I to this prospectus
supplement -- "Auction of the Series 2000-1 Notes--Auction Procedures." These
interest rates, however, will not exceed the lesser of the maximum auction rate,
the series 2000-1 note auction rate limitation and the net loan rate. The
initial interest rate adjustment date for the series 2000-1A notes and the
series 2000-1C notes will be January 4, 2001. The initial interest rate
adjustment date for the series 2000-1B notes will be January 11, 2001. See
"Auction Procedures" below.
Interest on each series of series 2000-1 notes will be payable on each interest
rate adjustment date for that series to the holders of that series as of the
business day before the interest rate adjustment date. An interest rate
adjustment date for a series of series 2000-1 notes is the first business day
following the expiration of an interest period for that series.
You may obtain the applicable interest rates by telephoning (605) 622-4554.
AUCTION PROCEDURES
The interest rate on each series of series 2000-1 notes will be determined
periodically (generally, for periods ranging from 7 days to one year, and
initially 28 days) by means of a "Dutch auction." In this Dutch auction,
investors and potential investors submit orders through an eligible
broker-dealer as to the principal amount of series 2000-1 notes
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the investors wish to buy, hold or sell at various interest rates. The broker-
dealers submit their clients' orders to the auction agent, who processes all
orders submitted by all eligible broker-dealers and determines the interest rate
for the upcoming interest period. The auction agent notifies the broker-dealers
of the interest rate for the upcoming interest period and provides settlement
instructions for purchases and sales of series 2000-1 notes.
See "Description of the Notes--Auction Procedures" in the prospectus and
"Description of the Series 2000-1 Notes--Interest on the Series 2000-1 Notes" in
this prospectus supplement and Appendix I to this prospectus supplement --
"Auction Procedures" for a more detailed description of these procedures.
AUCTION AGENT
Bankers Trust Company is the initial auction agent for EdLinc in connection with
auctions of the series 2000-1 notes.
BROKER-DEALER
Salomon Smith Barney Inc. is the sole initial broker-dealer through which
existing and potential holders of each series of the series 2000-1 notes may
participate in auctions.
PRINCIPAL
Stated Maturity Date
The stated maturity date of the series 2000-1 notes is December 1, 2035.
Optional Redemption
At EdLinc's option, series 2000-1 notes of any series may be redeemed on any
interest payment date for that series, in whole or in part, at a redemption
price of 100% of principal amount.
See "Description of the Series 2000-1 Notes--Redemption of Series 2000-1 Notes"
in this prospectus supplement and "Maturity and Prepayment Considerations" in
the prospectus.
Special Redemption
Series 2000-1 notes must be redeemed, in part, at a redemption price of 100% of
principal amount, on the first interest payment date occurring after April 2,
2001, for which redemption notice can be given, from proceeds of the series
2000-1 notes in the series 2000-1 acquisition account that have not been used to
acquire eligible loans and from excess amounts in the series 2000-1 reserve
account.
Series 2000-1 notes must be redeemed, in whole or in part, at a redemption price
of 100% of principal amount, on any interest payment date, from amounts that
have been on deposit in the series 2000-1 surplus subaccount for 12 months, have
not been used to acquire student loans and are not reasonably expected to be
needed for some other purpose under the indenture.
See "Description of the Series 2000-1 Notes--Redemption of Series 2000-1 Notes"
in this prospectus supplement and "Maturity and Prepayment Considerations" in
the prospectus.
Senior Asset Requirement
Series 2000-1 notes may not be redeemed unless, after giving effect to the
redemption, the provisions of the indenture described under "Description of the
Notes--Redemption, Prepayment or
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Purchase of Notes; Senior Asset Requirement" in the prospectus will be met.
PRIORITY OF PAYMENTS
Available funds under the indenture will be applied generally in the following
priority:
. first, to pay interest on the senior series 2000-1 notes, any other senior
notes at the time outstanding and any other senior obligations under the
indenture;
. second, to pay principal due on the senior series 2000-1 notes, any other
senior notes at the time outstanding and any other senior obligations under
the indenture;
. third, to the acquisition fund, the amount necessary to repay any prior
transfers therefrom to pay interest or principal on the notes;
. fourth, to pay interest on the subordinate series 2000-1 notes, any other
subordinate notes at the time outstanding and any other subordinate
obligations under the indenture;
. fifth, to pay principal due on the subordinate series 2000-1 notes, any
other subordinate notes at the time outstanding and any other subordinate
obligations under the indenture;
. sixth, to the administration fund, the amount necessary to pay
administrative and servicing fees and expenses;
. seventh, to the reserve fund, the amount necessary to reach its required
balance;
. eighth, to make sinking fund installments to redeem subordinate term notes;
. ninth, to make prepayments of principal on, or to provide for the special
redemption of, notes;
. tenth, to the alternative loan guarantee fund, amounts received in respect
of liquidated alternative loans; and
. eleventh, to the surplus fund.
See "Source of Payment and Security for the Notes--Priorities" and "Description
of the Indenture--Funds and Accounts" in the prospectus.
RESERVE FUND
$1,953,000 of the proceeds of the series 2000-1 notes will be deposited into a
reserve fund for the notes. This initial deposit will be supplemented monthly,
if necessary, and otherwise upon the issuance of any new series of notes.
PARITY OBLIGATIONS
The series 2000-1 notes will be issued under the indenture. Additional notes and
other obligations have been and may be issued under the indenture which have the
same right to payment from the trust estate as the senior series 2000-1 notes or
the subordinate series 2000-1 notes. See "Source of Payment and Security for the
Series 2000-1 Notes" in this prospectus supplement.
FEDERAL INCOME TAX CONSEQUENCES
In Dorsey & Whitney LLP's opinion, your notes will be characterized as debt
obligations for federal income tax purposes. Interest paid or accrued on the
notes will be taxable to you.
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By accepting your note, you agree to treat your note as a debt instrument for
income tax purposes.
See "United States Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
We expect that the series 2000-1 notes will be treated as debt obligations
without significant equity features for purposes of applicable ERISA regulations
of the Department of Labor. See "ERISA Considerations" in the prospectus.
REGISTRATION, CLEARING AND SETTLEMENT
You will hold your interest in the series 2000-1 notes through DTC in the United
States or Clearstream or the Euroclear System in Europe. You will not be
entitled to receive definitive certificates representing your interests in the
series 2000-1 notes, except in limited circumstances. See "Description of the
Notes--Book Entry Registration" in the prospectus.
MINIMUM DENOMINATIONS
The series 2000-1 notes will be offered in denominations of $50,000 and integral
multiples thereof.
RATINGS
Senior Series 2000-1 Notes
Fitch Moody's
----- -------
AAA Aaa
Subordinate Series 2000-1 Notes
Fitch Moody's
----- -------
A A2
See "Risk Factors--Credit Ratings Address Limited Scope of Investor Concerns" in
the prospectus and "Ratings" in this prospectus supplement.
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RISK FACTORS
In addition to the Risk Factors in the prospectus, you should note the
following:
Amounts Payable on the Notes is The aggregate principal balance of the
Greater than the Amounts Payable series 2000-1 notes exceeds the sum of:
on the Collateral
. the expected aggregate principal
balance of and accrued interest on
the initial financed student loans as
of the closing date,
. the remainder of the acquisition fund
deposit after acquisition of the
initial financed student loans,
. the amount to be deposited in the
capitalized interest account to pay a
portion of the interest on the series
2000-1 notes during the first three
years, and
. the amount to be deposited in the
reserve fund for the series 2000-1
notes,
by approximately $1,525,000. This
difference could increase if student loans
are purchased at a premium during the pre-
funding period.
The aggregate principal balance of, and
accrued interest on, the notes of each
prior series currently outstanding,
together with other accrued liabilities
under the indenture, exceeds the sum of:
. the aggregate principal balance of
and accrued interest on the student
loans financed with proceeds of prior
series of notes,
. the amount on deposit in the
capitalized interest account to pay a
portion of the interest on prior
series of notes,
. the amount on deposit in the revenue
fund,
. the amount on deposit in the surplus
fund, and
. the reserve fund balance,
by approximately $2,275,000 as of
October 31, 2000.
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Payment of principal and interest on the
notes depends upon collections on the
student loans. In addition, if the yield on
the financed student loans does not
generally exceed the interest rate on the
notes and expenses relating to the
servicing of the financed student loans and
administration of the indenture, EdLinc may
have insufficient funds to repay the notes.
No Performance History on The alternative loans to be financed with
Alternative Student Loans proceeds of the series 2000-1 notes, as
well as the alternative loans financed with
proceeds of a prior series of notes, were
originated under relatively new alternative
loan programs. An immaterial number of
alternative loans under these programs have
entered repayment status. As a result,
EdLinc has no meaningful prepayment, loss
or delinquency data on these alternative
loans. If the losses and delinquencies on
the financed alternative loans exceed the
amounts in the alternative loan guarantee
fund and other amounts under the indenture
generated from revenues of the trust estate
exceeding expenses, EdLinc may have
insufficient funds to repay the notes.
Note Proceeds and Other Proceeds of the series 2000 notes and other
Moneys are Used to Acquire amounts in the funds and accounts under the
Investment Agreements indenture that are not used to acquire
student loans will be invested in a
limited number of investment agreements
with one or more investment agreement
providers. If any investment agreement
provider is unable to repay funds loaned to
it under an unsecured investment agreement,
or if the collateral pledged for a secured
investment agreement is insufficient or
unavailable for any reason, EdLinc may have
insufficient funds to repay the notes.
USE OF PROCEEDS
Proceeds of the Series 2000-1 Notes
The net proceeds from the sale of the Series 2000-1 Notes will be used as
follows:
. Approximately $95,500,000 will be used to purchase initial financed
student loans with an aggregate principal balance of approximately
$93,000,000 from the transferor on the closing date;
. Approximately $30,990,000 will be deposited in the Acquisition Fund
and used to purchase or originate subsequent financed student loans
during a pre-funding period from the closing date through April 2,
2001;
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. $232,000 will be used to pay a portion of the interest coming due
on the Series 2000-1 Notes during the first three years after the
closing date ;
. $955,030 will be used to pay costs of issuance of the Series
2000-1 Notes (in addition to the underwriting spread noted on the
cover of this prospectus supplement) or to make a payment to SLFC
to reimburse it for amounts contributed by SLFC to the transferor
to enable the transferor to pay the premium portion of the
purchase price of the initial financed FFELP Loans; and
. $1,953,000 will be used to make the required Reserve Fund
deposit.
The transferor is expected to use the proceeds of its sale of the initial
financed student loans to repay indebtedness incurred in the acquisition of
these loans or for general corporate purposes.
Deposits to the Alternative Loan Guarantee Fund
Upon the acquisition of the initial financed student loans, approximately
$538,000 will be transferred to the trustee from the transferor for deposit in
the Alternative Loan Guarantee Fund. The balance in the Alternative Loan
Guarantee Fund, as of October 31, 2000 and prior to this transfer, is
approximately $1,300,000. If additional financed student loans acquired with
proceeds of the Series 2000-1 Notes during the pre-funding period or thereafter
from amounts available in the Surplus Account are Alternative Loans, a deposit
will be required to be made to the Alternative Loan Guarantee Fund equal to the
origination fees, if any, charged in connection with the origination of these
Alternative Loans.
THE FINANCED STUDENT LOANS
The financed student loans to be acquired with proceeds of the Series
2000-1 Notes include:
. the initial financed student loans in the approximate principal amount
of $93,000,000, which will be purchased from the transferor on the
closing date at a price, including accrued interest, of approximately
$95,500,000 pursuant to the transfer agreement, dated as of December
1, 2000, and consist of FFELP Loans in the approximate principal
amount of $82,000,000 and Alternative Loans in the approximate
principal amount of $11,000,000, and
. subsequent financed student loans in the approximate principal amount,
plus accrued interest, of $30,990,000, which will be purchased during
the pre-funding period from SLFC or lenders pursuant to student loan
purchase agreements and are expected to consist of FFELP Loans in the
approximate principal amount, plus accrued interest, of $15,990,000
and Alternative Loans in the approximate principal amount, plus
accrued interest, of $15,000,000.
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The discussion of financed student loans in the remainder of this section,
unless otherwise specified, refers only to the initial financed student loans,
the subsequent financed student loans and student loans previously financed
under the indenture.
Each financed student loan will (1) have been originated in the United
States or its territories or possessions under and in accordance with the FFEL
Program or an Alternative Loan Program to or on behalf of a student who has
graduated or is expected to graduate from an institution of higher education
qualifying under the FFEL Program or the Alternative Loan Program, as
applicable, and (2) contain terms in accordance with those required by the FFEL
Program and the Guarantee Agreements, as to FFELP Loans, or the related
Alternative Loan Program, as to Alternative Loans, and other applicable
requirements. As of October 31, 2000, no more than 20% by principal balance of
the initial financed student loans, and all other financed student loans under
the indenture as of such date, were delinquent for 30 days or more. For this
purpose, delinquency refers to the number of days that a payment is past due.
Each financed FFELP Loan is required to be guaranteed as to principal and
interest by a guarantee agency and reinsured by the Department of Education to
the extent provided under the Higher Education Act and eligible for Special
Allowance Payments paid by the Department of Education. See "Description of the
FFEL Program" in the prospectus.
The subsequent financed student loans will consist of FFELP Loans and
Alternative Loans subject to the following restrictions:
. no more than approximately $15,000,000 of the proceeds of the Series
2000-1 Notes in the Acquisition Fund may be used to purchase or
originate Alternative Loans, of which no more than approximately
$8,250,000 may be used to purchase or originate credit ready
Alternative Loans, with the balance being used to purchase or
originate credit worthy Alternative Loans; and
. the remaining approximately $15,990,000 of proceeds of the Series
2000-1 Notes in the Acquisition Fund must be used to purchase or
originate FFELP Loans, of which no more than approximately $3,000,000
may be used to purchase or originate Consolidation Loans.
Except as described above, there will be no required characteristics of the
subsequent financed student loans. Therefore, following the acquisition of
subsequent financed student loans, the aggregate characteristics of the entire
pool of student loans financed with proceeds of the Series 2000-1 Notes,
together with those student loans previously financed under the indenture,
including the composition of the financed student loans and of the borrowers,
the distribution by interest rate and the distribution by principal balance
described in the following tables, will vary from those of the initial financed
student loans and previously financed student loans as described in this
prospectus supplement. Furthermore, the issuance of additional series of notes
and the acquisition of financed student loans with the proceeds, as well as the
acquisition of financed student loans from moneys in the Surplus Account, will
cause the aggregate characteristics of the pool of student loans financed with
proceeds of all notes to vary still further from those of the
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initial financed student loans and previously financed student loans as
described in this prospectus supplement.
Each of the financed FFELP Loans provides for the amortization of the
outstanding principal balance of the financed FFELP Loan over a series of
periodic payments. Each periodic payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of the
financed FFELP Loan multiplied by the applicable interest rate and further
multiplied by the period elapsed, as a fraction of a calendar year, since the
preceding payment of interest was made. As payments are received in respect of
the financed FFELP Loan, the amount received is applied first to outstanding
late fees, if collected, then 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 preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if a borrower pays a
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, subject to any applicable deferment
periods or forbearance periods, the borrower pays installments 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 the financed FFELP Loan.
The initially financed Alternative Loans, as well as those Alternative
Loans previously financed under the indenture, will consist of student loans
originated by two lenders, U.S. Bank National Association and Marquette Banks,
N.A., pursuant to separate Alternative Loan Programs administered by SLFC. Under
these programs, SLFC handles the application and loan origination process
(including credit review and disbursement), services the loans while owned by
the banks and agrees to purchase the loans within 120 days after scheduled final
disbursement. SLFC purchases these Alternative Loans without recourse against
the participating lenders. SLFC, in turn, has sold approximately $11,172,000
principal amount, as of October 31, 2000, of these Alternative Loans,
representing the initial financed Alternative Loans, to the transferor pursuant
to a student loan purchase agreement as described in the prospectus under
"Description of Financing of Eligible Loans--Student Loan Purchase Agreements."
Upon the transfer of the Alternative Loans from the transferor to the trustee,
on behalf of EdLinc, on the closing date, the trustee and EdLinc will also
receive all of the transferor's rights under the student loan purchase agreement
as they relate to these Alternative Loans, including the right to have SLFC
repurchase a loan upon a breach of representations and warranties with respect
to that loan. The trustee's and EdLinc's only remedies with respect to a
defective Alternative Loan, therefore, will be those available under the student
loan purchase agreement against SLFC. Neither lender will, in any event, have
any liability to the trustee or EdLinc with respect to any Alternative Loan. As
of October 31, 2000, there was approximately $29,376,000 principal amount of
Alternative Loans previously financed under the indenture that were acquired
from the two lenders and transferred to the Trustee in the same manner as
described above for the initial financed Alternative Loans.
S-14
<PAGE>
The financed Alternative Loans will meet one of two credit standards.
The loans will either by characterized as credit ready (meaning the borrower has
met minimum credit standards) or credit worthy (meaning either the borrower or a
cosigner has met a higher credit standard). The origination fees charged in
connection with these Alternative Loans ranges from 0% to 4%, in the case of
credit worthy loans, and 4% to 8%, in the case of credit ready loans (in each
case depending on the program and the interest rate to be borne by the loan).
All financed Alternative Loans will represent the obligation of the borrower
and, if applicable, a cosigner, but will not otherwise be guaranteed or insured
by any third-party. The financed Alternative Loans will have no aggregate loan
limits.
Each financed Alternative Loan will bear interest at a floating rate
based on either (1) the 91-day U.S. Treasury Bill rate, plus a spread of
typically 2.5% during the in-school and grace periods and 3.5% during repayment,
or (2) the prime rate, plus a spread of from 1% to 3% during all periods. During
the in-school and grace periods, interest will accrue on the Alternative Loans,
but the borrower may choose to defer payment until the loan enters repayment.
Any deferred interest will be added to the principal balance of the loan when
the student transfers from grace to repayment status, but no interest will
accrue on the deferred interest until such time as it is added to the principal
balance.
Each of the financed Alternative Loans provides for four repayment
options:
. Fixed repayment, in which equal payments are made throughout the loan
period.
. Two-tiered graduated repayment, in which interest-only payment are
made for the first two years, followed by equal payments for the
remainder of the loan period.
. Four-tiered graduated repayment, in which there are four different
installment levels during the loan period, the monthly payment
increasing at each level.
. Income sensitive repayment, in which twelve-month periods may be
allowed the borrower during which reduced payments may be permitted,
based on the borrower's gross monthly income or minimum monthly
interest accrual, followed by equal payments for the remainder of the
loan period. Although more than one twelve-month period may be granted
to a given borrower, SLFC has reserved the right to restrict the
number of these periods.
The repayment term of the financed Alternative Loans will vary according
to the total amount borrowed, ranging from a maximum term of 10 years for loans
of less than $7,500 to a maximum term of 30 years for loans of greater than
$60,000. All financed Alternative Loans may be prepaid, in whole or in part,
without penalty.
Under these Alternative Loan Programs, each of the students will be
eligible for grace periods (typically 6 months) and the same deferments and
forbearances as allowed under the FFEL Program.
S-15
<PAGE>
Also under these Alternative Loan Programs, an Alternative Loan will be
considered delinquent if a payment is not received on or prior to the due date
therefor, and a late fee may be assessed. Any Alternative Loan as to which a
payment is delinquent 180 days or more will be considered a defaulted loan and
legal proceedings may be commenced for the enforcement thereof. None of the
financed Alternative Loans will necessarily be discharged in the event of death
or disability. However, these Alternative Loans are generally dischargeable by a
borrower in bankruptcy.
Of the initial financed student loans and those student loans previously
financed under the indenture:
. approximately $35,200,000 principal amount, as of October 31, 2000,
were originated by Bank of America NT&SA; and
. approximately $72,200,000 principal amount, as of October 31, 2000,
were originated by U.S. Bank National Association (see "Relationships
Among Financing Participants" in this prospectus supplement).
In addition, approximately $26,600,000 principal amount, as of October
31, 2000, of the initial financed student loans and approximately $40,100,000
principal amount, at the time of acquisition, of those student loans previously
financed under the indenture through October 31, 2000, were originated by
Marquette Bank, N.A.
The following tables describe certain characteristics, as of October 31,
2000, of most of the initial student loans expected to be financed on the
closing date and previously financed student loans. EdLinc expects that the
student loans to be financed on the closing date will also include approximately
$3,600,000 principal amount of student loans originated or purchased during the
period from October 31, 2000, to the closing date. EdLinc also expects that the
characteristics of the student loans reflected in these tables will vary due to
the continued amortization of the student loans between October 31, 2000, and
the closing date. Although the statistical distribution of the characteristics
of the financed student loans as of the closing date will vary somewhat from the
statistical distribution of those characteristics shown below, EdLinc does not
believe that those characteristics will differ materially.
Composition of the Initial and Previously Financed Student Loans as of October
31, 2000
<TABLE>
<S> <C>
Outstanding Principal Balance.................................... $201,100,718
Number of Borrowers.............................................. 34,982
Average Outstanding Principal Balance Per Borrower............... 5,749
Number of Loans (Promissory Notes)............................... 59,279
Average Outstanding Principal Balance Per Loan................... 3,392
Weighted Average Annual Interest Rate............................ 8.30%
Weighted Average Remaining Repayment Terms
(Repayment Portfolio Only) (months)........................... 120.36
</TABLE>
S-16
<PAGE>
Distribution of the Initial and Previously Financed Student Loans by Loan
Type as of October 31, 2000
<TABLE>
<CAPTION>
Loan Type Number of Loans Balance Percent by Balance
------------------------------ ------------------- --------------- ------------------
<S> <C> <C> <C>
Consolidation................. 757 $10,185,085 5.06%
PLUS.......................... 2,871 15,539,637 7.73%
SLS........................... 30 133,413 0.07%
Stafford-Subsidized........... 31,182 86,288,364 42.91%
Stafford-Unsubsidized......... 15,833 48,406,894 24.07%
Alternative................... 8,606 40,547,325 20.16%
-------------- ------------- -------------
Total................. 59,279 $201,100,718 100.00%
</TABLE>
Distribution of the Initial and Previously Financed Student Loans by
Borrower Interest Rate as of October 31, 2000
<TABLE>
<CAPTION>
Interest Rate (1) Number of Loans Balance Percent by Balance
------------------------------ ------------------- --------------- ------------------
<S> <C> <C> <C>
Less than 7.50%............... 229 $2,208,015 1.10%
7.50% to 7.99%................ 20,271 63,995,319 31.82%
8.00% to 8.49%................ 26,940 77,871,432 38.73%
8.50% to 8.99%................ 8,008 38,496,182 19.14%
9.00% to 9.49%................ 259 1,469,904 0.73%
9.50% or Greater.............. 3,572 17,059,866 8.48%
----------- ------------- -------------
Total................. 59,279 $201,100,718 100.00%
</TABLE>
-------------
(1) Determined using the interest rates applicable to the initial and
previously financed student loans as of October 31, 2000. However,
because some of the initial and previously financed student loans bear
interest at variable rates per year, the existing interest rates are not
indicative of future interest rates on the financed student loans. See
"Description of the FFEL Program" and "Description of the Alternative
Loan Programs" in the prospectus and "The Financed Student Loans" in this
prospectus supplement.
Distribution of the Initial and Previously Financed Student Loans by Range of
Outstanding Principal Balances as of October 31, 2000
<TABLE>
<CAPTION>
Principal Balance Number of Loans Balance Percent by Balance
------------------------------ ------------------- --------------- ------------------
<S> <C> <C> <C>
Less than $500................ 2,768 $1,104,311 0.55%
$500 - $999.99.............. 5,905 6,343,888 3.15%
$1,000 - $1,999.99............ 13,406 25,471,073 12.67%
$2,000 - $2,999.99............ 15,277 41,989,562 20.88%
$3,000 - $3,999.99............ 7,263 26,435,662 13.15%
$4,000 - $5,999.99............ 8,582 43,379,446 21.57%
$6,000 - $7,999.99............ 2,309 15,973,256 7.94%
$8,000 - $9,999.99............ 1,801 15,125,488 7.52%
$10,000- $14,999.99........... 1,380 14,412,637 7.17%
$15,000- $19,999.99........... 361 4,698,157 2.34%
$20,000 or Greater............ 227 6,167,238 3.06%
----------- ------------- -------------
Total................. 59,279 $201,100,718 100.00%
</TABLE>
S-17
<PAGE>
Distribution of the Initial and Previously Financed Student Loans by Borrower
Payment Status as of October 31, 2000
<TABLE>
<CAPTION>
Borrower Status Number of Loans Balance Percent by Balance
----------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
School....................... 15,351 $ 52,641,183 26.18%
Grace........................ 12,499 41,010,927 20.39%
Deferment.................... 4,861 15,654,955 7.78%
Forbearance.................. 1,943 7,306,472 3.64%
Repayment.................... 24,625 84,487,181 42.01%
------ ------------ ------
Total..................... 59,279 $201,100,718 100.00%
</TABLE>
Distribution of the Initial and Previously Financed Student Loans by Remaining
Term to Scheduled Maturity as of October 31, 2000
<TABLE>
<CAPTION>
Remaining Months Until
Scheduled Maturity Number of Loans Balance Percent by Balance
---------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
1 to 12..................... 310 $ 89,283 0.04%
13 to 24.................... 720 490,100 0.24%
25 to 36.................... 1,710 1,894,947 0.94%
37 to 48.................... 1,501 2,025,522 1.02%
49 to 60.................... 2,023 3,205,543 1.59%
61 to 72.................... 2,763 5,550,896 2.76%
73 to 84.................... 1,884 3,945,352 1.96%
85 to 96.................... 3,365 10,399,689 5.17%
97 to 108................... 3,409 12,361,384 6.15%
109 to 120.................. 8,797 33,660,019 16.74%
121 to 180.................. 30,042 101,896,511 50.67%
181 to 240.................. 2,224 16,837,971 8.37%
241 to 300.................. 488 8,175,751 4.07%
Over 300.................... 47 567,750 0.28%
------ ------------ ------
Total.................... 59,279 $201,100,718 100.00%
</TABLE>
Distribution of the Initial and Previously Financed Student Loans by Borrower's
Address as of October 31, 2000
<TABLE>
<CAPTION>
State of Borrowers (1) Number of Loans Balance Percent by Balance
---------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
Alabama..................... 21 $ 63,697 0.03%
Alaska...................... 3,531 11,564,532 5.75%
Arizona..................... 404 1,364,350 0.68%
Arkansas.................... 16 40,070 0.02%
California.................. 7,177 26,499,588 13.18%
Colorado.................... 627 2,002,619 1.00%
Connecticut................. 29 139,370 0.07%
Delaware.................... 8 21,863 0.01%
District of Columbia........ 36 215,307 0.11%
Florida..................... 327 1,167,504 0.58%
Georgia..................... 103 406,216 0.20%
Hawaii...................... 109 512,984 0.26%
Idaho....................... 137 496,031 0.25%
Illinois.................... 556 2,723,824 1.35%
Indiana..................... 121 562,266 0.28%
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Iowa................................... 638 2,601,889 1.29%
Kansas................................. 156 682,673 0.34%
Kentucky............................... 49 171,165 0.09%
Louisiana.............................. 44 221,971 0.11%
Maine.................................. 20 104,264 0.05%
Maryland............................... 72 276,736 0.14%
Massachusetts.......................... 90 460,162 0.23%
Michigan............................... 169 840,576 0.42%
Minnesota.............................. 26,405 88,355,371 43.94%
Mississippi............................ 11 41,966 0.02%
Missouri............................... 234 1,038,786 0.52%
Montana................................ 473 1,474,085 0.73%
Nebraska............................... 256 961,649 0.48%
Nevada................................. 216 757,527 0.38%
New Hampshire.......................... 18 62,726 0.03%
New Jersey............................. 38 167,455 0.08%
New Mexico............................. 148 428,589 0.21%
New York............................... 176 829,169 0.41%
North Carolina......................... 97 344,464 0.17%
North Dakota........................... 8,818 26,062,909 12.96%
Ohio................................... 122 421,412 0.21%
Oklahoma............................... 76 342,758 0.17%
Oregon................................. 287 1,291,885 0.64%
Pennsylvania........................... 123 599,747 0.30%
Rhode Island........................... 13 41,526 0.02%
South Carolina......................... 101 403,471 0.20%
South Dakota........................... 1,987 6,771,097 3.37%
Tennessee.............................. 73 353,886 0.18%
Texas.................................. 2,301 6,785,700 3.37%
Utah................................... 97 409,991 0.20%
Vermont................................ 4 29,779 0.01%
Virginia............................... 109 479,738 0.24%
Washington............................. 451 1,852,405 0.92%
West Virginia.......................... 14 46,726 0.02%
Wisconsin.............................. 1,959 6,749,019 3.36%
Wyoming................................ 109 385,853 0.19%
Other (2).............................. 123 471,372 0.23%
------ ------------ ------
Total............................... 59,279 $201,100,718 100.00%
</TABLE>
_____________
(1) Based on the current permanent billing addresses of the borrowers of the
initial and previously financed student loans shown on the servicer's
records.
(2) Consists of locations that include U.S. territories, possessions and
commonwealths, foreign countries and overseas military establishments.
To the extent that states with a large concentration of financed student
loans experience adverse economic or other conditions to a greater degree than
other areas of the country, the ability of the borrowers to repay their financed
student loans may be impacted to a larger extent than if the borrowers were
dispersed more geographically.
S-19
<PAGE>
Distribution of the Initial and Previously Financed Loans by Guarantee Status
as of October 31, 2000
<TABLE>
<CAPTION>
Guarantee Level Number of Loans Balance Percent by Balance
------------------------------------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100%............................. 393 $ 887,846 0.44%
FFELP Loan Guaranteed 98%.............................. 50,280 159,665,547 79.40%
Non-Guaranteed (Alternative Loans)..................... 8,606 40,547,325 20.16%
------ ------------ ------
Total............................................... 59,279 $201,100,718 100.00%
</TABLE>
Distribution of the Initial and Previously Financed Student Loans by School
Types
as of October 31, 2000
<TABLE>
<CAPTION>
School Type Number of Loans Balance Percent by Balance
------------------------------------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
4/5-Year Institutions.................................. 40,987 $149,417,540 74.30%
2-Year Institutions.................................... 13,049 30,240,820 15.05%
Proprietary............................................ 4,075 9,920,116 4.93%
Consolidation.......................................... 757 10,185,085 5.06%
Unknown................................................ 411 1,337,157 0.66%
------ ------------ ------
Total............................................... 59,279 $201,100,718 100.00%
</TABLE>
Distribution of the Initial and Previously Financed Loans by Guarantee Agency
as of October 31, 2000
<TABLE>
<CAPTION>
Guarantor Number of Loans Balance Percent by Balance
------------------------------------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
California Student Aid Commission...................... 6,014 $ 20,830,797 10.36%
Education Assistance Corporation....................... 29,934 97,476,594 48.47%
Educational Credit Management Corporation.............. 9 30,927 0.02%
Great Lakes Higher Education Guaranty Corporation...... 4,069 10,189,199 5.07%
Illinois Student Assistance Commission................. 27 125,798 0.06%
Northwest Education Loan Association................... 241 979,085 0.49%
Oregon Student Assistance Commission................... 29 155,088 0.07%
Pennsylvania Higher Education Assistance Agency........ 3,241 8,462,266 4.21%
Student Loans of North Dakota.......................... 2,488 6,542,090 3.25%
Texas Guaranteed Student Loan Corporation.............. 2,059 5,803,663 2.89%
United Student Aid Funds, Inc.......................... 2,560 9,952,374 4.95%
--------- ------------ --------
Total Guaranteed FFELP Loans....................... 50,671 $160,547,881 79.84%
Non-Guaranteed (Alternative Loans)..................... 8,606 40,547,325 20.16%
Non-Guaranteed (FFELP Loans)........................... 2 5,512 0.00%
--------- ------------ --------
Total.............................................. 59,279 $201,100,718 100.00%
</TABLE>
S-20
<PAGE>
Incentive Programs
EdLinc currently reduces the interest rate on financed student loans by
.25% per annum for borrowers that arrange to have their loan payments
automatically withdrawn from a bank account.
In addition, approximately $41,500,000 of the initial financed FFELP loans,
as well as a portion of the financed FFELP loans to be acquired during the pre-
funding period and thereafter from moneys available in the Surplus Account and
approximately $14,800,000 of FFELP loans acquired with proceeds of a prior issue
of notes, may be eligible for a 2% reduction in the annual rate of interest on
those loans. To qualify, the borrower must have made 48 consecutive monthly
payments on the related FFELP loan in a timely fashion (i.e., within 15 days
after the payment due date). Gaps in the 48-month period may be bridged by
deferments and mandatory forbearances.
SERVICING
General
SLFC will, under the SLFC servicing agreement, act as servicer on the
financed student loans. The servicer may enter into sub-servicing agreements
with one or more sub-servicers providing for the sub-servicers to perform some
or all of the obligations of the servicer in servicing the financed student
loans. Under a sub-servicing agreement, each sub-servicer will agree to service,
and perform all other related tasks with respect to, the financed student loans
in compliance with applicable standards and procedures. See "Description of the
SLFC Servicing Agreement" in the prospectus.
AFSA Data Corporation is a sub-servicer of FFELP Loans equal to
approximately 17% of the initial and previously financed student loans. Great
Lakes Higher Education Servicing Corporation, located in Madison, Wisconsin, is
a sub-servicer for FFELP loans expected to amount to less than 10% of the
principal amount of the initial and previously financed student loans and the
loans expected to be financed prior to April 2, 2001.
AFSA Data Corporation
AFSA Data Corporation, referred to as ASFA, acts as a loan servicing agent
for SLFC. AFSA is a for-profit corporation and a wholly-owned subsidiary of
Fleet Holding Corp., a subsidiary of Fleet National Bank, which in turn is a
wholly-owned subsidiary of Fleet Boston Financial of Boston, Massachusetts, a
diversified financial services company. As of September 2000, AFSA provided loan
servicing for approximately $70 billion in student and parental loans, including
approximately $56 billion in federal direct student loans under contract with
the Department of Education. AFSA has its principal office in Long Beach,
California, and Regional Processing Centers in Utica, New York, Bakersfield,
California and Lombard, Illinois. AFSA's principal office is located at One
World Trade Center, Suite 2200, Long Beach, California 90831.
S-21
<PAGE>
THE GUARANTEE AGENCIES
General
Various guarantee agencies have guaranteed FFELP Loans included in the
initial and previously financed FFELP Loans. The approximate percentage by
outstanding principal balance of the initial and previously financed FFELP Loans
guaranteed by these guarantee agencies is included in this prospectus supplement
under "The Financed Student Loans--Distribution of the Initial and Previously
Financed FFELP Loans by Guarantee Agency as of October 31, 2000."
Education Assistance Corporation and California Student Aid Commission are
described below. The other guarantee agencies include the following:
. United Student Aid Funds, Inc., a Delaware nonprofit corporation
organized in 1960, has guaranteed student loans since the 1960's. The
outstanding unpaid aggregate amount of principal and interest on loans
directly guaranteed by United Student Aid Funds, Inc. from funds under
the FFEL Program was approximately $39.6 billion through September 30,
2000.
. Pennsylvania Higher Education Assistance Agency, a body corporate and
politic constituting a public corporation and government instrumentality
of the Commonwealth of Pennsylvania created in 1963, began guaranteeing
student loans in 1965 and, as of September 30, 2000, had guaranteed
approximately $30.47 billion aggregate principal amount of student
loans.
. Great Lakes Higher Education Guaranty Corporation, a Wisconsin nonprofit
corporation organized in 1967, began guaranteeing student loans in 1967
and, as of September 30, 2000, had guaranteed loans outstanding with an
original face amount of approximately $14.5 billion.
. Northwest Education Loan Association is a not-for-profit guaranty agency
based in Washington state. Incorporated in 1978, it began guaranteeing
student loans in the same year. As of September 30, 2000, it had
guaranteed approximately $3.8 billion in student loans.
. Oregon Student Assistance Commission, an agency of the State of Oregon
organized in 1959, began guaranteeing student loans in 1967 and, as of
September 30, 2000, had guaranteed approximately $2.12 billion aggregate
principal amount of student loans.
. Illinois Student Assistance Commission, a commission of the State of
Illinois organized in 1957, began guaranteeing student loans in 1965
and, as of September 30, 2000, had guaranteed over $10 billion of FFELP
Loans for qualified students and parents.
. Student Loans of North Dakota, an agency of the State of North Dakota
organized in 1982, began guaranteeing student loans in 1982 and, as of
September 30, 2000, had guaranteed approximately $1.09 billion aggregate
principal amount of student loans.
S-22
<PAGE>
. Educational Credit Management Corporation, a Minnesota nonprofit
corporation organized in 1994, began guaranteeing new student loans in
1996 and, as of September 30, 2000, had guaranteed approximately
$967,231,000 aggregate principal amount of these new student loans.
. Texas Guaranteed Student Loan Corporation, a Texas nonprofit corporation
organized in 1979, began guaranteeing new student loans in 1981 and, as
of September 30, 2000, had guaranteed approximately $16.56 billion
aggregate principal amount of student loans.
See "Description of the Guarantee Agencies" in the prospectus for more detailed
information concerning the characteristics of guarantee agencies.
Information relating to the guarantee agencies set forth in this prospectus
supplement, which is particularly within each guarantee agency's knowledge, has
been requested of and has been provided by the respective guarantee agencies.
The information and information included in the reports referred to herein has
not been verified or independently confirmed by EdLinc, the transferor, the
servicer or the underwriter, and comprises all information in respect of each
guarantee agency that EdLinc obtained after a reasonable request and inquiry. No
guarantee agency is affiliated with EdLinc, the transferor, the servicer or the
underwriter.
Education Assistance Corporation--EAC
EAC is a South Dakota nonprofit corporation organized in 1978 to administer
the guaranteed loan program in the State of South Dakota. Since 1983, EAC also
has provided student loan guarantees and other services to certain lenders,
borrowers and schools in other states. EAC has no members. There are presently 5
members of the board of directors of EAC. EAC presently employs a staff of 72
full-time and 6 part-time persons, plus part-time help employed on a periodic
basis.
From January 16, 1979 through September 30, 2000, EAC had guaranteed
approximately $1,922,719,000 principal amount of loans under the Higher
Education Act, of which EAC estimates that approximately $1,048,168,000
aggregate unpaid principal amount was outstanding as of September 30, 2000. As
of September 30, 2000, EAC's fund balances were as follows: EAC's Federal Fund
(liquid assets) had total assets of $15,681,953, total liabilities of
$10,790,133 and a fund balance of $4,891,820; EAC's Federal Fund (nonliquid
assets) had total assets of $3,655,799, total liabilities of $0.00, and a fund
balance of $3,655,799; and EAC's Operating Fund had total assets of $4,917,737,
total liabilities of $411,300 and a fund balance of $4,506,437. EAC is and has
been in compliance with the reserve fund requirements of the Higher Education
Act.
The Secretary of Education has advised EAC that, pursuant to the 1997
amendments to the Higher Education Act, EAC must pay $5,903,366 to the Secretary
of Education on September 1, 2002 and make annual restricted account deposits
toward that payment beginning in fiscal year 1998 of approximately $1,181,000.
EAC's liabilities as of September 30, 2000 include the entire amount
($5,903,666) that will be required to be paid to the Secretary of Education
under the 1997
S-23
<PAGE>
amendments. The 1998 Reauthorization Amendments require guarantee agencies to
return to the Secretary of Education $250 million in reserve funds from fiscal
years 2002 to 2007, with each agency's share being based on a formula prescribed
in the 1998 Reauthorization Amendments. The Secretary of Education has not
advised EAC of the amount of EAC's share of this recall.
EAC did not apply to the Department of Education to be one of the six
guarantee agencies to enter into a voluntary flexible agreement pursuant to the
1998 Reauthorization Amendments. EAC will provide a copy of its most recent
annual report upon receipt of a written request directed to Education Assistance
Corporation, 115 First Avenue, Southwest, Aberdeen, South Dakota 57401,
Attention: Chief Financial Officer.
EAC has created Educational Assistance Service Company, Inc. ("EASCI"), a
wholly-owned subsidiary of EAC, the primary purpose of which is to furnish a
complete range of loan origination, processing, monitoring and related services
with respect to student loans made under the FFEL Program. EASCI commenced
operations on March 6, 1985. As of September 30, 2000, EASCI provided services
to 138 lenders for a portfolio of approximately $289,888,000 outstanding
principal amount. The persons that presently constitute EAC's board of directors
also are the directors of EASCI. EAC shares some personnel, office space,
overhead and computer time with EASCI.
California Student Aid Commission--CSAC
CSAC is the agency of the State of California responsible for that State's
guaranteed student loan program pursuant to California Education Code Section
69760 et. seq., and Section 428(c) of the Higher Education Act. CSAC was created
primarily to provide a source of credit to assist students in meeting post-
secondary education costs while attending eligible institutions of their choice.
CSAC is permitted by California law to provide loans to eligible students both
within and outside California, irrespective of their residence or the location
of their educational institution.
In September 1996, CSAC was authorized under California law to establish an
auxiliary organization in the form of a nonprofit public benefit corporation to
provide operational and administrative services related to CSAC's federal loan
programs, including its student loan guaranty programs. The new corporation is
known as EdFund. EdFund is operated as a separate service corporation to CSAC,
and, as such, operates CSAC's federal student loan programs. CSAC continues to
be the designated state guarantee agency and continues its oversight of all
revenues, expenses, and assets related to that status.
CSAC began guaranteeing student loans on April 1, 1979, and as of September
30, 2000, had cumulative principal guarantees outstanding of approximately $13
billion.
As part of the FFEL Program, CSAC established the California Guaranteed
Loan Reserve Fund as a reserve for the payment of guaranteed student loans. The
State of California has no legal or moral obligation to provide additional
funding to replenish the California Guaranteed Loan Reserve Fund should it
become insolvent as a result of non-reinsured claims paid. Pursuant to the 1998
Reauthorization Amendments, the California Guaranteed Loan Reserve Fund was
divided
S-24
<PAGE>
into the Federal Student Loan Reserve Fund, referred to as CSAC's Federal Fund,
and the Student Loan Operating Fund, referred to as CSAC's Operating Fund.
As of June 30, 2000, CSAC's Federal Fund and Operating Fund balances were
as follows: CSAC's Federal Fund had total assets of $291,727,031, total
liabilities of $16,355,694 and total fund equity of $275,371,337; and CSAC's
Operating Fund had total assets of $74,007,414, total liabilities of $39,015,188
and total fund equity of $34,992,226. CSAC is and has been in compliance with
the reserve fund requirements of the Higher Education Act.
The Secretary of Education has advised CSAC that, pursuant to 1997
amendments to the Higher Education Act, CSAC must pay $165,116,871 to the
Secretary of Education on September 1, 2002 and make annual restricted account
deposits toward such payment beginning in fiscal year 1998 of $33,023,374. CSAC
transferred three of these installments into a restricted account as of June 30,
2000. These installments are included in CSAC's Federal Fund total fund equity
as of June 30, 2000. The 1998 Reauthorization Amendments additionally require
guarantee agencies to return to the Secretary of Education $250 million in
reserve funds from fiscal years 2002 to 2007, with each agency's share being
based on a formula prescribed in the 1998 Reauthorization Amendments. The
Secretary of Education has not determined the amount of CSAC's share of this
recall.
CSAC has been selected by the Department of Education to be one of the six
guarantee agencies to enter into a voluntary flexible agreement pursuant to the
1998 Reauthorization Amendments. The Department of Education released a draft of
the proposed agreement for public comment by December 1, 2000, which will be
followed by a 30-day Congressional review period. CSAC will provide a copy of
its most recent annual report upon receipt of a written request directed to,
California Student Aid Commission, P.O. Box 419026, Rancho Cordova, CA 95741-
9026, Attention: Reg Treece, Chief, Internal Audits.
Certain Historical Information for Guarantee Agencies
Set forth below is certain historical information with respect to CSAC and
EAC and with respect to all guarantee agencies under the FFEL Program. Except as
otherwise indicated below, the information regarding each guarantee agency has
been obtained from the Department of Education's FY94-FY96 Federal Student Loan
Programs Data Book, referred to as the DOE Data Books (information noted as N/A
was not available to EdLinc). No independent verification of this information
has been or will be made by EdLinc, SLFC, the transferor or the underwriter.
Guarantee Volume. The following table sets forth the approximate aggregate
principal amount of loans under the FFEL Program that have first become
committed to be guaranteed by CSAC and EAC and by all guarantee agencies of
these loans in each of the five federal fiscal years 1996 through 2000, except
as noted:
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Stafford, Unsubsidized Stafford, SLS,
-------------------------------------
PLUS and Consolidated Loans
---------------------------
Guaranteed
----------
(Dollars in Millions)*
Federal All
Fiscal Guarantee
Year CSAC EAC Agencies
---- ---- --- --------
1996 $1,745 $128.2 $23,831.3
1997 1,844 173.6 N/A
1998 2,165 216.7 N/A
1999 2,355 240.2 N/A
2000 2,825 295.0 N/A
__________
* The information set forth in the table above has been obtained from CSAC
and EAC, and, as to all guarantee agencies, the DOE Data Books.
Reserve Ratio. Each guarantee agency's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term cumulative cash reserves
refers to cash reserves plus (1) sources of funds, including insurance premiums,
state appropriations, federal advances, federal reinsurance payments,
administrative cost allowances, collections on claims paid and investment
earnings, minus (2) uses of funds, including claims paid to lenders, operating
expenses, lender fees, the 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 guarantee agency minus (a) the original principal amount of
loans cancelled, claims paid, loans paid in full and loan guarantees transferred
from the guarantee agency to other guarantee agencies, plus (b) the original
principal amount of loan guarantees transferred to the guarantee agency from
other guarantee agencies. The following table sets forth CSAC's and EAC's
cumulative cash reserves and their corresponding reserve ratios and the national
average reserve ratio for all guarantee agencies for the five federal fiscal
years 1996 through 2000, except as noted.
Reserves and Reserve Ratios
---------------------------
(Dollars in Millions)*
CSAC EAC
---- ---
National
Federal Cumulative Cumulative Average
Fiscal Cash Reserve Cash Reserve Reserve
Year Reserves Ratio Reserves Ratio Ratio
---- -------- ----- -------- ----- -----
1996 $251.5 2.4% $17.0 2.8% 1.8%
1997 278.7 2.5% 12.8** 1.8% N/A
1998 209.9 1.8% 12.8 1.5% N/A
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1999 171.8 1.3% 13.6 1.3% N/A
2000 N/A N/A 11.7 0.95% N/A
______________
* The information set forth in the table above has been obtained from CSAC
and EAC and, as to the national average, from the Department of Education
(with respect to fiscal year 1996). According to the Department of
Education, available cash reserves may not always be an accurate barometer
of a guarantor's financial health.
** During 1997, EAC prepaid various long term borrowings in the aggregate
principal amount of $6,464,912, plus accrued interest in the amount of
$122,745, thus reducing its assets and liabilities by an aggregate amount
of $6,587,657. This also resulted in a reduction of EAC's cumulative cash
reserves and reserve ratio as of September 30, 1997.
Cumulative Recovery Rates. A guarantee agency's cumulative recovery rate is
determined by dividing the cumulative aggregate amount recovered from borrowers
by the guarantee agency by the cumulative aggregate amount of default claims
paid by the guarantee agency as of the end of the applicable federal fiscal
year. The table below sets forth the cumulative recovery rates for CSAC and EAC
and the national average cumulative recovery rates for all guarantors as of the
end of the five federal fiscal years 1996 through 2000, except as noted. SLFC's
management does not believe that cumulative recovery rates provide an accurate
indication of a guarantee agency's financial health.
Cumulative Recovery Rate*
------------------------
Federal
Fiscal National
Year CSAC EAC Average
---- ---- --- -------
1996 37.6% 43.12% 52.6%
1997 39.2% 44.82% N/A
1998 41.8% 51.81% N/A
1999 46.6% 58.32% N/A
2000 N/A 66.92% N/A
__________
* The information set forth in the table above has been obtained from CSAC
and EAC and, as to the national average, the Department of Education.
Loan Loss Reserve. The DOE Data Books do not disclose whether any guarantee
agency has established a segregated loan loss reserve with respect to its
student loan guarantee obligations. Accordingly, to the extent that a guarantee
agency has not established a segregated loan loss reserve, if a guarantee agency
receives less than full reimbursement of its guarantee obligations from the
Department of Education, the guarantee agency would be forced to look to its
existing assets to satisfy any guarantee obligations not so reimbursed.
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Claims Rate. The following table sets forth the Claims Rate of CSAC and EAC
and the national average for all guarantee agencies for the last five federal
fiscal years 1996 through 2000, except as noted:
Claims Rate*
-----------
Federal
Fiscal National
Year CSAC EAC Average
---- ---- --- -------
1996 4.5% 1.54% 3.25%
1997 4.5% 1.30% N/A
1998 3.1% 1.47% N/A
1999** 2.6% 1.14% N/A
2000** 2.8% 0.94% N/A
_____________
* The information set forth in the table above has been obtained from CSAC
and EAC and, as to the national average, the Department of Education.
** Fiscal years 1999 and 2000 Claims Rates may be lower due to the
implementation of changes in the Higher Education Act that required loans
initially becoming delinquent on or after October 7, 1998 to be delinquent
for 270 days, instead of 180 days, before filing a default claim.
Management of EAC and CSAC have indicated to EdLinc that they are currently
unaware of any trends or conditions which would cause their Claims Rate to
exceed 5% and thereby result in less than maximum reimbursement for reinsurance
claims to the Department of Education. Notwithstanding the above, no assurance
can be made that any such trends will continue or not deteriorate, or that any
guarantee agency will receive full reimbursement for reinsurance claims (or the
full 98% or 95% maximum reimbursement for loans first disbursed on or after
October 1, 1993 or on or after October 1, 1998, respectively).
DESCRIPTION OF THE SERIES 2000-1 NOTES
The Series 2000-1 Notes will be issued pursuant to an indenture of trust,
as amended and supplemented by a first supplemental indenture of trust, each
dated as of December 1, 1999, and a second supplemental indenture of trust,
dated as of December 1, 2000, between EdLinc and the trustee. This indenture of
trust, as supplemented and amended, including by the first and second
supplemental indentures, is referred to in this prospectus supplement as the
indenture. Any references to notes in this prospectus supplement without any
designation as to series will be to those issued under the indenture in general.
Generally
The Series 2000-1 Notes are being issued in three series:
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. the Senior Series 2000-1A Notes and the Senior Series 2000-1B Notes,
each in the original principal amount of $54,100,000, which are Senior
Notes under the indenture and are collectively referred to in this
prospectus supplement as the Senior Series 2000-1 Notes; and
. the Subordinate Series 2000-1C Notes in the original principal amount of
$22,000,000, which are Subordinate Notes under the indenture and are
referred to in this prospectus supplement as the Subordinate Series
2000-1 Notes.
The Series 2000-1 Notes will be dated as of the date of their initial
issuance and, subject to redemption pursuant to the provisions described below,
will mature on December 1, 2035.
The Series 2000-1 Notes will be issued in fully registered form, without
coupons, and when issued will be registered in the name of Cede & Co., as
nominee of DTC, New York, New York. DTC will act as securities depository for
the Series 2000-1 Notes. Individual purchases of the Series 2000-1 Notes will be
made in book-entry form only in the principal amount of $50,000 or integral
multiples thereof. Purchasers of the Series 2000-1 Notes will not receive
certificates representing their interest in the Series 2000-1 Notes purchased.
See "Description of the Notes--Book-Entry Registration" in the prospectus.
Interest Rate on the Series 2000-1 Notes
The initial interest period for the Series 2000-1A Notes and the Series
2000-1C Notes will be from the closing date through January 3, 2001. The initial
interest period for the Series 2000-1B Notes will be from the closing date
through January 10, 2001. During the initial interest period, each series of
Series 2000-1 Notes will bear interest at their respective initial rates to be
determined on December 4, 2000. After the initial interest period, except with
respect to an auction period adjustment as described in Appendix I to this
prospectus supplement -- "Auction of the Series 2000-1 Notes," the Series 2000-1
Notes will bear interest at an interest rate based on an auction period
generally consisting of 28 days. In no event will any Series 2000-1 Note auction
rate exceed the Series 2000-1 Note auction rate limitation of 18% per annum.
Each auction period will coincide with the related interest period.
The initial interest rate adjustment date for the Series 2000-1A Notes and
the Series 2000-1C Notes will be January 4, 2001. The initial interest rate
adjustment date for the Series 2000-1B Notes will be January 11, 2001.
Interest on each series of the Series 2000-1 Notes will be paid on each
interest rate adjustment date for that series to the holders of that series as
of the business day before the interest rate adjustment date. An interest rate
adjustment date for a series of Series 2000-1 Notes is the first business day
following the expiration of an interest period for that series. For each series
of the Series 2000-1 Notes, interest at the initial rate, during the initial
interest period, and at the Series 2000-1 Note auction rate, during each
interest period thereafter, will accrue daily and will be computed for the
actual number of days elapsed on the basis of a year consisting of 360 days.
S-29
<PAGE>
The Series 2000-1 Note auction rate to be borne by each series of the
Series 2000-1 Notes for each interest period after the initial interest period
until an auction period adjustment, if any, will be determined as hereinafter
described. Each interest period will commence on and include the Thursday (or,
if that Thursday is not a business day, the following business day) following
the expiration of the immediately preceding interest period and terminate on and
include the last day immediately preceding the Thursday (or, if that Thursday is
not a business day, the following business day) of the fourth following week;
provided, however, that in the case of the interest period that immediately
follows the initial interest period for a series of the Series 2000-1 Notes,
that interest period will commence on the initial interest rate adjustment date
for that series. The Series 2000-1 Note auction rate on each series of the
Series 2000-1 Notes for each interest period will be the lesser of (1) the Net
Loan Rate, as defined below, in effect for that interest period, (2) the Auction
Rate in effect for that interest period as determined in accordance with the
auction procedures described in Appendix I to this prospectus supplement --
"Auction of the Series 2000-1 Notes," and (3) the Series 2000-1 Note auction
rate limitation; provided that if, on any interest rate determination date, an
auction is not held with respect to a series of the Series 2000-1 Notes for any
reason, then the Series 2000-1 Note auction rate on that series for the next
succeeding interest period will be the lesser of (a) the maximum auction rate,
as defined below, for that series and (b) the Net Loan Rate (subject to the
Series 2000-1 Note auction rate limitation). The term Auction Rate, as used in
this prospectus supplement, is defined in Appendix I -- "Auction of the Series
2000-1 Notes--Auction Procedures--Determination of Auction Rate and Series 2000-
1 Note Auction Rate; Notice"
Notwithstanding the foregoing:
. if the ownership of a series of the Series 2000-1 Notes is no longer
maintained in book-entry form, the Series 2000-1 Note auction rate for
that series for any interest period commencing after the delivery of
certificates representing the Series 2000-1 Notes of that series will
equal the lesser of (1) the maximum auction rate for that series and (2)
the Net Loan Rate; or
. if a payment default has occurred with respect to a series of the Series
2000-1 Notes, the Series 2000-1 Note auction rate on that series for the
interest period for that series commencing on or immediately after the
payment default and for each interest period thereafter, to and
including the interest period, if any, during which, or commencing less
than two business days after, the payment default is cured, will equal
the non-payment rate, as defined below, on the first day of each
interest period.
In any event, no auction will be held on any auction date during the
continuance of a payment default.
The Net Loan Rate, with respect to any interest period for a series of the
Series 2000-1 Notes commencing during a given month, is the highest rate of
interest per year, rounded to the next highest .01%, which would not cause the
weighted average of the Auction Rate for such interest period and (except in the
case of a series of notes having interest periods longer than 45 days) the
Series 2000-1 Note auction rate for the two preceding interest periods to exceed
(1) the average of the weighted average Effective Interest Rate of the financed
student loans under the
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<PAGE>
indenture, determined as of the last day of the second, third and fourth
preceding months, less (2) the Administrative Cost and Note Fee Rate with
respect to the Series 2000-1 Notes. The Administrative Cost and Note Fee Rate,
with respect to the Series 2000-1 Notes, is a rate per year equal to the sum of
(a) 1.05%, (b) the auction agent fee rate (initially .02%, but subject to change
in accordance with the provisions of the auction agent agreement) and (c) the
broker-dealer fee rate (initially .25%, but subject to change in accordance with
the provisions of the auction agent agreement).
The maximum auction rate is:
. with respect to the Senior Series 2000-1 Notes: (1) for auction periods
of 35 days or less, either (a) one-month LIBOR plus 1.5%, if the ratings
assigned by Moody's and Fitch to the Senior Series 2000-1 Notes are at
least Aa3 and AA-, respectively, (b) one-month LIBOR plus 2.5%, if any
one of the ratings assigned by Moody's and Fitch to the Senior Series
2000-1 Notes is less than Aa3 or AA-, respectively, but is at least A,
or (c) one-month LIBOR plus 3.5%, if any one of the ratings assigned by
Moody's and Fitch to the Senior Series 2000-1 Notes is less than A; or
(2) for auction periods of greater than 35 days, either (a) the greater
of one-month LIBOR or three-month LIBOR, plus, in either case, 1.5%, if
the ratings assigned by Moody's and Fitch to the Senior Series 2000-1
Notes are at least Aa3 and AA-, respectively, (b) the greater of one-
month LIBOR or three-month LIBOR, plus, in either case, 2.5%, if any one
of the ratings assigned by Moody's and Fitch to the Senior Series 2000-1
Notes is less than Aa3 or AA-, respectively, but is at least A, or (c)
the greater of one-month LIBOR or three-month LIBOR, plus, in either
case, 3.5%, if any one of the ratings assigned by Moody's and Fitch to
the Senior Series 2000-1 Notes is less than A; and
. with respect to the Subordinate Series 2000-1 Notes: (1) for auction
periods of 35 days or less, either (a) one-month LIBOR plus 2.5%, if the
ratings assigned by Moody's and Fitch to the Subordinate Series 2000-1
Notes are at least A2 and A, respectively, or (b) one-month LIBOR plus
3.5%, if any one of the ratings assigned by Moody's and Fitch to the
Subordinate Series 2000-1 Notes is less than A2 or A, respectively; or
(2) for auction periods of greater than 35 days, either (a) the greater
of one-month LIBOR or three-month LIBOR, plus, in either case, 2.5%, if
the ratings assigned by Moody's and Fitch to the Subordinate Series
2000-1 Notes are at least A2 and A, respectively, or (b) the greater of
one-month LIBOR or three-month LIBOR, plus, in either case, 3.5%, if any
one of the ratings assigned by Moody's and Fitch to the Subordinate
Series 2000-1 Notes is less than A2 or A, respectively.
For purposes of the auction agent and the auction procedures, the ratings
referred to in this paragraph are the last ratings of which the auction agent
has been given notice pursuant to the auction agent agreement.
The non-payment rate with respect to each series of the Series 2000-1 Notes
is the interest rate per year equal to the lesser of (1) one-month LIBOR plus
1.5%, or (2) 18%.
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<PAGE>
The auction agent is to promptly give written notice to the trustee and
EdLinc of each Series 2000-1 Note auction rate (unless the Series 2000-1 Note
auction rate is the non-payment rate) and either the Auction Rate or the Net
Loan Rate, as the case may be, when that rate is not the Series 2000-1 Note
auction rate, applicable to each series of the Series 2000-1 Notes. The trustee
is to notify the holders of Series 2000-1 Notes of the interest rate applicable
to each series of Series 2000-1 Notes for each interest period on the second
business day of that interest period.
If the auction agent no longer determines, or fails to determine, when
required, the Series 2000-1 Note auction rate with respect to a series of Series
2000-1 Notes, or, if for any reason, the manner of determination is held to be
invalid or unenforceable, the Series 2000-1 Note auction rate for the next
succeeding interest period (which period will be an auction period for that
series of the Series 2000-1 Notes) will be the Net Loan Rate for that interest
period. The Net Loan Rate with respect to each interest period commencing in a
given month shall be determined by or on behalf of EdLinc and written notice
thereof given to the auction agent at the time the monthly servicing report for
the second preceding month is distributed. If EdLinc fails or refuses to
determine the Net Loan Rate, the Net Loan Rate for the related interest period
shall be the most recently determined Net Loan Rate.
Carry-Over Amounts on the Series 2000-1 Notes
If the Auction Rate for a series of the Series 2000-1 Notes is greater than
the Net Loan Rate, then the Series 2000-1 Note auction rate applicable to that
series for that interest period will be the Net Loan Rate. If the Series 2000-1
Note auction rate for a series of Series 2000-1 Notes for any interest period is
the Net Loan Rate, the trustee shall determine the Carry-Over Amount, if any,
with respect to that series for that interest period. The Carry-Over Amount for
a Series 2000-1 Note of that series shall be the excess, if any, of (a) the
amount of interest on that Series 2000-1 Note that would have accrued with
respect to the related interest period at the lesser of the Auction Rate and the
Series 2000-1 Note auction rate limitation over (b) the amount of interest on
that Series 2000-1 Note actually accrued with respect to that interest period
based on the Net Loan Rate, together with the unpaid portion of any excess from
prior interest periods. The determination of the Carry-Over Amount shall be made
separately for each series of Series 2000-1 Notes. Each Carry-Over Amount shall
bear interest calculated at a rate equal to one-month LIBOR, as determined by
the auction agent, provided the trustee has received notice of one-month LIBOR
from the auction agent, and, if the trustee shall not have received this notice
from the auction agent, then as determined by the trustee, from the interest
payment date for the interest period with respect to which the Carry-Over Amount
was calculated, until paid. Any payment in respect of Carry-Over Amount shall be
applied, first, to any accrued interest payable on the Carry-Over Amount and,
thereafter, in reduction of the Carry-Over Amount. For purposes of the indenture
and the Series 2000-1 Notes, any reference to "principal" or "interest" therein
shall not include, within the meaning of these words, Carry-Over Amount or any
interest accrued on any Carry-Over Amount. Carry-Over Amount shall be separately
calculated for each Series 2000-1 Note by the trustee during each interest
period in sufficient time for the trustee to give notice to each holder of the
Carry-Over Amount as required in the next succeeding sentence. On the interest
payment date for an interest period with respect to which a Carry-Over Amount
has been calculated by the trustee, the trustee shall give written notice to
each holder of the Carry-Over Amount applicable to the holder's Series 2000-1
Note, which written notice may accompany the
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<PAGE>
payment of interest by check made to each holder on that interest payment date
or otherwise shall be mailed on that interest payment date by first-class mail,
postage prepaid, to each holder at the holder's address as it appears on the
registration books maintained by the note registrar. The notice shall state, in
addition to the Carry-Over Amount, that, unless and until a Series 2000-1 Note
has been redeemed or has been deemed no longer Outstanding under the indenture--
after which all accrued Carry-Over Amount with respect to that Series 2000-1
Note, and all accrued interest on the Carry-Over Amount, that remains unpaid
shall be cancelled and no Carry-Over Amount or interest accrued on the Carry-
Over Amount shall be paid with respect to that Series 2000-1 Note--(i) the
Carry-Over Amount, and interest accrued on the Carry-Over Amount, shall be paid
by the trustee on that Series 2000-1 Note on the first occurring interest
payment date for a subsequent interest period if and to the extent that (l) the
eligible carry-over make-up amount (as defined below) with respect to that
interest period is greater than zero, and (2) moneys are available pursuant to
the terms of the second supplemental indenture to pay the Carry-Over Amount and
interest accrued on the Carry-Over Amount, and (ii) interest shall accrue on the
Carry-Over Amount at an annual rate equal to one-month LIBOR until the Carry-
Over Amount is paid in full or is cancelled. Eligible carry-over make-up amount
means, with respect to each interest period relating to a series of Series 2000-
1 Notes as to which, as of the first day of that interest period, there is any
unpaid Carry-Over Amount, an amount equal to the lesser of (a) interest computed
on the principal balance of that series in respect of that interest period at an
annual rate equal to the excess, if any, of the Net Loan Rate over the
applicable Series 2000-1 Note auction rate, and (b) the aggregate Carry-Over
Amount remaining unpaid as of the first day of that interest period together
with interest accrued and unpaid on the Carry-Over Amount through the end of
that interest period.
The Carry-Over Amount, and interest accrued on the Carry-Over Amount, for a
series of the Series 2000-1 Notes shall be paid by the trustee on Outstanding
Series 2000-1 Notes of that series on the first occurring interest payment date
for a subsequent interest period if and to the extent that (1) the eligible
carry-over make-up amount with respect to that interest period is greater than
zero, and (2) moneys in the Surplus Account are available on that interest
payment date for transfer to the Interest Account for that purpose in accordance
with the priorities described in the second paragraph under "Description of the
Indenture--Funds and Accounts--Surplus Fund" in the prospectus, after taking
into account all other amounts payable from the Surplus Fund in accordance with
that paragraph on that interest payment date. Any Carry-Over Amount, and any
interest accrued on the Carry-Over Amount, with respect to any Series 2000-1
Note which is unpaid as of an interest payment date, which Series 2000-1 Note is
to be called for redemption or deemed no longer Outstanding under the indenture
on that interest payment date, shall be paid to the holder thereof on that
interest payment date to the extent that moneys are available therefor in
accordance with the provisions of the preceding sentence; provided, however,
that any Carry-Over Amount, and any interest accrued on the Carry-Over Amount,
which is not so paid on that interest payment date shall be cancelled with
respect to that Series 2000-1 Note on that interest payment date and shall not
be paid on any succeeding interest payment date. To the extent that any portion
of the Carry-Over Amount, and any interest accrued on the Carry-Over Amount,
remains unpaid after payment of a portion of that amount, the unpaid portion
shall be paid in whole or in part until fully paid by the trustee on the next
occurring interest payment date or dates, as necessary, for a subsequent
interest period or periods, if and to the extent that the conditions in the
first sentence of this paragraph are satisfied. On any interest payment date on
which the trustee pays less than all of
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<PAGE>
the Carry-Over Amount, and any interest accrued on the Carry-Over Amount, with
respect to a Series 2000-1 Note, the trustee shall give written notice in the
manner set forth in the immediately preceding paragraph to the holder of that
Series 2000-1 Note of the Carry-Over Amount remaining unpaid on that note.
The interest payment date on which any Carry-Over Amount for a series of
the Series 2000-1 Notes will be paid is to be determined by the trustee as
described in the immediately preceding paragraph, and the trustee is to make
payment of the Carry-Over Amount in the same manner as, and from the same
Account from which, it pays interest on the Series 2000-1 Notes on an interest
payment date. ANY UNPAID CARRY-OVER AMOUNT, INCLUDING ANY ACCRUED AND UNPAID
INTEREST ON THE CARRY-OVER AMOUNT, ON A SERIES 2000-1 NOTE NOT PAYABLE ON ANY
REDEMPTION DATE WITH RESPECT TO THAT SERIES 2000-1 NOTE WILL BE FORFEITED UPON
THE REDEMPTION (WHETHER PURSUANT TO OPTIONAL REDEMPTION OR SPECIAL REDEMPTION)
OR AT MATURITY OF THAT SERIES 2000-1 NOTE, OR ON AN EARLIER INTEREST PAYMENT
DATE, IF ANY, ON WHICH THAT SERIES 2000-1 NOTE CEASES TO BE OUTSTANDING UNDER
THE INDENTURE. FITCH'S AND MOODY'S RATING ON THE SERIES 2000-1 NOTES WILL NOT
APPLY TO ANY CARRY-OVER AMOUNT THAT MAY ACCRUE ON THE SERIES 2000-1 NOTES.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on a
series of Series 2000-1 Notes exceed the amount permitted by applicable law. If
the applicable law is ever judicially interpreted so as to render usurious any
amount called for under the Series 2000-1 Notes of a series or related documents
or otherwise contracted for, charged, reserved, taken or received in connection
with the Series 2000-1 Notes of that series, or if the redemption or
acceleration of the maturity of the Series 2000-1 Notes of that series results
in payment to or receipt by the holder or any former holder of the Series 2000-1
Notes of that series of any interest in excess of that permitted by applicable
law, then, notwithstanding any provision of the Series 2000-1 Notes of that
series or related documents to the contrary, all excess amounts theretofore paid
or received with respect to the Series 2000-1 Notes of that series shall be
credited on the principal balance of the Series 2000-1 Notes of that series, or,
if the Series 2000-1 Notes of that series have been paid or would thereby be
paid in full, refunded by the recipient thereof, and the provisions of the
Series 2000-1 Notes of that series and related documents shall automatically and
immediately be deemed reformed and the amounts thereafter collectible thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for under the Series 2000-1 Notes of that series and
under the related documents.
Redemption of Series 2000-1 Notes
Optional Redemption
At EdLinc's option but subject to compliance with the conditions described
under "Senior Asset Requirement" below, Series 2000-1 Notes of any series may be
called for redemption on
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any interest payment date for that series, in whole or in part, and if in part
as described under "Selection of Series 2000-1 Notes for Redemption" below, at a
redemption price of 100% of principal amount of the notes to be redeemed.
Special Redemption from Unused Proceeds
Subject to compliance with the conditions described under "Senior Asset
Requirement" below, Series 2000-1 Notes must be redeemed, in part, on the first
interest payment date occurring after April 2, 2001, for which notice of
redemption can be given as described below, at a redemption price equal to 100%
of the principal amount of Series 2000-1 Notes so redeemed, from proceeds of the
Series 2000-1 Notes constituting that portion of the balance of the Series
2000-1 Acquisition Account that have not been used to acquire Eligible Loans by
April 2, 2001, and from that portion of the Reserve Fund which, if left in the
Reserve Fund upon this redemption, would cause the balance in the Reserve Fund
to exceed the Reserve Fund Requirement, calculated after giving effect to the
redemption.
Special Redemption from Surplus Account
Subject to compliance with the conditions described under "Senior Asset
Requirement" below, Series 2000-1 Notes must be redeemed, in whole or in part,
on any interest payment date, at a redemption price equal to 100% of the
principal amount of Series 2000-1 Notes so redeemed, from that portion of the
balance of the Series 2000-1 Surplus Subaccount that has been on deposit therein
for at least 12 months, has not been used to acquire Student Loans and as to
which the Corporation has failed to certify to the Trustee is necessary to pay
debt service on the Outstanding notes or on Outstanding Other Obligations,
Carry-Over Amounts, including accrued interest on Carry-Over Amounts, with
respect to Outstanding notes, Administrative Expenses or Note Fees or to make
required deposits to the Indemnification Fund.
Senior Asset Requirement
No redemption of any Series 2000-1 Note is to be made unless, after
giving effect to the redemption, the provisions of the indenture described under
"Description of the Notes--Redemption, Prepayment or Purchase of Notes; Senior
Asset Requirement" in the prospectus will have been met.
Selection of Series 2000-1 Notes for Redemption
If less than all Outstanding Series 2000-1 Notes are to be redeemed, the
principal amounts of each series of Series 2000-1 Notes to be redeemed shall be
selected as follows: to the extent that the provisions of the indenture
described under "Description of the Notes--Redemption, Prepayment or Purchase of
Notes; Senior Asset Requirement" in the prospectus will be met, either (1) that
principal amount of Subordinate Series 2000-1 Notes shall be redeemed which
bears, as nearly as practicable, the same (but no greater) proportion to the
aggregate principal amount of all Outstanding Series 2000-1 Notes to be redeemed
as the aggregate principal amount of Outstanding Subordinate Series 2000-1 Notes
bears to the aggregate principal amount of all Outstanding Series 2000-1 Notes
or (2) if the Trustee receives, at least 45 days prior to the redemption date
(unless a
S-35
<PAGE>
shorter notice is satisfactory to the Trustee), a certificate from EdLinc
certifying that, based on a Cash Flow Projection, a different proportion of
Subordinate Series 2000-1 Notes to be redeemed will not materially adversely
affect EdLinc's ability to pay debt service on the Outstanding notes and on
Outstanding Other Obligations, Carry-Over Amounts, including accrued interest on
Carry-Over Amounts, with respect to Outstanding notes, Administrative Expenses
or Note Fees or to make required deposits to the Indemnification Fund,
Subordinate Series 2000-1 Notes shall be redeemed in the principal amount as is
designated by EdLinc in that certificate. The remaining Series 2000-1 Notes to
be called for redemption on a given redemption date shall be selected from the
appropriate series of Senior Series 2000-1 Notes.
If less than all Outstanding Senior Series 2000-1 Notes subject to
redemption are to be redeemed, and more than one series of Senior Series 2000-1
Notes is so subject, the principal amounts of each series of Senior Series
2000-1 Notes to be called for redemption shall be selected from each of these
series in the principal amounts as EdLinc may designate or, in the absence of a
designation, from each series in, as nearly as practicable, the same proportion
to the aggregate principal amount of all Outstanding Senior Series 2000-1 Notes
to be called for redemption as the aggregate principal amount of Outstanding
Senior Series 2000-1 Notes of that series bears to the aggregate principal
amount of all Outstanding Senior Series 2000-1 Notes subject to that redemption.
Notwithstanding the foregoing paragraph, to the extent Subordinate
Series 2000-1 Notes cannot be redeemed due to the application of the provisions
of the indenture described under "Description of the Notes--Redemption,
Prepayment or Purchase of Notes; Senior Asset Requirement" in the prospectus,
but Senior Series 2000-1 Notes may be redeemed without violating those
provisions, the particular Series 2000-1 Notes to be redeemed shall be selected
from the appropriate series of Senior Series 2000-1 Notes according to the
provisions described above.
If less than all of the Outstanding Series 2000-1 Notes of a given
series are to be redeemed, the particular Series 2000-1 Notes to be redeemed
shall be selected by the trustee by lot in a manner the trustee deems fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Series 2000-1 Notes in an authorized denomination.
Notice and Effect of Redemption
Notice of redemption of the Series 2000-1 Notes shall be given by first
class mail, mailed not less than 15 days prior to the date fixed for redemption
to each holder, which initially will be DTC or its nominee, of Series 2000-1
Notes to be called for redemption at the address of the holder appearing in the
note register; but no defect in or failure to give the mailed notice of
redemption shall affect the validity of proceedings for the redemption of any
Series 2000-1 Note not affected by the defect or failure.
Notice of redemption having been given as provided above, the Series
2000-1 Notes designated in the notice shall become due and payable at the
applicable redemption price, and, upon surrender in accordance with the notice,
shall be so paid, and thereafter these Series 2000-1 Notes shall cease to accrue
interest.
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<PAGE>
SOURCE OF PAYMENT AND SECURITY FOR THE SERIES 2000-1 NOTES
Subordination of the Subordinate Series 2000-1 Notes
The rights of the holders of the Subordinate Series 2000-1 Notes to
receive principal and interest payments will be subordinated to the rights of
the holders of the Senior Series 2000-1 Notes, any other series of Senior Notes
(including those Senior Notes described in the next paragraph) and any Other
Senior Obligations to receive these payments to the extent described in this
prospectus supplement and the prospectus. This subordination is intended to
enhance the likelihood of regular receipt of the interest and principal by the
holders of the Senior Series 2000-1 Notes, any other series of Senior Notes and
any Other Senior Obligations. See "Source of Payment and Security for the
Notes--Priorities" and "Description of the Indenture--Funds and Accounts" in the
prospectus.
Prior Notes and Series 2000-1 Notes
The Series 2000-1 Notes are being issued on a parity with all previously
issued and outstanding series of notes and Other Obligations under the
indenture. Thus, the Senior Series 2000-1 Notes will have the same right to
payment of principal and interest from the Trust Estate as the $117,000,000
aggregate principal amount of Series 1999-1 Senior Notes previously and
currently outstanding under the indenture. Likewise, the Subordinate Series
2000-1 Notes will have the same right to payment of principal and interest from
the Trust Estate as the $9,300,000 aggregate principal amount of Series 1999-1
Subordinate Notes previously and currently outstanding under the indenture.
Summary of Indenture Assets, Liabilities and Fund Balances and Statement of
Revenue, Expense and Changes in Fund Balances of the Indenture
The following is a summary of the funds and accounts under the indenture
as of October 31, 2000, and a statement of revenue, expense and changes in fund
balances of funds and accounts under the indenture for the period December 1,
1999 (inception), through October 31, 2000.
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<PAGE>
SUMMARY OF ASSETS, LIABILITIES AND
FUND BALANCE OF INDENTURE
OCTOBER 31, 2000
(In Thousands - 000's Omitted)
<TABLE>
<S> <C>
ASSETS
Investments.................................................... $ 8,159
Student Loans Receivable....................................... 113,756
Accrued Interest Receivable:
Secretary of Education:
Interest Subsidy....................................... 260
Special Allowance...................................... 209
Investments................................................ 26
Student Loan Borrowers..................................... 3,760
Due From Subservicers.......................................... 79
Unamortized Costs of Debt Issuance............................. 1,437
----------
Total Assets........................................... $ 127,686
==========
LIABILITIES AND FUND BALANCE
Accounts Payable and
Accrued Expenses........................................... $ 153
Accrued Interest Payable....................................... 324
Notes Payable.................................................. 126,300
----------
126,777
Fund Balance................................................... 909
----------
Total Liabilities...................................... $ 127,686
==========
</TABLE>
STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND BALANCE OF THE INDENTURE
FOR THE PERIOD DECEMBER 1, 1999 (INCEPTION)
THROUGH OCTOBER 31, 2000
(In Thousands - 000's Omitted)
<TABLE>
<S> <C>
Revenues:
Interest Income on Investments............................. $ 984
Interest on Student Loans (Net of Rebates to ED - $53,
and Amortization of Loan Acquisition Costs - $431)..... 6,811
Special Allowance on Student Loans......................... 699
-------
Total Revenues......................................... $ 8,494
-------
Expenses:
Note Interest.............................................. 7,326
Note Fees.................................................. 257
Servicing Fees............................................. 983
Administrative Expenses.................................... 27
</TABLE>
S-38
<PAGE>
<TABLE>
<S> <C>
Amortization of Costs of Debt Issuance....................... 68
-------
Total Expenses......................................... $ 8,661
-------
Excess of Expenses over Revenues............................. (167)
Student Loan Acquisition Costs Paid by SLFC.................. 771
Costs of Debt Issuance Paid by SLFC.......................... 305
Fund Balance, Beginning of Period............................ 0
-------
Fund Balance, End of Period.................................. $ 909
=======
</TABLE>
______________
NOTES TO INDENTURE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Indenture
Pursuant to the indenture, series of notes have and may continue to be
issued by EdLinc, the proceeds of which are governed by the terms of the
indenture. The notes represent limited obligations of EdLinc and are payable
solely from the trust estate created under the indenture. The indenture
establishes the general provisions of the notes issued by EdLinc and sets
forth various covenants and agreements relating thereto, default and remedy
provisions, responsibilities and duties of the trustee and establishes various
funds into which EdLinc's revenues related to the note proceeds are deposited
and transferred for various purposes.
On December 7, 1999, EdLinc issued its Student Loan Asset-Backed Notes,
Series 1999-1 for a total of $126,300,000, pursuant to the indenture. No other
series of notes have been issued to date. EdLinc expects to issue an
additional series of notes under the indenture in December, 2000.
Education Loans Incorporated
EdLinc is a bankruptcy-remote, special purpose Delaware corporation and
wholly-owned subsidiary of SLFC. EdLinc's business and financial activities
include: (i) originating or acquiring student loans; (ii) entering into
certain agreements relating to student loans; (iii) issuing bonds, notes,
asset-backed certificates or other securities payable solely from student
loans and other assets pledged to the payment thereof; and (iv) engaging in
acts incidental to and necessary, suitable or convenient for the
accomplishment of the foregoing purposes and permitted under Delaware law.
In addition to the series 1999-1 notes issued pursuant to the
indenture, EdLinc has previously issued a 1998-1 series of notes totaling
$923,470,000, which were issued under, and are separately secured by, a
different indenture. Assets, liabilities, fund balances, revenues, expenses
and changes in fund balance associated with such note series are not included
in the accompanying financial statements.
S-39
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The summary of assets, liabilities and fund balance and the statement of
revenues, expenses and changes in fund balance are prepared on the accrual basis
of accounting and include only the net assets and results of operations of the
indenture as of October 31, 2000 and for the period December 1, 1999 (inception)
through October 31, 2000.
Investments
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Debt and Equity Securities" (SFAS 115), investments are
classified into three categories: held-to-maturity, available-for-sale and
trading. The indenture currently has no trading or held-to-maturity securities.
Investments classified as available-for-sale securities are reported at fair
value.
Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as a separate component of fund balance.
Realized gains and losses are reported in earnings based on the amortized cost
of the specific security sold.
Interest on Student Loans
Interest on student loans (including subsidized interest) is accrued as
earned. Interest income is reduced by rebates to the Department of Education
which totaled approximately $53,000, and by the amortization of acquisition
costs, which totaled approximately $431,000 for the period December 1, 1999
through October 31, 2000. Quarterly interest subsidy payments are made by the
Department of Education on qualified loans until the student is required under
the provisions of the Higher Education Act to begin payment. The indenture
received or is owed approximately $659,000 from the Department of Education in
interest subsidies for the period December 1, 1999 through October 31, 2000,
which represents approximately 7.8% of the indenture's total revenues.
Special Allowance
The Department of Education provides a special allowance to lenders
participating in qualified student loan programs. This allowance is based upon a
percentage of the average unpaid principal balance of qualifying student loans
held by the indenture and is accrued as earned. The indenture received or is
owed approximately $699,000 from the Department of Education for special
allowance for the period December 1, 1999 through October 31, 2000, which
represents approximately 8.2% of the indenture's total revenues.
Acquisition Costs (Premiums) on Student Loans
Premiums paid on acquisition of student loans are amortized over the
estimated life of the loans acquired, using methods that approximate the
effective interest rate method.
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<PAGE>
Costs of Debt Issuance
Costs of debt issuance are amortized over the life of the debt using the
debt outstanding method.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentrations
At October 31, 2000, the indenture had approximately $42,382,400 (or
37.8%) of student loans outstanding that are guaranteed by EAC, on behalf of the
Secretary of Education. At October 31, 2000, the indenture had approximately
$29,375,700 (or 26.2%) of alternative student loans without a federal guarantee
(see Note 7).
NOTE 3 - INVESTMENTS
The following tables reflect the amortized cost and estimated fair values
of securities held at October 31, 2000:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale
------------------
Investment agreements $ 6,448,541 $ - $ - $ 6,448,541
Money market savings and
deposits 1,710,902 - - 1,710,902
----------- --------- ---------- -----------
$ 8,159,443 $ - $ - $ 8,159,443
=========== ========= ========== ===========
</TABLE>
All of the above investments are categorized as immediately available funds.
The trustee, as allowed by the indenture, has entered into agreements on
behalf of EdLinc to invest the proceeds of the notes until such time as student
loans are purchased or required principal installments are due. Such investments
are unsecured deposits that may be subject to collateralization upon the
occurrence of certain events.
The indenture is restricted to investments in direct obligations of the
United States of America, interest-bearing time, demand or money market
deposits, bonds or notes issued by federal agencies, repurchase agreements,
investment agreements, and any other investments meeting specified rating
requirements. As of October 31, 2000 and for the period December 1,
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<PAGE>
1999 through October 31, 2000, all investments held by the indenture were in
compliance with indenture provisions.
NOTE 4 - STUDENT LOANS RECEIVABLE
Pursuant to the indenture, the trustee purchases student loans from
originating lenders under the FFEL Program and under various alternative loan
programs.
. FFELP. FFELP loans bear interest at rates ranging from 5% to 12% per annum.
The FFELP loans are guaranteed by qualified guarantee agencies. Loans made
prior to October 1, 1993 are 100% guaranteed. Loans made thereafter are 100%
guaranteed against borrowers' death, disability or bankruptcy (and limited
other events) and 98% guaranteed against borrowers' default. The guarantees
require compliance with the requirements of the FFEL Program and the
guarantee agencies.
. Alternative. Alternative loans bear interest at variable rates, currently
ranging from 8.75% to 12.5%. Alternative loans are neither insured by the
Secretary of Education nor guaranteed by qualified guarantee agencies.
Alternative loans are available to qualified borrowers and bear origination
fees of 0% to 8%, depending on credit-worthiness standards as determined by
the originator. Such origination fees are deposited to an alternative loan
guarantee fund (see Note 7).
Student loans receivable at October 31, 2000 are categorized as follows:
<TABLE>
<S> <C>
Category
--------
FFELP loans $ 84,379,897
Alternative loans 29,375,655
-------------
Total carrying value $ 113,755,552
=============
Status
------
School $ 17,872,543
Grace 11,765,254
Deferment 12,648,221
Forbearance 5,237,509
Repayment 64,126,122
Claim 358,403
-------------
Principal balance due 112,008,052
Unamortized loan acquisition
premiums and costs 1,747,500
-------------
Total carrying value $ 113,755,552
=============
</TABLE>
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<PAGE>
NOTE 5 - NOTES PAYABLE
The aggregate principal amounts of notes payable under the indenture at
October 31, 2000, are as follows:
<TABLE>
<S> <C>
Student Loan Asset-Backed Notes, Series 1999-1:
Taxable Auction Rate Senior Notes, due December 1, 2035:
1999-1A Notes, variable rate at 6.58% (as of October 31, 2000) $ 78,000,000
1999-1B Notes, variable rate at 6.58% (as of October 31, 2000) 39,000,000
Taxable Auction Rate Subordinate Series, due December 1, 2035:
1999-1C Notes, variable rate at 6.69% (as of October 31, 2000) 9,300,000
-------------
$ 126,300,000
=============
</TABLE>
EdLinc has certain options to redeem its various notes as fully described
in the indenture. In addition, EdLinc plans to issue additional obligations from
time to time to provide funds for the purchase of eligible student loans and/or
refund existing debt.
The Series 1999-1 Notes are secured by student loan receivables and amounts
in various funds and accounts established under the indenture.
NOTE 6 - PROGRAM INCOME AND OPERATING EXPENSE RESTRICTIONS
The amount of funds available under the indenture to pay administrative
expenses is limited as set forth in each supplemental indenture providing for
the issuance of a series of notes.
NOTE 7 - ALTERNATIVE LOAN GUARANTEE FUND
The indenture established a separate alternative loan guarantee fund, into
which all origination fees charged in connection with the origination of any
alternative loans acquired by the indenture are deposited. To the extent, as of
the end of any calendar month, that any alternative loan is delinquent more than
180 days, such loan is liquidated by the alternative loan guarantee fund and all
outstanding principal and accrued interest is paid to the revenue fund under the
indenture. All earnings of the alternative loan guarantee fund (including
subsequent collections on liquidated alternative loans) are added to the
alternative loan guarantee fund.
As of October 31, 2000, the alternative loan guarantee fund held the
following assets:
Investments $ 1,300,491
Due from servicer 325
Accrued interest on investments 4,268
Liquidated alternative loans 342,578
Accrued interest on alternative loans 28,400
-------------
$ 1,676,062
=============
S-43
<PAGE>
Following is a summary of transactions for the alternative loan guarantee
fund investments for the period December 1, 1999 through October 31, 2000:
Deposits of origination fees $ 1,596,170
Deposits of earnings 72,916
Withdrawals for liquidation of alternative loans (368,595)
-------------
$ 1,300,491
=============
THE TRUSTEE
U.S. Bank National Association, a national banking association organized
under the laws of the United States, is the trustee under the indenture. The
office of the trustee for purposes of administering the Trust Estate and its
other obligations under the indenture is located at U.S. Bank National
Association, 141 North Main Avenue, Suite 300, Sioux Falls, South Dakota 57104-
6429, Attention: Corporate Trust Services.
The Higher Education Act provides that only eligible lenders, defined to
include banks and other entities, may hold title to student loans made under the
FFEL Program. Because EdLinc does not qualify as an eligible lender, the trustee
will hold title to all financed FFELP Loans on behalf of EdLinc. The trustee
will agree under the indenture to maintain its status as an eligible lender
under the Higher Education Act. In addition, the trustee on behalf of EdLinc
will enter into a Guarantee Agreement with each of the guarantee agencies with
respect to each financed FFELP Loan. Failure of the financed FFELP Loans to be
owned by an eligible lender would result in the loss of guarantee payments,
Interest Subsidy Payments and Special Allowance Payments with respect thereto.
See "Description of the FFEL Program" and "Risk Factors--Offset by Guarantee
Agencies or the Department of Education Could Reduce the Amount of Available
Funds" in the prospectus.
SLFC and its affiliates, EdLinc and the transferor, maintain other banking
relationships with U.S. Bank National Association and its affiliates from time
to time. See "Relationships Among Financing Participants."
RELATIONSHIPS AMONG FINANCING PARTICIPANTS
As described under "EdLinc," "The Transferor" and "The Servicer" in the
prospectus, EdLinc and the transferor are wholly-owned subsidiaries of SLFC.
Except for its obligation to repurchase student loans under a student loan
purchase agreement upon a breach of a representation or warranty with respect
thereto or its obligations under the SLFC servicing agreement, SLFC will have no
obligations with respect to the notes or the indenture. EdLinc and the
transferor have no full-time employees, but contract with SLFC to perform
EdLinc's obligations under the indenture.
The boards of directors of EdLinc, the transferor and SLFC presently
include the same six persons. In addition, the board of directors of each of
EdLinc and the transferor contains two additional directors which are not
employed by or otherwise affiliated with EdLinc or the transferor.
S-44
<PAGE>
The trustee is also the trustee for EdLinc's outstanding student loan
asset-backed note issues. The trustee and its affiliates have in the past
entered into student loan purchase agreements with EdLinc, SLFC and the
transferor, including student loan purchase agreements pursuant to which the
transferor has purchased approximately $72,200,000 outstanding principal amount,
as of October 31, 2000, of Eligible Loans which have been or will be financed
under the indenture. EdLinc expects that the trustee will enter into student
loan purchase agreements providing for the sale of a substantial amount of
additional Eligible Loans. SLFC also has obtained financial services from the
trustee and related entities.
Foley & Lardner, counsel to the underwriter, has from time to time
represented SLFC in connection with various matters. In addition, Foley &
Lardner has from time to time represented EAC in connection with various
matters.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
to be entered into between EdLinc and Salomon Smith Barney Inc., as the
underwriter, EdLinc has agreed to sell to the underwriter, and the underwriter
has agreed, to purchase from EdLinc, the Series 2000-1 Notes.
In the underwriting agreement, the underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Series 2000-1
Notes offered hereby, if any Series 2000-1 Notes are purchased. EdLinc has been
advised by the underwriter that the underwriter proposes initially to offer the
Series 2000-1 Notes to the public at the public offering price with respect to
each class set forth on the cover page of this prospectus supplement. After the
initial public offering, the public offering price may be changed.
The underwriting agreement provides that SLFC will indemnify the
underwriter against, among other things, liabilities under applicable securities
laws, or contribute to payments the underwriter may be required to make in
respect thereof, and that EdLinc will pay for the fees and expenses of counsel
to the underwriter upon the issuance of the Series 2000-1 Notes.
The underwriter may engage in over-allotment, stabilizing transactions and
syndicate covering transactions in accordance with Regulation M under the
Exchange Act. 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 specific maximum. Syndicate covering transactions involve purchases of
the Series 2000-1 Notes in the open market after the distribution has been
completed in order to cover syndicate short positions. These stabilizing
transactions and syndicate covering transactions may cause the price of the
Series 2000-1 Notes to be higher than it would otherwise be in the absence of
these transactions.
EdLinc estimates that its expenses in connection with the issuance and
offering of the Series 2000-1 Notes will be approximately $1,050,000, including
underwriting discount. This information concerning EdLinc's fees and expenses is
an approximation and is subject to future contingencies.
S-45
<PAGE>
LEGAL MATTERS
Certain legal matters relating to EdLinc and the transferor and federal
income tax matters will be passed upon by Dorsey & Whitney LLP. Certain legal
matters will be passed upon for the underwriter by Foley & Lardner. Foley &
Lardner has performed legal services for the servicer and the administrator.
RATINGS
It is a condition to the issuance and sale of the Senior Series 2000-1
Notes that they be rated "AAA" by Fitch, Inc. and "Aaa" by Moody's Investors
Service, Inc. It is a condition to the issuance of the Subordinate Series 2000-1
Notes that they be rated at least "A" by Fitch and at least "A2" by Moody's. A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
agency. The ratings of the Series 2000-1 Notes address the likelihood of the
ultimate payment of principal of and interest on the Series 2000-1 Notes
pursuant to their terms. The rating agencies do not evaluate, and the ratings on
the Series 2000-1 Notes do not address, the likelihood of prepayments on the
Series 2000-1 Notes or the likelihood of payment of any Carry-Over Amounts.
S-46
<PAGE>
Appendix I
AUCTION OF THE SERIES 2000-1 NOTES
If not otherwise defined below, capitalized terms used below will have the
meanings given the terms in"Glossary of Principal Definitions" in the
prospectus.
Auction Participants
Existing Holders and Potential Holders
Participants in each auction will include:
. existing holders, which means any person or entity, including a
broker-dealer, who is a holder of Series 2000-1 Notes in the records
of the auction agent at the close of business on the business day
preceding each auction date; and
. potential holders, which means any person or entity, including a
broker-dealer, and any existing holder, who may be interested in
acquiring the Series 2000-1 Notes, or, in the case of an existing
holder, an additional principal amount of the Series 2000-1 Notes.
See "Broker-Dealer" below.
By purchasing the Series 2000-1 Notes, whether in an auction or otherwise,
each prospective purchaser of the Series 2000-1 Notes or its broker-dealer must
agree and will be deemed to have agreed:
. to participate in auctions on the terms described in the second
supplemental indenture;
. to have its beneficial ownership of the Series 2000-1 Notes maintained
at all times in book-entry form for the account of its Participant,
which in turn will maintain records of the beneficial ownership, and
to authorize that Participant to disclose to the auction agent that
information with respect to the beneficial ownership as the auction
agent may request;
. so long as the beneficial ownership of the Series 2000-1 Notes is
maintained in book-entry form, to sell, transfer or otherwise dispose
of the Series 2000-1 Notes only pursuant to a Bid, as defined below,
or a Sell Order, as defined below, in an auction, or otherwise through
a broker-dealer, provided that in the case of all transfers other than
those pursuant to an auction, the existing holder of the Series 2000-1
Notes so transferred, its Participant or broker-dealer advises the
auction agent of that transfer;
. that a Sell Order placed by an existing holder will constitute an
irrevocable offer to sell the principal amount of the Series 2000-1
Notes specified in that Sell Order;
. that a Bid placed by an existing holder will constitute an irrevocable
offer to sell
I-1
<PAGE>
the principal amount of the Series 2000-1 Notes specified in that Bid
if the rate specified in that Bid is greater than, or in some cases
equal to, the Auction Rate, determined as described in this Appendix
I; and
. that a Bid placed by a potential holder will constitute an irrevocable
offer to purchase the amount, or a lesser principal amount, of the
Series 2000-1 Notes specified in that Bid if the rate specified in
that Bid is, respectively, less than or equal to the Auction Rate,
determined as described in this Appendix I.
The principal amount of the Series 2000-1 Notes purchased or sold may be
subject to proration procedures on the auction date. Each purchase or sale of
the Series 2000-1 Notes on the auction date will be made for settlement on the
first day of the interest period immediately following the auction date at a
price equal to 100% of the principal amount. The auction agent is entitled to
rely upon the terms of any Order submitted to it by a broker-dealer.
Auction Agent
Bankers Trust Company is appointed in the second supplemental indenture as
the initial auction agent to serve as agent for EdLinc in connection with
auctions. The trustee and EdLinc will enter into the initial auction agent
agreement with Bankers Trust Company, as the initial auction agent. Any
substitute auction agent shall be (1) a bank, national banking association or
trust company duly organized under the laws of the United States of America or
any state or territory thereof having its principal place of business in the
Borough of Manhattan, New York, or another location as approved by the trustee
in writing and having a combined capital stock or surplus of at least
$50,000,000, or (2) a member of the National Association of Securities Dealers,
Inc., having a capitalization of at least $50,000,000, and, in either case,
authorized by law to perform all the duties imposed upon it under the second
supplemental indenture and the auction agent agreement. The auction agent may at
any time resign and be discharged of the duties and obligations created by the
second supplemental indenture by giving at least 90 days' notice to the trustee
and EdLinc. The auction agent may be removed at any time by the trustee upon the
written direction of an authorized officer of EdLinc or the holders of 66-2/3%
of the aggregate principal amount of the Series 2000-1 Notes then Outstanding,
and, if by the holders, by an instrument signed by the holders or their
attorneys and filed with the auction agent, EdLinc and the trustee upon at least
90 days' notice. Neither resignation nor removal of the auction agent pursuant
to the preceding two sentences shall be effective unless and until a substitute
auction agent has been appointed and has accepted that appointment. If required
by EdLinc, a substitute auction agent agreement shall be entered into with a
substitute auction agent. Notwithstanding the foregoing, the auction agent may
terminate the auction agent agreement if, within 25 days after notifying the
trustee and EdLinc in writing that it has not received payment of any auction
agent fee due it in accordance with the terms of the auction agent agreement,
the auction agent does not receive the payment.
If the auction agent shall resign or be removed or be dissolved, or if the
property or affairs of the auction agent shall be taken under the control of any
state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the trustee, at the direction of an
authorized officer of EdLinc, shall use its best efforts to appoint a substitute
auction agent.
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The auction agent is acting as agent for EdLinc in connection with
auctions. In the absence of bad faith, negligent failure to act or negligence on
its part, the auction agent shall not be liable for any action taken, suffered
or omitted or any error of judgment made by it in the performance of its duties
under the auction agent agreement and shall not be liable for any error of
judgment made in good faith unless the auction agent shall have been negligent
in ascertaining, or failing to ascertain, the pertinent facts.
EdLinc will pay the auction agent the auction agent fee on each interest
payment date and will reimburse the auction agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the auction
agent in accordance with any provision of the auction agent agreement or the
broker-dealer agreements, including the reasonable compensation and the expenses
and disbursements of its agents and counsel. These amounts are payable from the
Administration Fund. EdLinc will indemnify and hold harmless the auction agent
for and against any loss, liability or expense incurred without negligence or
bad faith on the auction agent's part, arising out of or in connection with the
acceptance or administration of its agency under the auction agent agreement and
the broker-dealer agreements, including the reasonable costs and expenses,
including the reasonable fees and expenses of its counsel, of defending itself
against any claim or liability in connection with its exercise or performance of
any of its respective duties under those agreements and of enforcing this
indemnification provision; provided that EdLinc will not indemnify the auction
agent as described in this paragraph for any fees and expenses incurred by the
auction agent in the normal course of performing its duties under the auction
agent agreement and under the broker-dealer agreements, these fees and expenses
being payable as described above.
Broker-Dealer
Existing holders and potential holders may participate in auctions only by
submitting orders, in the manner described below, through a broker-dealer,
including, with respect to each series of the Series 2000-1 Notes, Salomon Smith
Barney Inc., as the sole initial broker-dealer for the Series 2000-1 Notes, or
any other broker or dealer, each as defined in the Securities Exchange Act of
1934, as amended, commercial bank or other entity permitted by law to perform
the functions required of a broker-dealer set forth below which:
. is a Participant or an affiliate of a Participant;
. has been selected by EdLinc; and
. has entered into a broker-dealer agreement with the auction agent that
remains effective, in which the broker-dealer agrees to participate in
auctions with respect to one or more series of the Series 2000-1 Notes
as described in the auction procedures, as from time to time amended
or supplemented.
The broker-dealers are entitled to a broker-dealer fee, which is payable by
the auction agent from monies received from EdLinc, on each interest payment
date. The broker-dealer fee is payable from the Administration Fund as provided
in the second supplemental indenture.
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Market Agent
Although Salomon Smith Barney Inc. is acting as an underwriter in
connection with the Series 2000-1 Notes, Salomon Smith Barney Inc. will
initially be the market agent. When acting as market agent, Salomon Smith Barney
Inc. will act solely as agent of EdLinc and will not assume any obligation or
relationship of agency or trust for or with any of the Beneficial Owners.
Auction Procedures
General
Pursuant to the second supplemental indenture, auctions to establish the
Auction Rate for the Series 2000-1 Notes will be held on each auction date,
except as described under "Description of Series 2000-1 Notes--Interest Rate on
the Series 2000-1 Notes," by application of the auction procedures described
herein. These procedures are to be applicable separately to each series of
Series 2000-1 Notes. Auction date means, with respect to the Series 2000-1A
Notes and the Series 2000-1C Notes, initially January 3, 2001, and with respect
to the Series 2000-1B Notes, initially January 10, 2001, and, thereafter, the
business day immediately preceding the first day of each related auction period,
other than:
. each interest period commencing after the ownership of that series is
no longer maintained in book-entry form;
. each interest period commencing after the occurrence and during the
continuance of a payment default, as defined in the body of this
prospectus supplement; or
. any auction period commencing less than two business days after the
cure of a payment default.
Notwithstanding the foregoing, the auction date for one or more auction periods
may be changed as described below under "Changes in Auction Terms."
The auction agent will calculate the maximum auction rate, as defined in
the body of this prospectus supplement, and the all hold rate, as defined below,
for each series on each auction date. EdLinc, or the Servicer on behalf of
EdLinc, will calculate the Net Loan Rate monthly. If the ownership of a series
of Series 2000-1 Notes is no longer maintained in book-entry form, the trustee
will calculate the maximum auction rate on the business day immediately
preceding the first day of each interest period commencing after delivery of the
Series 2000-1 Notes. If a payment default has occurred, the trustee will
calculate the non-payment rate on the interest rate determination date, as these
terms are defined in the body of this prospectus supplement, for:
. each interest period commencing after the occurrence and during the
continuance of the payment default and
. any interest period commencing less than two business days after the
cure of any payment default.
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The auction agent will determine the one-month LIBOR or the three-month LIBOR,
as applicable, for each interest period other than the initial interest period;
provided that if the ownership of the Series 2000-1 Notes is no longer
maintained in book-entry form, or if a payment default has occurred, then the
trustee will determine the one-month LIBOR or the three-month LIBOR, as
applicable, for each interest period other than the initial interest period. The
determination by the trustee or the auction agent, as the case may be, of the
one-month LIBOR or the three-month LIBOR, as applicable, will, in the absence of
manifest error, be final and binding upon the noteholders and all other parties.
If calculated or determined by the auction agent, the auction agent will
promptly advise the trustee of the one-month LIBOR or the three-month LIBOR, as
applicable.
The all hold rate is (1) for auction periods of 35 days or less, 85% of
one-month LIBOR, and (2) for auction periods of more than 35 days, 85% of three-
month LIBOR.
Submission of Orders
So long as the ownership of a series of Series 2000-1 Notes is maintained
in book-entry form, an existing holder may sell, transfer or otherwise dispose
of Series 2000-1 Notes of that series only pursuant to a Bid or Sell Order, as
hereinafter defined, placed in an auction or otherwise sell, transfer or dispose
of that series through a broker-dealer, provided that, in the case of all
transfers other than pursuant to auctions, the existing holder, its broker-
dealer or its Participant advises the auction agent of the transfer. Auctions
shall be conducted on each auction date, if there is an auction agent on that
auction date, in the following manner, these procedures to be applicable
separately to each series of the Series 2000-1 Notes:
Prior to the Submission Deadline on each auction date, defined as 12:30
p.m., New York City time, on any auction date or other time on any auction date
by which broker-dealers are required to submit Orders to the auction agent as
specified by the auction agent from time to time:
. each existing holder of Series 2000-1 Notes may submit to a broker-
dealer by telephone or otherwise information as to:
. a Hold Order, which is the principal amount of Outstanding Series
2000-1 Notes, if any, held by the existing holder which the
existing holder desires to continue to hold without regard to the
Auction Rate for the next succeeding auction period;
. a Bid, which is the principal amount of Outstanding Series 2000-1
Notes, if any, which the existing holder offers to sell if the
Auction Rate for the next succeeding auction period will be less
than the rate per annum specified by the existing holder; and
. a Sell Order, which is the principal amount of Outstanding Series
2000-1 Notes, if any, held by the existing holder which the
existing holder offers to sell without regard to the Auction Rate
for the next succeeding auction period; and
. one or more broker-dealers may contact potential holders to determine
the principal
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amount of Series 2000-1 Notes which each potential holder offers to
purchase, if the Auction Rate for the next succeeding auction period
will not be less than the rate per annum specified by the potential
holder, which also constitutes a Bid.
Each Hold Order, Bid and Sell Order will be an Order. Each existing holder
and each potential holder placing an Order is referred to as a Bidder.
Subject to the provisions of the second supplemental indenture described
below under "Validity of Orders," a Bid by an existing holder will constitute an
irrevocable offer to sell:
. the principal amount of Outstanding Series 2000-1 Notes specified in
the Bid if the Auction Rate will be less than the rate specified in
the Bid;
. the principal amount or a lesser principal amount of Outstanding
Series 2000-1 Notes to be determined as described below in "Acceptance
and Rejection of Orders," if the Auction Rate will be equal to the
rate specified in the Bid; or
. the principal amount or a lesser principal amount of Outstanding
Series 2000-1 Notes to be determined as described below under
"Acceptance and Rejection of Orders," if the rate specified therein
will be higher than the maximum auction rate and Sufficient Bids, as
defined below, have not been made.
Subject to the provisions of the second supplemental indenture described
below under "Validity of Orders," a Sell Order by an existing holder will
constitute an irrevocable offer to sell:
. the principal amount of Outstanding Series 2000-1 Notes specified in
the Sell Order; or
. the principal amount or a lesser principal amount of Outstanding
Series 2000-1 Notes as described below under "Acceptance and Rejection
of Orders," if Sufficient Bids have not been made.
Subject to the provisions of the second supplemental indenture described
below under "Validity of Orders," a Bid by a potential holder will constitute an
irrevocable offer to purchase:
. the principal amount of Outstanding Series 2000-1 Notes specified in
the Bid if the Auction Rate will be higher than the rate specified in
the Bid; or
. the principal amount or a lesser principal amount of Outstanding
Series 2000-1 Notes as described below in "Acceptance and Rejection of
Orders," if the Auction Rate is equal to the rate specified in the
Bid.
Each broker-dealer will submit in writing to the auction agent prior to the
Submission Deadline on each auction date all Orders obtained by the broker-
dealer and will specify with respect to each Order:
. the name of the Bidder placing the Order;
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<PAGE>
. the aggregate principal amount of Series 2000-1 Notes that are the
subject of the Order;
. to the extent that the Bidder is an existing holder: (a) the principal
amount of Series 2000-1 Notes, if any, subject to any Hold Order
placed by the existing holder; (b) the principal amount of Series
2000-1 Notes, if any, subject to any Bid placed by the existing holder
and the rate specified in the Bid; and (c) the principal amount of
Series 2000-1 Notes, if any, subject to any Sell Order placed by the
existing holder; and
. to the extent the Bidder is a potential holder, the rate specified in
the potential holder's Bid.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the auction agent will round the rate up to the next
highest .001%.
If an Order or Orders covering all Outstanding Series 2000-1 Notes held by
any existing holder are not submitted to the auction agent prior to the
Submission Deadline, the auction agent will deem a Hold Order to have been
submitted on behalf of the existing holder covering the principal amount of
Outstanding Series 2000-1 Notes held by the existing holder and not subject to
an Order submitted to the auction agent.
Neither EdLinc, the trustee nor the auction agent will be responsible for
any failure of a broker-dealer to submit an Order to the auction agent on behalf
of any existing holder or potential holder.
An existing holder may submit multiple Orders, of different types and
specifying different rates, in an auction with respect to Series 2000-1 Notes
then held by the existing holder. An existing holder that offers to purchase
additional Series 2000-1 Notes is, for purposes of that offer, treated as a
potential holder.
Any Bid specifying a rate higher than the maximum auction rate will:
. be treated as a Sell Order if submitted by an existing holder; and
. not be accepted if submitted by a potential holder.
Validity of Orders
If any existing holder submits through a broker-dealer to the auction agent
one or more Orders covering in the aggregate more than the principal amount of
Outstanding Series 2000-1 Notes held by the existing holder, the Orders will be
considered valid as follows and in the order of priority described below.
Hold Orders. All Hold Orders will be considered valid, but only up to
---- ------
the aggregate principal amount of Outstanding Series 2000-1 Notes held by
the existing holder, and if the aggregate principal amount of Series 2000-1
Notes subject to these Hold Orders exceeds the aggregate principal amount
of Series 2000-1 Notes held by the existing holder, the
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<PAGE>
aggregate principal amount of Series 2000-1 Notes subject to each Hold
Order will be reduced pro rata so that the aggregate principal amount of
Series 2000-1 Notes subject to all these Hold Orders equals the aggregate
principal amount of Outstanding Series 2000-1 Notes held by the existing
holder.
Bids. Any Bid will be considered valid up to an amount equal to the
----
excess of the principal amount of Outstanding Series 2000-1 Notes held by
the existing holder over the aggregate principal amount of Series 2000-1
Notes subject to any Hold Orders referred to above. Subject to the
preceding sentence, if multiple Bids with the same rate are submitted on
behalf of the existing holder and the aggregate principal amount of
Outstanding Series 2000-1 Notes subject to these Bids is greater than the
excess, these Bids will be considered valid up to an amount equal to the
excess. Subject to the two preceding sentences, if more than one Bid with
different rates is submitted on behalf of the existing holder, these Bids
will be considered valid first in the ascending order of their respective
rates until the highest rate is reached at which the excess exists and then
at the rate up to the amount of the excess. In any event, the aggregate
principal amount of Outstanding Series 2000-1 Notes, if any, subject to
Bids not valid under the provisions described above will be treated as the
subject of a Bid by a potential holder at the rate specified in those Bids.
Sell Orders. All Sell Orders will be considered valid up to an amount
---- ------
equal to the excess of the principal amount of Outstanding Series 2000-1
Notes held by the existing holder over the aggregate principal amount of
Series 2000-1 Notes subject to valid Hold Orders and valid Bids as referred
to above.
If more than one Bid for Series 2000-1 Notes is submitted on behalf of any
potential holder, each Bid submitted will be a separate Bid with the rate and
principal amount specified in that Bid. Any Bid or Sell Order submitted by an
existing holder covering an aggregate principal amount of Series 2000-1 Notes
not equal to an authorized denomination or an integral multiple thereof will be
rejected and will be deemed a Hold Order. Any Bid submitted by a potential
holder covering an aggregate principal amount of Series 2000-1 Notes not equal
to an authorized denomination or an integral multiple thereof will be rejected.
Any Order submitted in an auction by a broker-dealer to the auction agent prior
to the Submission Deadline on any auction date will be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid pursuant
to the procedures described above is referred to as a Submitted Hold Order, a
Submitted Bid and a Submitted Sell Order, respectively, and, collectively,
Submitted Orders.
Determination of Sufficient Bids and Bid Auction Rate
Not earlier than the Submission Deadline on each auction date, the auction
agent will assemble all valid Submitted Orders and will determine:
(a) the Available Series 2000-1 Notes, which is the excess of the
total principal amount of Outstanding Series 2000-1 Notes over the sum of
the aggregate principal amount of Outstanding Series 2000-1 Notes subject
to Submitted Hold Orders; and
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<PAGE>
(b) from the Submitted Orders whether the aggregate principal amount
of Outstanding Series 2000-1 Notes subject to Submitted Bids by potential
holders specifying one or more rates equal to or lower than the maximum
auction rate exceeds or is equal to the sum of
(1) the aggregate principal amount of Outstanding Series 2000-1
Notes subject to Submitted Bids by existing holders specifying one or
more rates higher than the maximum auction rate and
(2) the aggregate principal amount of Outstanding Series 2000-1
Notes subject to Submitted Sell Orders,
if this excess or equality exists other than because all of the Outstanding
Series 2000-1 Notes are subject to Submitted Hold Orders, the Submitted
Bids by potential holders above will be referred to collectively as
Sufficient Bids; and
(c) if Sufficient Bids exist, the Bid Auction Rate, which will be the
lowest rate specified in the Submitted Bids such that if:
(1) each Submitted Bid from existing holders specifying the
lowest rate and all other Submitted Bids from existing holders
specifying lower rates were rejected, thus entitling the existing
holders to continue to hold the principal amount of Series 2000-1
Notes subject to the Submitted Bids; and
(2) each Submitted Bid from potential holders specifying the
lowest rate and all other Submitted Bids from potential holders
specifying lower rates, were accepted,
the result would be that the existing holders described in subparagraph
(c)(1) above would continue to hold an aggregate principal amount of
Outstanding Series 2000-1 Notes which, when added to the aggregate
principal amount of Outstanding Series 2000-1 Notes to be purchased by the
potential holders described in subparagraph (c)(2) above would equal not
less than the Available Series 2000-1 Notes.
Determination of Auction Rate and Series 2000-1 Note Auction Rate; Notice
Promptly after the auction agent has made the determinations described
above, the auction agent is to advise the trustee of the maximum auction rate
and the all hold rate and the components of each on the auction date and, based
on these determinations, the Auction Rate for the next succeeding interest
period as follows:
. if Sufficient Bids exist, that the Auction Rate for the next
succeeding interest period will be equal to the Bid Auction Rate so
determined:
. if Sufficient Bids do not exist, other than because all of the
Outstanding Series 2000-1 Notes are subject to Submitted Hold Orders,
that the Auction Rate for the next succeeding interest period will be
equal to the maximum auction rate; or:
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<PAGE>
. if all Outstanding Series 2000-1 Notes are subject to Submitted Hold
Orders, that the Auction Rate for the next succeeding interest period
will be equal to the all hold rate.
Promptly after the auction agent has determined the Auction Rate, the
auction agent will determine and advise the trustee of the Series 2000-1 Note
auction rate, which rate will be the lesser of (a) the Auction Rate, (b) the Net
Loan Rate, and (c) 18% per annum, which is the Series 2000-1 Note Auction Rate
Limitation.
Acceptance and Rejection of Orders
Existing holders will continue to hold the principal amount of Series 2000-
1 Notes that are subject to Submitted Hold Orders. If Sufficient Bids, as
described above under "Determination of Sufficient Bids and Bid Auction Rate,"
have been received by the auction agent, the Bid Auction Rate will be the
Auction Rate, and Submitted Bids and Submitted Sell Orders will be accepted or
rejected and the auction agent will take other action as provided in the second
supplemental indenture and described below under "Sufficient Bids."
If the auction agent has not received Sufficient Bids as described above
under "Determination of Sufficient Bids and Bid Auction Rate," other than
because all of the Outstanding Series 2000-1 Notes are subject to Submitted Hold
Orders, the Auction Rate will be the maximum auction rate, and Submitted Orders
will be accepted or rejected and the auction agent will take other action as
described below under "Insufficient Bids."
Sufficient Bids. If Sufficient Bids have been made, all Submitted Sell
---------- ----
Orders will be accepted and, subject to the denomination requirements
described below, Submitted Bids will be accepted or rejected as follows in
the following order of priority and all other Submitted Bids will be
rejected:
(a) Existing holders' Submitted Bids specifying any rate that is
higher than the Auction Rate will be accepted, thus requiring each of
these existing holders to sell the aggregate principal amount of
Series 2000-1 Notes subject to their Submitted Bids;
(b) Existing holders' Submitted Bids specifying any rate that is
lower than the Bid Auction Rate will be rejected, thus entitling each
of these existing holders to continue to hold the aggregate principal
amount of Series 2000-1 Notes subject to their Submitted Bids;
(c) Potential holders' Submitted Bids specifying any rate that
is lower than the Bid Auction Rate will be accepted;
(d) Each existing holder's Submitted Bid specifying a rate that
is equal to the Bid Auction Rate will be rejected, thus entitling the
existing holder to continue to hold the aggregate principal amount of
Series 2000-1 Notes subject to the Submitted Bid, unless the aggregate
principal amount of Series 2000-1 Notes subject to these Submitted
Bids will be greater than the remaining principal amount, which is the
principal amount of Series 2000-1 Notes equal to the excess of the
Available Series
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<PAGE>
2000-1 Notes over the aggregate principal amount of Series 2000-1
Notes subject to Submitted Bids described in subparagraphs (b) and (c)
above, in which event the Submitted Bid of the existing holder will be
rejected in part and the existing holder will be entitled to continue
to hold the principal amount of Series 2000-1 Notes subject to the
Submitted Bid, but only in an amount equal to the aggregate principal
amount of Series 2000-1 Notes obtained by multiplying the remaining
principal amount by a fraction, the numerator of which will be the
principal amount of Outstanding Series 2000-1 Notes held by the
existing holder subject to the Submitted Bid and the denominator of
which will be the sum of the principal amount of Outstanding Series
2000-1 Notes subject to Submitted Bids made by all existing holders
that specified a rate equal to the Bid Auction Rate; and
(e) Each potential holder's Submitted Bid specifying a rate that
is equal to the Bid Auction Rate will be accepted, but only in an
amount equal to the principal amount of Series 2000-1 Notes obtained
by multiplying the excess of the aggregate principal amount of
Available Series 2000-1 Notes over the aggregate principal amount of
Series 2000-1 Notes subject to Submitted Bids described in
subparagraphs (b), (c) and (d) above by a fraction, the numerator of
which will be the aggregate principal amount of Outstanding Series
2000-1 Notes subject to the Submitted Bid and the denominator of which
will be the sum of the principal amount of Outstanding Series 2000-1
Notes subject to Submitted Bids made by all potential holders that
specified a rate equal to the Bid Auction Rate.
Insufficient Bids. If Sufficient Bids have not been made, other than
------------ ----
because all of the Outstanding Series 2000-1 Notes are subject to Submitted
Hold Orders, subject to the denomination requirements described below,
Submitted Orders will be accepted or rejected as follows in the following
order of priority and all other Submitted Bids will be rejected:
(a) existing holders' Submitted Bids specifying any rate that is
equal to or lower than the maximum auction rate will be rejected, thus
entitling the existing holders to continue to hold the aggregate
principal amount of Series 2000-1 Notes subject to the Submitted Bids;
(b) potential holders' Submitted Bids (1) specifying any rate
that is equal to or lower than the maximum auction rate will be
accepted, and (2) specifying any rate that is higher than the maximum
auction rate will be rejected; and
(c) each existing holder's Submitted Bid specifying any rate
that is higher than the maximum auction rate and the Submitted Sell
Order of each existing holder will be accepted, thus entitling each
existing holder that submitted any Submitted Bid or Submitted Sell
Order to sell the Series 2000-1 Notes subject to the Submitted Bid or
Submitted Sell Order, but in both cases only in an amount equal to the
aggregate principal amount of Series 2000-1 Notes obtained by
multiplying the aggregate principal amount of Series 2000-1 Notes
subject to Submitted Bids described in subparagraph (b)(1) above by a
fraction, the numerator of which will be the aggregate principal
amount of Outstanding Series 2000-1 Notes held by the existing holder
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subject to the Submitted Bid or Submitted Sell Order and the
denominator of which will be the aggregate principal amount of
Outstanding Series 2000-1 Notes subject to all these Submitted Bids
and Submitted Sell Orders.
All Hold Orders. If all Outstanding Series 2000-1 Notes are subject
--- ---- ------
to Submitted Hold Orders, all Submitted Bids will be rejected.
Authorized Denominations Requirement. If, as a result of the
---------- ------------- -----------
procedures described above regarding Sufficient Bids and Insufficient Bids,
any existing holder would be entitled or required to sell, or any potential
holder would be entitled or required to purchase, a principal amount of
Series 2000-1 Notes that is not equal to an authorized denomination or an
integral multiple thereof, the auction agent will, in such manner as in its
sole discretion it may determine, round up or down the principal amount of
Series 2000-1 Notes to be purchased or sold by any existing holder or
potential holder so that the principal amount of Series 2000-1 Notes
purchased or sold by each existing holder or potential holder will be equal
to an authorized denomination or an integral multiple thereof. If, as a
result of the procedures described above regarding Insufficient Bids, any
potential holder would be entitled or required to purchase less than a
principal amount of Series 2000-1 Notes equal to an authorized denomination
or any integral multiple thereof, the auction agent will, in such manner as
in its sole discretion it may determine, allocate Series 2000-1 Notes for
purchase among potential holders so that only Series 2000-1 Notes in an
authorized denomination or any integral multiple thereof are purchased by
any potential holder, even if this allocation results in one or more of the
potential holders not purchasing any Series 2000-1 Notes.
Based on the results of each auction, the auction agent is to determine the
aggregate principal amount of Series 2000-1 Notes to be purchased and the
aggregate principal amount of Series 2000-1 Notes to be sold by potential
holders and existing holders on whose behalf each broker-dealer submitted Bids
or Sell Orders and, with respect to each broker-dealer, to the extent that the
aggregate principal amount of Series 2000-1 Notes to be sold differs from the
aggregate principal amount of Series 2000-1 Notes to be purchased, determine to
which other broker-dealer or broker-dealers acting for one or more purchasers
the broker-dealer will deliver, or from which broker-dealers acting for one or
more sellers the broker-dealer will receive, as the case may be, Series 2000-1
Notes.
Any calculation by the auction agent, or the trustee, if applicable, of the
Series 2000-1 Note auction rate, one-month LIBOR, three-month LIBOR, the maximum
auction rate, the all hold rate and the non-payment rate, and any calculation by
EdLinc or the Servicer of the Net Loan Rate, will, in the absence of manifest
error, be binding on all other parties.
Notwithstanding anything in the second supplemental indenture to the
contrary, no auction is to be held on any auction date during the continuance of
a payment default.
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Settlement Procedures
The auction agent is required to advise each broker-dealer that submitted
an Order in an auction of the Series 2000-1 Note auction rate for the next
interest period and, if the Order was a Bid or Sell Order, whether the Bid or
Sell Order was accepted or rejected, in whole or in part, by telephone not later
than 3:00 p.m., New York City time, on the auction date, if the Series 2000-1
Note auction rate is the Auction Rate, and not later than 4:00 p.m., New York
City time, on the auction date, if the Series 2000-1 Note auction rate is the
Net Loan Rate. Each broker-dealer that submitted an Order on behalf of a Bidder
is required to then advise the Bidder of the Series 2000-1 Note auction rate for
the next interest period and, if the Order was a Bid or a Sell Order, whether
the Bid or Sell Order was accepted or rejected, in whole or in part, confirm
purchases and sales with each Bidder purchasing or selling Series 2000-1 Notes
as a result of the auction and advise each Bidder purchasing or selling Series
2000-1 Notes as a result of the auction to give instructions to its Participant
to pay the purchase price against delivery of the Series 2000-1 Notes or to
deliver the Series 2000-1 Notes against payment therefor, as appropriate.
Pursuant to the auction agent agreement, the auction agent is to record each
transfer of Series 2000-1 Notes on the existing holders Registry to be
maintained by the auction agent.
In accordance with DTC's normal procedures, on the business day after the
auction date, the transactions described above will be executed through DTC, so
long as DTC is the Securities Depository, and the accounts of the respective
Participants at DTC will be debited and credited and Series 2000-1 Notes
delivered as necessary to effect the purchases and sales of Series 2000-1 Notes
as determined in the auction. Purchasers are required to make payment through
their Participants in same-day funds to DTC against delivery through their
Participants. DTC will make payment in accordance with its normal procedures,
which now provide for payment against delivery by its Participants in
immediately available funds.
If any existing holder selling Series 2000-1 Notes in an auction fails to
deliver the Series 2000-1 Notes, the broker-dealer of any person that was to
have purchased Series 2000-1 Notes in the auction may deliver to the person a
principal amount of Series 2000-1 Notes that is less than the principal amount
of Series 2000-1 Notes that otherwise was to be purchased by the person but in
any event equal to an authorized denomination or any integral multiple thereof.
In that event, the principal amount of Series 2000-1 Notes to be delivered will
be determined by the broker-dealer. Delivery of this lesser principal amount of
Series 2000-1 Notes will constitute good delivery. Neither the trustee nor the
auction agent will have any responsibility or liability with respect to the
failure of a potential holder, existing holder or their respective broker-dealer
or Participant to deliver the principal amount of Series 2000-1 Notes or to pay
for the Series 2000-1 Notes purchased or sold pursuant to an auction or
otherwise. For a further description of the settlement procedures, see Appendix
II to this prospectus supplement -- "Settlement Procedures."
Trustee Not Responsible for Auction Agent, Market Agent and Broker-Dealers
The trustee shall not be liable or responsible for the actions of or
failure to act by the auction agent, the market agent or any broker-dealer under
the second supplemental indenture, the auction agent agreement or any broker-
dealer agreement. The trustee may conclusively rely upon any information
required to be furnished by the auction agent, the market agent or any broker-
I-13
<PAGE>
dealer without undertaking any independent review or investigation of the truth
or accuracy of the information.
Changes in Auction Terms
Changes in Auction Period or Periods
While any of the Series 2000-1 Notes are Outstanding, EdLinc may, from time
to time, change the length of one or more auction periods, referred to as an
auction period adjustment, in order to conform with then-current market practice
with respect to similar securities or to accommodate economic and financial
factors that may affect or be relevant to the length of the auction period and
the interest rate borne by the Series 2000-1 Notes. EdLinc will not initiate a
change in the length of the auction period unless it shall have received, not
less than three days nor more than 20 days prior to the effective date of an
auction period adjustment the written consent of the market agent, which consent
shall not be unreasonably withheld, and written confirmation from each of the
Rating Agencies then rating the Series 2000-1 Notes that the auction period
adjustment will not adversely affect its ratings then applicable to any of the
Series 2000-1 Notes. EdLinc will initiate an auction period adjustment by giving
written notice to the trustee, the auction agent, the market agent and the
Securities Depository in substantially the form of, or containing substantially
the information contained in, the second supplemental indenture at least ten
days prior to the auction date for that auction period.
No auction period adjustment shall result in an auction period of less than
seven days nor more than 91 days. If any auction period adjustment will result
in an auction period of less than 28 days, the notice described above will be
effective only if it is accompanied by a written statement of the trustee, the
auction agent and the Securities Depository to the effect that they are capable
of performing their duties, if any, under the second supplemental indenture, the
auction agent agreement and any broker-dealer agreement with respect to the
changed auction period.
An auction period adjustment will take effect only if (A) the trustee and
the auction agent receive, by 11:00 a.m., New York City time, on the business
day before the auction date for the first auction period, a certificate from
EdLinc authorizing an auction period adjustment specified in the certificate,
the consent of the market agent and the rating agency confirmations described
above and, if applicable, the written statement of the trustee, the auction
agent and the Securities Depository described above, and (B) Sufficient Bids
exist at the auction on the auction date for that first auction period. If the
condition referred to in (A) is not met, the Series 2000-1 Note auction rate
applicable for the next auction period will be determined pursuant to the
auction procedures and the auction period will be the auction period determined
without reference to the proposed change. If the condition referred to in (A) is
met, but the condition referred to in (B) above is not met, the Series 2000-1
Note auction rate applicable for the next auction period will be the lesser of
the maximum auction rate and the Net Loan Rate and the auction period will be
the auction period determined without reference to the proposed change.
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<PAGE>
Changes in the Auction Date
The market agent, with the written consent of an authorized officer of
EdLinc, may specify an earlier auction date, but in no event more than five
business days earlier, than the auction date that would otherwise be determined
in accordance with the definition of auction date set forth above under "Auction
Procedures--General," with respect to one or more specified auction periods in
order to conform with then-current market practice with respect to similar
securities or to accommodate economic and financial factors that may affect or
be relevant to the day of the week constituting an auction date and the interest
rate on the Series 2000-1 Notes. The market agent shall deliver a written
request for consent to the change in the auction date to EdLinc not less than
three days nor more than 20 days prior to the effective date of the change. The
market agent shall provide notice of its determination to specify an earlier
auction date for one or more auction periods by means of a written notice
delivered at least 10 days prior to the proposed changed auction date to the
trustee, the auction agent, EdLinc and the Securities Depository.
The changes in auction terms described above may be made with respect to
each series of the Series 2000-1 Notes. In connection with any change in auction
terms described above, the auction agent is to provide further notice to those
parties as is specified in the auction agent agreement.
I-15
<PAGE>
Appendix II
SETTLEMENT PROCEDURES
If not otherwise defined below, capitalized terms used below will have
the meanings given the terms in"Glossary of Principal Definitions" in the
prospectus or in Appendix I to this prospectus supplement -- "Auction of the
Series 2000-1 Notes." These Settlement Procedures apply separately to each
series of Series 2000-1 Notes.
(a) Not later than (A) 3:00 p.m., New York City time, if the Series
2000-1 Note auction rate is the Auction Rate or (B) 4:00 p.m., New York City
time, if the Series 2000-1 Note auction rate is the Net Loan Rate, the auction
agent is to notify by telephone each broker-dealer that participated in the
auction held on the auction date and submitted an Order on behalf of an existing
holder or potential holder of:
(1) the Series 2000-1 Note auction rate fixed for the next interest
period;
(2) whether there were Sufficient Bids in the auction;
(3) if the broker-dealer submitted Bids or Sell Orders on behalf of
an existing holder, and is, therefore, a Seller's Broker-Dealer, whether
the Bid or Sell Order was accepted or rejected, in whole or in part, and
the principal amount of Series 2000-1 Notes, if any, to be sold by the
existing holder;
(4) if the broker-dealer submitted a Bid on behalf of a potential
holder, and is, therefore, a Buyer's Broker-Dealer, whether the Bid was
accepted or rejected, in whole or in part, and the principal amount of
Series 2000-1 Notes, if any, to be purchased by the potential holder;
(5) if the aggregate principal amount of Series 2000-1 Notes to be
sold by all existing holders on whose behalf the Seller's Broker-Dealer
submitted Bids or Sell Orders exceeds the aggregate principal amount of
Series 2000-1 Notes to be purchased by all potential holders on whose
behalf the Buyer's Broker-Dealer submitted a Bid, the name or names of
one or more Buyer's Broker-Dealers, and the name of the Participant, if
any, of each Buyer's Broker-Dealer, acting for one or more purchasers of
the excess principal amount of Series 2000-1 Notes and the principal
amount of Series 2000-1 Notes to be purchased from one or more existing
holders on whose behalf the Seller's Broker-Dealer acted by one or more
potential holders on whose behalf each of the Buyer's Broker-Dealers
acted;
(6) if the aggregate principal amount of Series 2000-1 Notes
to be purchased by all potential holders on whose behalf the Buyer's
Broker-Dealer submitted a Bid exceeds the aggregate principal of Series
2000-1 Notes to be sold by all existing holders on whose behalf the
Seller's Broker-Dealer submitted a Bid or a Sell Order, the name or
names of one or more Seller's Broker-Dealers, and the name of the
Participant, if any, of each Seller's Broker-Dealer, acting for one or
more sellers of the excess principal amount of Series 2000-1 Notes and
the principal amount of Series 2000-1 Notes to be sold to one or
II-1
<PAGE>
more potential holders on whose behalf the Buyer's Broker-Dealer acted by
one or more existing holders on whose behalf each of the Seller's Broker-
Dealers acted; and
(7) the auction date for the next succeeding auction.
(b) On each auction date, each broker-dealer that submitted an Order on
behalf of any existing holder or potential holder is to:
(1) advise each existing holder and potential holder on whose
behalf the broker-dealer submitted a Bid or Sell Order in the auction on
the auction date whether the Bid or Sell Order was accepted or rejected, in
whole or in part;
(2) in the case of a broker-dealer that is a Buyer's Broker-Dealer,
advise each potential holder on whose behalf the Buyer's Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct the
potential holder's Participant to pay to the Buyer's Broker-Dealer, or its
Participant, through the Securities Depository the amount necessary to
purchase the principal amount of the Series 2000-1 Notes to be purchased
pursuant to the Bid against receipt of the Series 2000-1 Notes;
(3) in the case of a broker-dealer that is a Seller's Broker-Dealer,
instruct each existing holder on whose behalf the Seller's Broker-Dealer
submitted a Sell Order that was accepted, in whole or in part, or a Bid
that was accepted, in whole or in part, to instruct the existing holder's
Participant to deliver to the Seller's Broker-Dealer, or its Participant,
through the Securities Depository the principal amount of the Series 2000-1
Notes to be sold pursuant to the Order against payment therefor;
(4) advise each existing holder on whose behalf the broker-dealer
submitted an Order and each potential holder on whose behalf the broker-
dealer submitted a Bid of the Series 2000-1 Note auction rate for the next
interest period;
(5) advise each existing holder on whose behalf the broker-dealer
submitted an Order of the next auction date; and
(6) advise each potential holder on whose behalf the broker-dealer
submitted a Bid that was accepted, in whole or in part, of the next auction
date.
(c) On the basis of the information provided to it pursuant to paragraph
(a) above, each broker-dealer that submitted a Bid or Sell Order in an auction
is required to allocate any funds received by it in connection with the auction
pursuant to paragraph (b)(2) above, and any Series 2000-1 Notes received by it
in connection with the auction pursuant to paragraph (b)(3) above, among the
potential holders, if any, on whose behalf the broker-dealer submitted Bids, the
existing holders, if any on whose behalf the broker-dealer submitted Bids or
Sell Orders in the auction, and any broker-dealers identified to it by the
auction agent following the auction pursuant to paragraph (a)(5) or (a)(6)
above.
II-2
<PAGE>
(d) On each auction date:
(1) each potential holder and existing holder with an Order in the
auction on the auction date will instruct its Participant as provided in
paragraph (b)(2) or (b)(3) above, as the case may be:
(2) each Seller's Broker-Dealer that is not a Participant of the
Securities Depository will instruct its Participant to deliver the Series
2000-1 Notes through the Securities Depository to a Buyer's Broker-Dealer,
or its Participant, identified to the Seller's Broker-Dealer pursuant to
paragraph (a)(5) above against payment therefor; and
(3) each Buyer's Broker-Dealer that is not a Participant of the
Securities Depository will instruct its Participant to pay through the
Securities Depository to Seller's Broker-Dealer, or its Participant,
identified following the auction pursuant to paragraph (a)(6) above the
amount necessary to purchase the Series 2000-1 Notes to be purchased
pursuant to paragraph (b)(2) above against receipt of the Series 2000-1
Notes.
(e) On the business day following each auction date:
(1) each Participant for a Bidder in the auction on the auction date
referred to in paragraph (d)(1) above will instruct the Securities
Depository to execute the transactions described under paragraph (b)(2) or
(b)(3) above for the auction, and the Securities Depository will execute
these transactions;
(2) each Seller's Broker-Dealer or its Participant will instruct the
Securities Depository to execute the transactions described in paragraph
(d)(2) above for the auction, and the Securities Depository will execute
these transactions; and
(3) each Buyer's Broker-Dealer or its Participant will instruct the
Securities Depository to execute the transactions described in paragraph
(d)(3) above for the auction, and the Securities Depository will execute
these transactions.
(f) If an existing holder selling Series 2000-1 Notes in an auction fails
to deliver the Series 2000-1 Notes, by authorized book-entry, a broker-dealer
may deliver to the potential holder on behalf of which it submitted a Bid that
was accepted a principal amount of Series 2000-1 Notes that is less than the
principal amount of Series 2000-1 Notes that otherwise was to be purchased by
the potential holder. In that event, the principal amount of Series 2000-1 Notes
to be so delivered will be determined solely by the broker-dealer. Delivery of
this lesser principal amount of Series 2000-1 Notes will constitute good
delivery. Notwithstanding the foregoing terms of this paragraph (f), any
delivery or nondelivery of Series 2000-1 Notes which will represent any
departure from the results of an auction, as determined by the auction agent,
will be of no effect unless and until the auction agent will have been notified
of the delivery or nondelivery in accordance with the provisions of the auction
agent agreement and the broker-dealer agreements. Neither the trustee nor the
auction agent will have any responsibility or liability with respect to the
failure of a potential holder, existing holder or their respective broker-dealer
or Participant to take delivery of or deliver, as the case may be, the principal
amount of the Series 2000-1 Notes purchased or sold pursuant to an auction or
otherwise.
II-3
<PAGE>
Prospectus
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Notes
Consider carefully the risk factors beginning on page 4 in this prospectus.
The notes will represent obligations of EdLinc only and will not represent
interests in or obligations of the servicer, the transferor or any of their
affiliates. The notes are not a deposit and are not insured or guaranteed by any
person. Except as noted in this document and the accompanying prospectus
supplement, the underlying accounts and student loans are not insured or
guaranteed by any governmental agency.
This prospectus may be used to offer and sell any series of notes only if
accompanied by the prospectus supplement for that series.
EdLinc:
------
. may issue periodically student loan asset-backed notes in one or more
series with one or more classes, all of which will be part of a single
issue of notes.
The Notes:
--- -----
. will be secured by the student loans and other assets of EdLinc that are
acquired with the proceeds of the notes;
. will be rated in one of the four highest rating categories by at least one
nationally recognized rating organization;
. may have one or more forms of credit enhancement; and
. will be issued as part of a designated series, but each series of notes
will be a part of the same issue of notes.
The Noteholders:
--- -----------
. will receive interest and principal payments from collections on the assets
securing the notes; and
. will have the same right to be paid from the assets securing the notes as
all other noteholders of the same class, including noteholders of other
series, except in those cases where a form of credit enhancement has been
provided only for the notes of a particular series.
Neither the SEC nor any state securities commission has approved these
notes or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
November 28, 2000
<PAGE>
Important Notice About Information Presented In This
Prospectus And The Accompanying Prospectus Supplement
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. EdLinc has not authorized anyone to provide you with different
information. The notes are not offered in any state where the offer is not
permitted.
EdLinc has included cross-references in this prospectus to captions in
this prospectus or the accompanying prospectus supplement where you can find
further related discussions. These cross-references are to sections contained in
this prospectus unless you are told otherwise. The following table of contents
and the table of contents included in the accompanying prospectus supplement
provide the pages on which the captions are located.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS................................................................................. 4
USE OF PROCEEDS.............................................................................. 13
EDLINC....................................................................................... 13
THE TRANSFEROR............................................................................... 13
THE SERVICER................................................................................. 14
MATURITY AND PREPAYMENT CONSIDERATIONS....................................................... 14
DESCRIPTION OF FINANCING OF ELIGIBLE LOANS................................................... 16
Description of Eligible Loans to be Financed............................................... 16
Transfer Agreements........................................................................ 17
Student Loan Purchase Agreements........................................................... 18
Servicing and "Due Diligence".............................................................. 19
DESCRIPTION OF THE FFEL PROGRAM.............................................................. 19
General.................................................................................... 19
Loan Terms................................................................................. 20
Contracts with Guarantee Agencies.......................................................... 32
Federal Special Allowance Payments......................................................... 37
Federal Student Loan Insurance Fund........................................................ 38
Direct Loans............................................................................... 39
DESCRIPTION OF THE GUARANTEE AGENCIES........................................................ 39
General.................................................................................... 39
Department of Education Oversight.......................................................... 40
Federal Agreements......................................................................... 41
Effect of Annual Claims Rate............................................................... 42
1998 Reauthorization Amendments............................................................ 43
DESCRIPTION OF THE ALTERNATIVE LOAN PROGRAMS................................................. 46
DESCRIPTION OF THE NOTES..................................................................... 47
General.................................................................................... 47
General Terms of Notes..................................................................... 48
Issuance of Notes.......................................................................... 48
Comparative Security of Noteholders and Other Beneficiaries................................ 49
Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement...................... 49
Interest................................................................................... 50
Principal.................................................................................. 51
Determination of LIBOR..................................................................... 51
Auction Procedures......................................................................... 52
Book-Entry Registration.................................................................... 54
Definitive Notes........................................................................... 59
Denomination and Payment................................................................... 59
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES................................................. 60
General.................................................................................... 60
Additional Indenture Obligations........................................................... 61
Priorities................................................................................. 62
DESCRIPTION OF THE SLFC SERVICING AGREEMENT.................................................. 62
General.................................................................................... 62
Acquisition Process........................................................................ 63
Origination Process........................................................................ 63
Servicing.................................................................................. 63
Right of Inspection and Audits............................................................. 64
Administration and Management.............................................................. 64
Servicing Fees............................................................................. 65
Sub-Servicers.............................................................................. 65
Term and Termination....................................................................... 66
DESCRIPTION OF THE INDENTURE................................................................. 66
General.................................................................................... 66
Funds and Accounts......................................................................... 66
Pledge; Encumbrances....................................................................... 80
Covenants.................................................................................. 81
No Petition................................................................................ 84
Investments................................................................................ 84
Reports to Noteholders..................................................................... 85
Events of Default.......................................................................... 85
Remedies................................................................................... 87
Application of Proceeds.................................................................... 90
Trustee.................................................................................... 91
Supplemental Indentures.................................................................... 92
Discharge of Notes and Indenture........................................................... 94
Notices to Noteholders..................................................................... 94
Rights of Other Beneficiaries.............................................................. 95
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES................................................ 95
Characterization of the Trust Estate....................................................... 96
Characterization of the Notes as Indebtedness.............................................. 95
United States Federal Income Tax Consequences to United States Holders..................... 97
United States Federal Income Tax Consequences to Non-United States Holders................. 99
Information Reporting and Back-up Withholding.............................................. 100
STATE TAX CONSIDERATIONS..................................................................... 102
ERISA CONSIDERATIONS......................................................................... 102
AVAILABLE INFORMATION........................................................................ 103
REPORTS TO NOTEHOLDERS....................................................................... 104
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................. 104
PLAN OF DISTRIBUTION......................................................................... 105
FINANCIAL INFORMATION........................................................................ 105
RATING....................................................................................... 105
GLOSSARY OF PRINCIPAL DEFINITIONS............................................................ I-1
</TABLE>
3
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the notes.
A secondary market for the The underwriters may assist in resales of the
they notes may not develop notes but they are not required to do so. A
which means you may have secondary market for the notes may not
trouble selling then when develop. If a secondary market does develop,
you want. it might not be sufficiently liquid to
allow you to resell any of your notes.
EdLinc will have limited EdLinc will have no assets or sources of funds
assets to pay principal and to pay principal or interest on the notes
interest, which could result other than the student loans acquired with
in delays in payment or proceeds of the notes and the other assets
losses on your notes. making up the trust estate. The notes are
obligations solely of EdLinc, and will not be
insured or guaranteed by the transferor, the
servicer, the guarantee agencies, the trustee
or any of their affiliates, or by the
Department of Education. Noteholders must rely
for repayment upon proceeds realized from the
student loans, credit enhancement, if any, and
other assets in the trust estate. See "Source
of Payment and Security for the Notes."
Failure by loan holders or The Higher Education Act requires loan holders
servicers to comply with and servicers to follow specified procedures
student loan origination to ensure that the FFELP loans are properly
and servicing procedures could originated and serviced. Failure to procedures
cause delays in payment or could result in:
losses on your notes.
. Loss of Reinsurance Payments, Interest
Subsidies and Special Allowance Payments.
The Department of Education's refusal to
make reinsurance payments to the guarantee
agencies or to make interest subsidy
payments and special allowance payments to
the trustee with respect to the FFELP
loans; and
. Loss of Guarantee Payments. The guarantee
agencies' inability or refusal to make
guarantee payments with respect to FFELP
loans.
Loss of any of these payments may adversely
affect EdLinc's ability to pay principal and
interest on the notes. See "Description of
Financing of Eligible Loans--Servicing and
"Due Diligence" and "Description of the FFEL
Program."
4
<PAGE>
Subordinated classes of If a class of notes is subordinated, interest and
notes face a higher risk of principal payments on a payment date on such class
delayed payments and losses. generally will be made only after each senior
class has received its interest and principal
entitlement on that payment date. Consequently, a
subordinated class will bear losses on the student
loans prior to such losses being borne by the more
senior classes. In addition, subordinated
noteholders may be limited in the legal remedies
that are available to them until the more senior
noteholders are paid in full. See "Source of
Payment and Security for the Notes--Priorities."
Additional notes may be EdLinc may, from time to time, issue additional
issued without your consent, notes or incur other obligations secured by the
which could affect the trust estate with out the consent or approval of
the make-up of the any existing noteholders. These notes make-up of
outstanding notes. the outstanding or other obligations may be senior
or subordinate to, or on a notes. parity with,
existing classes of notes in right of payment.
If there is a problem with a The transferor will purchase student loans from
loan that arose prior to its SLFC and will also originate student loans. The
acquisition by the trustee, transfer of the student loans from the transferor
the trust estate may incur to the trustee on behalf of EdLinc is without
losses on that loan unless recourse against the transferor. Neither EdLinc
the lender or SLFC nor the trustee will have any right to resell the
repurchases it because of a student loans to the transferor or otherwise to
breach of are presentation make recourse to or collect from the transferor if
or warranty. the student loans should fail to meet the
requirements of an eligible loan for any reason or
if the transfer should fail to provide the trustee
with good title to the student loans.
The lenders and SLFC, however, will have made
representations and warranties in the related
student loan purchase agreements in connection
with their sales of student loans to the
transferor or the trustee on behalf of EdLinc. If
those representations and warranties are breached
as to a given student loan, the applicable lender
or SLFC will be obligated to repurchase the
student loan. However, neither EdLinc nor the
transferor examines the documents relating to
FFELP loans to the extent necessary to determine
whether the selling lenders have met all of the
conditions necessary for such loans to qualify for
guarantee payments from the applicable guarantee
agency. Furthermore, the lender or SLFC may not
have the financial resources to repurchase any
student loan. Finally, these representations and
warranties will not cover any problem arising
after the sale of the student loan to the
transferor or the trustee on behalf of EdLinc that
was not caused by a breach of the representations
and warranties (such as a failure to service the
student loan properly).
The failure of a lender or SLFC to repurchase a
student loan is a
5
<PAGE>
breach of the related student loan purchase
agreement, enforceable by the trustee, but is not
an event of default, and would not permit the
exercise of remedies, under the indenture.
See "Description of Financing of Eligible Loans--
Student Loan Purchase Agreements."
Offset by guarantee The trustee will use a Department of Education
agencies or the lender identification number that is also being
Department of Education used for other student loans held by the trustee
could reduce the amounts on behalf of EdLinc and the transferor under other
available for payment of indentures, and which may also be used similarly
your notes. for SLFC or other entities established by SLFC.
The billings submitted to the Department of
Education will be consolidated with the billings
for payments for student loans under all of these
indentures, and payments on the billings will be
made by the Department of Education or the
guarantee agency to the trustee in lump sum form.
These payments will be allocated by the trustee
among the various indentures using the same lender
identification number.
If the Department of Education or a guarantee
agency determines that the trustee owes a
liability to the Department of Education or the
guarantee agency on any FFELP loan for which the
trustee is legal titleholder, the Department of
Education or the guarantee agency might seek to
collect that liability by offsetting against
payments due the trustee under the indenture for
the notes. This offsetting or shortfall of
payments due to the trustee could adversely affect
the amount of available funds for any collection
period and EdLinc's ability to pay interest and
principal on the notes.
Although the indenture contains provisions for
cross-indemnification with respect to such
payments and offsets, there can be no assurance
that the amount of funds available with respect to
such right of indemnification may be adequate to
compensate the indenture and noteholders for any
previous reduction in the available funds for a
collection period.
See "Description of the FFEL Program" and
"Description of the Guarantee Agencies."
6
<PAGE>
The financial health of the The FFELP loans are not secured by any collateral
the guarantee agencies could of borrower. Payments of principal and interest
decline, which could affect are guaranteed by guarantee agencies to the extent
the timing and amounts described herein and in the related prospectus
available for payment of supplement. Excessive borrower defaults could
your notes. impair a guarantee agency's ability to meet its
guarantee obligations. In addition, recently
enacted legislation is expected to reduce the
guarantee agencies' reserves under the FFEL
program. The financial health of a guarantee
agency could affect the timing and amount of
available funds for any collection period and
EdLinc's ability to pay principal of and interest
on your notes. Although a holder of FFELP loans
could submit claims for payment directly to the
Department of Education pursuant to section 432(o)
of the Higher Education Act if the Department
determines that a guarantee agency is unable to
meet its insurance obligations, there is no
assurance that the Department of Education would
make such a determination or that it would pay
claims in a timely manner. The trustee may receive
claim payments on FFELP loans directly from the
Department of Education under Section 432(o) if
such a determination is made. See "Description of
the FFEL Program" and "Description of the
Guarantee Agencies."
The FFEL program could The Higher Education Act and other relevant
change, which could federal or state laws may be amended or modified
adversely affect the loans in the future. In particular, the level of
and the timing of and guarantee payments may be adjusted from time to
amounts available for time. EdLinc cannot predict whether any changes
payment of your notes. will be adopted or, if so, what impact such
changes may have on EdLinc or your notes.
Increased competition The lenders that sell student loans to EdLinc and
from FFEL program the from transferor face competition from other
participants and the lenders and secondary markets that could decrease
Federal Direct Student the volume of eligible loans that could be
Loan Program could acquired by EdLinc and the transferor.
adversely affect the Additionally, the Higher Education Act provides
availability of loans,the for a Federal Direct Student Loan Program. This
cost of servicing,the value program could result in reductions in the volume
of loans and prepayment of loans made under the FFEL program. Reduced
expectations. volume in of loans and prepayment EdLinc's program
in particular and in the FFEL Program in
expectations. general may cause the servicer to
experience increased costs due to reduced
economies of scale. These cost increases could
reduce the ability of the servicer to satisfy its
obligations to service the student loans. This
could also reduce revenues received by the
guarantee agencies available to pay claims on
defaulted FFELP loans. The competition currently
existing in the secondary market for loans made
under the FFEL program also could be reduced,
resulting in fewer potential buyers of the FFELP
loans and lower prices available in the secondary
market for those loans.
7
<PAGE>
The Department of Education has implemented a
direct consolidation loan program, which may
reduce the volume of loans made under the FFEL
program and, together with consolidation loans
made by lenders in the FFEL program, is expected
to result in prepayments of student loans.
See "Description of the FFEL Program."
Prepayment of your notes The proceeds of each series of notes may include
with unspent proceeds may an amount to be deposited in the acquisition
create reinvestment risks. fund and used to acquire student loans over a
period of time after the closing date. If
the amount of student loans acquired by the
trustee on behalf of EdLinc during such period is
less than the full amount so funded, EdLinc will
prepay principal on notes of that series equal to
the difference plus any other related unspent
proceeds. See "Description of Financing of
Eligible Loans" and "Description of the
Indenture--Funds and Accounts-- Acquisition Fund."
Reinvestment risk and Student loans may be prepaid by borrowers at any
prepayments may reduce your time without penalty. The rate of prepayments
yield. may be influenced by economic and other factors,
such as interest rates, the availability of other
financing and the general job market. In
addition, under some circumstances, lenders or
SLFC may be obligated to repurchase student loans
from EdLinc pursuant to the student loan purchase
agreements as a result of breaches of their
representations and warranties. See "Description
of Financing of Eligible Loans--Transfer
Agreements" and " --Student Loan Purchase
Agreements."
To the extent borrowers elect to borrow money
through consolidation loans, the noteholders will
receive as a prepayment of principal the aggregate
principal amount of the loan.
If loan prepayments result in your note being
prepaid prior to its expected maturity, you may
not be able to reinvest your funds at the same
yield as the yield on the note. In addition, your
yield may be reduced if you purchased your note at
a premium and the principal is paid faster than
you expected, or if you purchased your note at a
discount and the principal is paid slower than you
expected. EdLinc cannot predict the prepayment
rate of any notes, and reinvestment risks or
reductions in yield resulting from a faster or
slower prepayment speed will be borne entirely by
you and the other holders.
The maturity of your Scheduled payments on the student loans and the
investment is uncertain. maturities of the student loans may be extended
without your consent, which may
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lengthen the weighted average life of your
investment. Prepayments of principal on the
student loans may shorten the life of your
investment. See "Maturity and Prepayment
Considerations."
The interest rates on The interest rate for any class of LIBOR rate
the notes are subject to notes will be based generally on the level of
limitations, which could LIBOR. The interest rate for any class of
reduce your yield. auction rate notes will be based generally on the
outcome of an auction of notes. The interest rate
for other classes of notes may be based on the
index, formula or other method described in the
related prospectus supplement. The student loans,
however, generally bear interest at the 91-day
U.S. Treasury Bill rate or at a rate based on 3-
month commercial paper rates, plus a stated
margin, except for some alternative loans which
bear interest at the prime rate or another
specified variable rate, plus a stated margin.
The foregoing interest rates on the notes of a
series generally will be limited by the net loan
rate for that series, which will generally equal
the weighted average effective interest rate of
the student loans financed under the indenture
less specified administrative costs for that
series. For an interest payment date on which the
net loan rate applies, the difference between the
amount of interest at the rate described above and
the amount of interest at the net loan rate will
be paid on succeeding interest payment dates to
the extent of available funds and may never be
paid.
See "Description of the Notes--Interest."
The interest rates on our Unspent proceeds of the notes and moneys in the
investments may be funds and accounts under the indenture will be
insufficient to cover invested at fluctuating interest rates.
interest on your notes. Although EdLinc will try to minimize this risk
by entering into investment agreements, there can
be no assurance that the interest rates at which
these proceeds and moneys are invested will equal
or exceed the interest rates on the notes.
The principal amount of The principal amount of notes issued by EdLinc may
the notes may exceed the exceed the principal amount of student loans and
principal amount of other assets in the trust estate held by the
assets in the trust estate, trustee under the indenture. If an event default
which could result in losses occurs and the assets in the trust estate are
on your notes if there was a liquidated, the student loans would have to be
liquidation. sold at a premium for the subordinated
noteholders and possibly the senior noteholders to
avoid a loss. EdLinc cannot predict the rate or
timing of accelerated payments of principal or
when the aggregate principal amount of the notes
may
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be reduced to the aggregate principal amount of
the student loans.
If the trustee is forced to Generally, during an event of default, the trustee
sell loans after an event of is authorized with noteholder consent to sell the
default, there could be related student loans. However, the trustee may
losses on your notes. not find a purchaser for the student loans.
Also, the market value of the student loans
plus other assets in the trust estate might not
equal the principal amount of notes plus accrued
interest. In either event, the noteholders may
suffer a loss.
Insolvency of the EdLinc has taken steps in structuring these
transferor or SLFC could transactions that are intended to ensure that the
cause delays in payment or voluntary or involuntary application for relief
losses on your notes. by the transferor or SLFC under the United States
Bankruptcy Code or other insolvency laws will not
result in consolidation of the assets and
liabilities of EdLinc with those of the transferor
and/or SLFC. However, there can be no assurance
that the activities of EdLinc would not result in
a court concluding that the assets and liabilities
of EdLinc should be consolidated with those of the
transferor or SLFC in a proceeding under any
insolvency law. If a court were to reach this
conclusion or if a filing were made under any
insolvency law by or against EdLinc, or if an
attempt were made to litigate any of the foregoing
issues, then delays in payments on the notes could
occur or reductions in the amounts of such
payments could result.
The transferor and SLFC will transfer student
loans to the trustee on behalf of EdLinc in
accordance with the applicable transfer agreement
or student loan purchase agreement. The transferor
and SLFC each intends that this transfer
constitute a sale, rather than a pledge to secure
indebtedness. If, however, the transferor or SLFC
were to become subject to any insolvency law and a
creditor or trustee-in-bankruptcy of the
transferor or SLFC were to take the position that
the sale of the student loans by the transferor or
SLFC to EdLinc, as appropriate, should instead be
treated as a pledge of the student loans to secure
a borrowing from EdLinc, delays in payments on the
notes from collections on student loans could
occur or reductions in the amounts of these
payments could result.
Bankruptcy of EdLinc EdLinc is a limited purpose finance subsidiary of
could result in accelerated SLFC. If EdLinc becomes bankrupt, the United
prepayment on your notes. States Bankruptcy Code could materially limit
or prevent the enforcement of EdLinc's
obligations, including its obligations under the
notes. EdLinc's trustee in bankruptcy or EdLinc
itself as debtor-in-possession may seek to
accelerate payment on the notes and liquidate the
assets held under the indenture. If principal on
the notes is declared due and payable, you may
lose the right to future payments and face
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reinvestment risks mentioned above.
Other parties may have or If any transfer of the student loans is deemed to
may obtain a superior be a secured financing, other persons may have
interest in loans. an interest in the loans prior to the trustee.
The servicer will have custody of the promissory
notes related to the FFELP loans, except where the
loan has been made under a master promissory note
retained by the lender. The student loans may not
be physically segregated in the servicer's or
other custodian's offices. If any interest in the
student loans were assigned to another party, that
person could acquire an interest in the student
loans superior to the interest of the trustee.
Application of consumer Consumer protection laws impose requirements upon
protection laws to the loans lenders and servicers. Some state laws impose
may increase costs and finance charge restrictions on some transactions
uncertainties about the and require contract disclosures. Furthermore,
loans. to the extent applicable, these laws can impose
specific statutory liabilities upon creditors who
fail to comply with their provisions and may
affect the enforceability of the loan. These state
laws are generally preempted by the Higher
Education Act. However, the form of promissory
notes required by the Department of Education for
FFELP loans provides that holders of such
promissory notes evidencing some loans made to
borrowers attending for-profit schools are subject
to any claims and legal defenses that the borrower
may have against the school. Alternative loan
programs would be subject to applicable state laws
regulating loans to consumers.
Book-entry registration Your notes may be represented by one or more
may limit your certificates registered in the name of Cede & Co.,
ability to participate the nominee for DTC, and will not be registered
directly as a holder. in your name if specified in the accompanying
prospectus supplement. If so, you will only be
able to exercise the rights of noteholders
indirectly through DTC and its participating
organizations. See "Description of the Notes--
Book-Entry Registration."
Credit ratings only address A rating agency will rate each note in one of its
a limited scope of four highest rating categories. A rating is not
your concerns. a recommendation to buy or sell notes or a
comment concerning suitability for any investor. A
rating only addresses the likelihood of the
ultimate payment of principal and stated interest
and does not address the likelihood of prepayments
on the notes or the likelihood of the payment of
carry-over amounts. A rating may not remain in
effect for the life of the
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notes. See "Rating" in this prospectus and in the
accompanying prospectus supplement.
EdLinc may enter into swap Under the indenture, EdLinc may enter into swap
agreements which could agreements if, among other things, the rating
result in delays in payment agencies will not reduce or withdraw the rating
or losses on your notes if on any notes. Swap agreements carry risks
the counterparty fails to relating to the credit quality of the
make its payments. counterparty and the enforceability of the
swap agreement. See "Source of Payment and
Security for the Notes--Additional Indenture
Obligations."
The composition and The eligible loans EdLinc intends to acquire with
characteristics of the loan proceeds of a series of notes on the closing
portfolio will continually date, together with any student loans previously
change, and loans that bear acquired under the indenture, will be described
a lower rate of return or in the prospectus supplement relating to such
have a greater risk of loss notes. A portion of the proceeds of the notes
may be acquired. may be deposited in the acquisition fund and used
to acquire eligible loans over a period of time
after the closing date. The characteristics of the
student loan portfolio included in the trust
estate will change from time to time as new
student loans are acquired and as a result of
amendments to the Higher Education Act, changes in
terms of alternative loan programs, sales or
exchanges of loans and scheduled amortization,
prepayments, delinquencies and defaults on the
loans. In addition, the indenture permits EdLinc
to use surplus moneys under the indenture to
acquire student loans, including loans that do not
qualify as eligible loans. Any student loans so
acquired that are not eligible loans may bear a
lower rate of return and have a greater risk of
loss from borrower defaults.
The alternative loans have a The alternative loans to be acquired with proceeds
higher risk of loss. of the notes will not be guaranteed by a third-
party guarantor, as is the case with FFELP loans.
Therefore, the receipt by the trustee of principal
and interest on these loans will be dependent on
the ability of the borrower to make these
payments. In addition, these alternative loans are
generally dischargeable by a borrower in
bankruptcy unless made under a program funded in
whole or in part by a governmental unit or non-
profit corporation. Moneys at any time on deposit
in the alternative loan guarantee fund will cover
the principal balance of and accrued interest on
an alternative loan once any payment on that loan
is 180 days late. However, the trust estate will
suffer losses if amounts available in the
alternative loan guarantee fund are not sufficient
to cover all defaulted alternative loans.
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Some words and terms will be capitalized when used in this prospectus. You
can find the definitions for these words and terms in the Glossary of Principal
Definitions at the end of this prospectus.
USE OF PROCEEDS
EdLinc will use the net proceeds from the sale of a series of notes to
purchase financed Eligible Loans from the transferor and lenders or to originate
financed Eligible Loans and to make various deposits to the funds and accounts
under the indenture with respect to the notes. The transferor is expected to use
the proceeds of each sale of Eligible Loans to EdLinc to repay debt incurred in
the acquisition of the Eligible Loans.
EDLINC
EdLinc is a bankruptcy remote, limited purpose Delaware corporation and a
wholly owned subsidiary of SLFC.
As a bankruptcy-remote entity, EdLinc's operations will be restricted so
that (1) it does not engage in business with, or incur liabilities to, any other
entity (other than the noteholders and Other Beneficiaries, and beneficiaries
under indentures similar to the indenture) which may bring bankruptcy
proceedings against EdLinc, and (2) the risk that it will be consolidated into
the bankruptcy proceedings of any other entity is diminished. EdLinc has
covenanted in the indenture that it will not engage in any business other than
financing, originating, purchasing, owning, selling and managing student loans
in the manner contemplated by its certificate of incorporation and the indenture
and the activities incidental thereto.
EdLinc will have no substantial assets other than those pledged under the
indenture or under other comparable indentures pursuant to which EdLinc has
issued, or will issue, student loan asset-backed notes similar to the notes. Any
assets held under these other indentures would not be available to pay principal
or interest on the notes. EdLinc will have no full-time employees. Certain
responsibilities of EdLinc under the indenture will be administered by SLFC. See
"The SLFC Servicing Agreement."
EdLinc's address is 105 First Avenue Southwest, Suite 200, Aberdeen, South
Dakota 57401 and its phone number is (605) 622-4400.
THE TRANSFEROR
GOAL Funding, Inc. is a bankruptcy remote, limited purpose Delaware
corporation and a wholly owned subsidiary of SLFC. GOAL Funding, Inc., in its
capacity as transferor of the initial financed student loans with respect to a
given series of notes, will be referred to throughout this prospectus as the
transferor.
The transferor was created to provide a vehicle for the temporary financing
of Eligible Loans pending their sale to EdLinc. Thus, the transferor has entered
into a warehousing indenture
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and other related agreements pursuant to which it borrows moneys to purchase or
originate Eligible Loans. These Eligible Loans are either originated by the
transferor or are purchased from lenders, in the case of FFELP Loans, or from
SLFC, in the case of Alternative Loans, pursuant to student loan purchase
agreements.
The transferor will have no substantial assets other than those pledged
under the warehousing indenture to secure repayment of its borrowings
thereunder. The transferor will have no full-time employees. Certain
responsibilities of the transferor will be performed by SLFC pursuant to an
arrangement comparable to that set forth in the SLFC servicing agreement.
The transferor's address is 105 First Avenue Southwest, Suite 104,
Aberdeen, South Dakota 57401 and its phone number is (605) 622-4400.
THE SERVICER
Student Loan Finance Corporation ("SLFC") is a South Dakota corporation
organized in 1997. SLFC, in its capacity as servicer of the financed student
loans, together with any successor in such capacity, will be referred to
throughout this prospectus as the servicer.
SLFC is in the business of purchasing, originating, holding, servicing and
collecting student loans. SLFC's employees and management had, since 1979,
operated the student loan program of Great Plains Education Foundation, Inc., a
South Dakota nonprofit corporation formerly known as Student Loan Finance
Corporation ("Great Plains"). In a reorganization completed in February, 1998,
Great Plains transferred all of its operating assets, including employees, to
SLFC, which was at the time a wholly-owned subsidiary of Great Plains. Great
Plains also transferred its liability on all of its indebtedness, together with
its rights to the student loans and other assets pledged to the repayment
thereof, to SLFC. SLFC, in turn, transferred such liability and pledged assets
to EdLinc. SLFC currently services the related student loans on behalf of
EdLinc.
As of October 31, 2000, SLFC was the servicer for student loans to
approximately 107,600 borrowers representing approximately $817 million
outstanding principal amount of student loans owned by its subsidiaries, EdLinc,
GOAL Funding and Surety Loan Funding Company. In addition, as of that date, SLFC
also was the servicer for student loans owned by other lenders representing
approximately $12 million outstanding principal amount. Of these amounts,
approximately 5% was being serviced by one or more sub-servicers on behalf of
SLFC.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the notes and the yield on the notes
will be affected by:
(1) prepayments of the financed Eligible Loans that may
occur as described below, including repurchases by the lenders or SLFC upon
a breach of representations or warranties under the related student loan
purchase agreement,
(2) the application of additional principal payments, if any,
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<PAGE>
(3) the ability of EdLinc to expend note proceeds or the acquisition
of Eligible Loans, and
(4) the issuance of additional notes.
All the financed Eligible Loans are prepayable in whole or in part by the
borrowers at any time without penalty (including by means of Consolidation Loans
as discussed below) and may be prepaid as a result of a borrower default, death,
disability or bankruptcy, school closures and other events specified in the
Higher Education Act or the Alternative Loan programs, as applicable, and
subsequent liquidation or collection of guarantee payments with respect thereto.
The rate of such prepayments cannot be predicted and may be influenced by a
variety of economic, social and other factors, including those described below.
In general, the rate of prepayments may tend to increase to the extent that
alternative financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the financed Eligible
Loans. However, because many of the financed Eligible 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 financed Eligible Loans. Other
factors affecting prepayment of loans include changes in the borrower's
employment and other economic circumstances, and refinancing opportunities which
may provide more favorable repayment terms such as those offered under various
consolidation loan programs, including the federal direct consolidation loan
programs. Because of the benefits of consolidating numerous student loans into a
single loan and, in some cases, obtaining more favorable repayment terms, a
borrower may choose to prepay financed Eligible Loans through consolidation
programs regardless of the level of interest rates. In addition, the lenders and
SLFC are obligated to repurchase any financed Eligible Loan pursuant to the
applicable student loan purchase agreement if specified representations or
warranties are breached with respect to such loan.
Scheduled payments on, and maturities of, the financed Eligible Loans may
be extended, including pursuant to grace periods, deferment periods and, under
some circumstances, forbearance periods or as a result of refinancings through
Consolidation Loans to the extent such Consolidation Loans are originated by or
sold to the trustee on behalf of EdLinc. In that event, the fact that such
Consolidation Loans will likely have longer maturities than the financed
Eligible Loans they are replacing may lengthen the remaining term of the
financed Eligible Loans and the average life of the notes of one or more series.
The rate of payment of principal of the notes of a series and the yield on the
notes may also be affected by the rate of defaults resulting in losses on
financed Eligible Loans, by the severity of those losses and by the timing of
those losses.
The rate of prepayment on the financed Eligible Loans cannot be predicted,
and any reinvestment risks resulting from a faster or slower incidence of
prepayment of financed Eligible Loans will be borne entirely by the noteholders.
These reinvestment risks may include the risk that interest rates and the
relevant spreads above particular interest rate bases are lower at the time
noteholders receive payments of principal than the interest rates and such
spreads would otherwise have been had prepayments not been made or had
prepayments been made at a different time.
In addition, the principal payment requirements of any series of notes
could affect the rate of prepayment of principal of the other series of notes
and the yield on those series. The notes of
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each class and series have the same right to payment of principal and interest
as the notes of the same class of all other series. It is anticipated that the
timing of payment of principal of each series of notes will depend, at least in
part, on the timing of receipt of principal of the student loans financed with
the proceeds of that series. However, it is possible that, due to losses,
delinquencies or slower than anticipated prepayments on the financed student
loans relating to another series of notes, amounts available from these financed
student loans may not be sufficient to make required payments of principal on
that series. If this were to happen, payments of principal on the student loans
financed with the proceeds of a given series of notes could be used to make
these required payments, thus reducing, at least temporarily, the amounts
available to make prepayments on that series.
Finally, it is expected that a portion of the proceeds of each series of
notes will be deposited in the Acquisition Fund and used to purchase student
loans from lenders and SLFC during a pre-funding period. EdLinc expects to be
able to so use all of these proceeds. However, any portion of the proceeds not
so expended by the end of the pre-funding period, together with a portion of the
note proceeds deposited in the Reserve Fund, will be used to prepay that series
of notes on the first available regularly scheduled interest payment date
thereafter.
DESCRIPTION OF FINANCING OF ELIGIBLE LOANS
Description of Eligible Loans to be Financed
A portion of the proceeds of each series of notes will be deposited in the
Acquisition Fund and used to originate Eligible Loans or to purchase Eligible
Loans from (1) the transferor pursuant to a transfer agreement on or about the
date of issuance of the notes, or (2) lenders or SLFC pursuant to student loan
purchase agreements within a specified period thereafter. The Eligible Loans to
be so acquired will either be FFELP Loans or Alternative Loans. See "Description
of the FFEL Program" and "Description of the Alternative Loan Programs."
The financed Eligible Loans to be purchased from the transferor will be
selected from the transferor's portfolio of FFELP Loans and Alternative Loans.
All such Eligible Loans will have been previously originated by the transferor
or purchased by the transferor from a lender, in the case of FFELP Loans, or
SLFC, in the case of Alternative Loans, pursuant to a student loan purchase
agreement. The transferor's rights under each such student loan purchase
agreement will be transferred to EdLinc.
Each prospectus supplement will set forth various information with respect
to the Eligible Loans to be purchased from the transferor pursuant to a transfer
agreement, as well as all financed Eligible Loans at the time held under the
indenture. Such information may include the composition of the financed Eligible
Loans, the distribution by loan type, the distribution by interest rates, the
distribution by outstanding principal balance, the distribution by geography,
the distribution by insurance or guarantee level, the distribution by school
type, the distribution by guarantee agency, in the case of FFELP Loans, the
distribution by remaining term to scheduled maturity and the distribution by
borrower payment status. See "The Financed Eligible Loans" in the accompanying
prospectus supplement.
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Each of the FFELP Loans provides or will provide for the amortization of
the outstanding principal balance of such financed Eligible Loan over a series
of payments. Each payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of such financed
Eligible Loan multiplied by the applicable interest rate and further multiplied
by the period elapsed, as a fraction of a calendar year, since the preceding
payment of interest was made. As payments are received in respect of such
financed Eligible 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 preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if a borrower pays a monthly installment after its scheduled due
date, the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case,
subject to any applicable grace periods, deferment periods or forbearance
periods, the borrower pays an 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 such
financed Eligible Loan. The Alternative Loans may contain different amortization
provisions.
The indenture also permits the financing of student loans from moneys in
the Surplus Account under some circumstances. Such student loans are not
required to be Eligible Loans. See "Description of the Indenture--Funds and
Accounts--Surplus Fund."
Transfer Agreements
The trustee, EdLinc and the transferor will enter into a transfer agreement
in connection with the issuance of each series of notes. Pursuant to the
transfer agreement, the transferor will transfer to the trustee, on behalf of
EdLinc, Eligible Loans upon payment of the purchase price, equal to the
principal amount plus accrued interest and, in the case of FFELP Loans, Special
Allowance Payments, plus, to the extent permitted by the indenture, a premium,
from proceeds of the notes deposited in the Acquisition Fund. The transferor
will also transfer all of its rights under the transferor student loan purchase
agreements pursuant to which such Eligible Loans were acquired by the
transferor.
The transferor will make no representations or warranties as to the
Eligible Loans so transferred--including Eligible Loans originated by the
transferor--and will have no obligation to repurchase any such loans. If there
is a problem with an Eligible Loan that is attributable to a breach of a
representation or warranty of the lender or SLFC under the related transferor
student loan purchase agreement, the lender or SLFC may be obligated to
repurchase such Eligible Loan. See "Description of Financing of Eligible Loans--
Student Loan Purchase Agreements."
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Student Loan Purchase Agreements
EdLinc may enter into student loan purchase agreements with lenders, as to
FFELP Loans, and SLFC, as to Alternative Loans, for the purchase of Eligible
Loans to be financed with the proceeds of each series of notes. These student
loan purchase agreements are referred to as EdLinc student loan purchase
agreements in this prospectus. In addition, the transferor will enter into
student loan purchase agreements with lenders, as to FFELP Loans, and SLFC, as
to Alternative Loans, for the purchase of Eligible Loans. These student loan
purchase agreements are referred to as transferor student loan purchase
agreements in this prospectus. All Eligible Loans transferred to the trustee, on
behalf of EdLinc, pursuant to any transfer agreement will have been purchased by
the transferor pursuant to a transferor student loan purchase agreement. Upon
the transfer to the trustee, on behalf of EdLinc, by the transferor of Eligible
Loans pursuant to a transfer agreement, the transferor will also transfer its
rights under the related transferor student loan purchase agreements. EdLinc's
right, title and interest in the student loan purchase agreements will be
pledged to the trustee.
EdLinc student loan purchase agreements will provide for the purchase by
the trustee on behalf of EdLinc, of Eligible Loans at 100% of their outstanding
unpaid principal amount, plus accrued interest thereon payable by the borrower.
EdLinc student loan purchase agreements will require the lender, in the case of
FFELP Loans, to report and offset against its Interest Subsidy and Special
Allowance Payments all authorized origination fees. Under some circumstances,
the trustee will also pay to the lender and SLFC reasonable transfer,
origination or assignment fees and a premium to the extent permitted by the
indenture. See "Description of the Indenture--Funds and Accounts--Acquisition
Fund."
Each lender and SLFC makes representations as to the validity,
enforceability and transferability of each Eligible Loan and as to the legal
authority of the lender or SLFC, as applicable, to engage in the transactions
contemplated by the respective student loan purchase agreement. In addition,
each lender, with respect to each FFELP Loan purchased under a student loan
purchase agreement, has represented or will represent that at the date of sale
by the lender, each FFELP Loan was or will be Guaranteed.
The student loan purchase agreements provide that if any representation
furnished by a lender or SLFC with respect to an Eligible Loan sold to the
transferor or the trustee proves to have been materially incorrect, or, in the
case of a FFELP Loan, if the guarantee agency refuses to honor all or part of a
guarantee claim filed with respect to thereto on account of any circumstance or
event occurring prior to the sale of such FFELP Loan to the transferor or the
trustee, or under some other circumstances specified in the student loan
purchase agreement, the lender or SLFC, as applicable, shall repurchase such
loan at a price equal to the then outstanding principal balance, plus accrued
interest and, in the case of a FFELP Loan, Special Allowance Payments, plus any
expenses incurred by the transferor or the trustee in connection therewith and
any other amounts paid to the lender or SLFC, as applicable, by the transferor
or the trustee in connection with the acquisition of such loan.
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Servicing and Due Diligence
The servicer will service student loans acquired by the trustee under the
indenture. EdLinc will covenant in the indenture to cause a servicer to
administer and collect all financed Eligible Loans in a competent, diligent and
orderly fashion, and in accordance with all requirements of the Higher Education
Act, the Secretary of Education, the indenture, the federal reimbursement
contracts, the Guarantee Agreements and the Alternative Loan Programs.
The Higher Education Act requires that the transferor, the trustee, in its
capacity as eligible lender, a lender and their agents, including the servicer,
and employees exercise due diligence in the making, servicing and collection of
financed FFELP Loans and that a guarantee agency exercise due diligence in
collecting loans which it holds. The Higher Education Act defines due diligence
as requiring the holder of a student loan to utilize servicing and collection
practices at least as extensive and forceful as those generally practiced by
financial institutions for the collection of consumer loans, and requires that
specified collection actions be taken within specified time periods with respect
to a delinquent loan or defaulted loan. The guarantee agencies have established
procedures and standards for due diligence to be exercised by each guarantee
agency and by lenders, including the trustee, which hold loans that are
guaranteed by the respective guarantee agencies. The trustee, a lender or a
guarantee agency may not relieve itself of its responsibility for meeting these
standards by delegation to any servicing agent. Accordingly, if a lender or the
servicer fails to meet such standards, the trustee's ability to realize the
benefits of guarantee payments, and, with respect to student loans eligible for
such payments, Interest Subsidy Payments and Special Allowance Payments may be
adversely affected. If a guarantee agency fails to meet such standards, that
guarantee agency's ability to realize the benefits of federal reinsurance
payments may be adversely affected.
To the extent provided in the servicing agreement, the servicer may enter
into sub-servicing agreements with one or more sub-servicers providing for the
sub-servicers to perform some or all of the obligations of the servicer with
respect to servicing the financed student loans. See "Description of the SLFC
Servicing Agreement--Sub-Servicers."
DESCRIPTION OF THE FFEL PROGRAM
General
The Higher Education Act sets forth provisions establishing the FFEL
Program, pursuant to which state agencies or private nonprofit corporations
administering student loan insurance programs are reimbursed for losses
sustained in the operation of their programs, and holders of some loans made
under such programs are paid subsidies for owning such loans.
The Higher Education Act currently authorizes some student loans to be
covered under the FFEL Program if they are contracted for and paid to the
student prior to September 30, 2004, unless a student has received a loan under
the FFEL Program prior to such date, in which case that student may receive a
student loan covered by the FFEL Program until September 30, 2008. Congress has
extended similar authorization dates in prior versions of the Higher Education
Act;
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however, there can be no assurance that the current authorization dates will
again be extended or that the other provisions of the Higher Education Act will
be continued in their present form.
Various amendments to the Higher Education Act have revised the FFEL
Program from time to time. These amendments include, but are not limited to, the
Higher Education Amendments of 1998, the Intermodal Surface Transportation
Efficiency Act of 1998, the Balanced Budget Act of 1997, the Higher Education
Technical Amendments Act of 1993, the Omnibus Budget Reconciliation Act of 1993,
the Higher Education Amendments of 1992, which reauthorized the FFEL Program,
the Omnibus Budget Reconciliation Act of 1990, the Omnibus Budget Reconciliation
Act of 1989, the Omnibus Budget Reconciliation Act of 1987, the Higher Education
Technical Amendments Act of 1987, the Higher Education Amendments of 1986, which
reauthorized the FFEL Program, the Consolidated Omnibus Budget Reconciliation
Act of 1985, the Postsecondary Student Assistance Amendments of 1981 and the
Education Amendments of 1980.
There can be no assurance that relevant federal laws, including the Higher
Education Act, will not be changed in a manner that may adversely affect the
receipt of funds by the guarantee agencies or by the trustee with respect to
financed FFELP Loans.
This is only a summary of some provisions of the Higher Education Act.
Reference is made to the text of the Higher Education Act for full and complete
statements of its provisions.
Loan Terms
General
Four types of loans are currently available under the FFEL Program:
Stafford Loans, Unsubsidized Stafford Loans, Plus Loans and Consolidation Loans.
These loan types vary as to eligibility requirements, interest rates, repayment
periods, loan limits and eligibility for Interest Subsidy and Special Allowance
Payments. Some of these loan types have had other names in the past. References
herein to the various loan types include, where appropriate, predecessors to
such loan types.
The primary loan under the FFEL Program is the Stafford Loan. Students
who are not eligible for Stafford Loans based on their economic circumstances
may be able to obtain Unsubsidized Stafford Loans. Parents of students may be
able to obtain Plus Loans. Consolidation Loans are available to borrowers with
existing loans made under the FFEL Program and some other federal programs to
consolidate repayment of such existing loans. For periods of enrollment
beginning prior to July 1, 1994, SLS Loans were available to students with costs
of education that were not met by other sources and that exceeded the Stafford
or Unsubsidized Stafford Loan limits.
Eligibility
General. A student is eligible for loans made under the FFEL Program only
if he or she:
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(1) has been accepted for enrollment or is enrolled in good standing
at an eligible institution of higher education, which term includes some
vocational schools,
(2) is carrying or planning to carry at least one-half the normal
full-time workload for the course of study the student is pursuing as
determined by the institution, which, in the case of a loan to cover the
cost of a period of enrollment beginning on or after July 1, 1987, must
either lead to a recognized educational credential or be necessary for
enrollment in a course of study that leads to such a credential,
(3) has agreed to notify promptly the holder of the loan concerning
any change of address,
(4) if presently enrolled, is maintaining satisfactory progress in
the course of study he or she is pursuing,
(5) does not owe a refund on, and is not, except as specifically
permitted under the Higher Education Act, in default under, any loan or
grant made under the Higher Education Act,
(6) has filed with the eligible institution a statement of
educational purpose,
(7) meets citizenship requirements, and
(8) except in the case of a graduate or professional student, has
received a preliminary determination of eligibility or ineligibility for a
Pell Grant.
The educational institution generally determines and documents the amount
of need for a loan and provides the lender with a statement containing
information relating to the loan amount for which a borrower is eligible. The
specific requirements of these determinations of need and statements to lenders
vary based on the type of loan, for example, Stafford, Unsubsidized Stafford or
Plus, and the requirements applicable at the time a loan was made. The amount of
such need is generally based on the student's estimated cost of attendance, the
estimated financial assistance available to such student and, for Stafford
Loans, the expected family contribution with respect to the student, all of
which are computed in accordance with standards set forth in the Higher
Education Act.
Stafford Loans. Stafford Loans generally are made only to student borrowers
who meet financial needs tests.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans generally are made
to student borrowers without regard to financial need. Unsubsidized Stafford
Loans were not available before October 1, 1992.
Plus Loans. Plus Loans are made only to borrowers who are parents, and,
under some circumstances, spouses of remarried parents, of dependent
undergraduate students. For Plus Loans made on or after July 1, 1993, the parent
borrower must not have an adverse credit history, as
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determined pursuant to criteria established by the Department of Education.
Prior to the Higher Education Amendments of 1986, the Higher Education Act did
not distinguish between Plus Loans and SLS Loans. Student borrowers were
eligible for Plus Loans; however, parents of graduate and professional students
were ineligible.
SLS Loans. Eligible borrowers for SLS Loans were limited to (a) graduate or
professional students, (b) independent undergraduate students, and (c) under
some circumstances, dependent undergraduate students, if such students' parents
were unable to obtain a Plus Loan and were also unable to provide such students'
expected family contribution. Except as described in clause (c), eligibility was
determined without regard to need.
Consolidation Loans. To be eligible for a Consolidation Loan a borrower
must (a) have outstanding indebtedness on student loans made under the FFEL
Program or under any of the programs relating to the following student loans:
Federal Direct Student Loans, federally insured student loans, Perkins loans,
health professions student loans, nursing student loans or health education
assistance loans, (b) be in repayment status or in a grace period, or be a
defaulted borrower who has made arrangements to repay the defaulted loan(s)
satisfactory to the holder of the defaulted loan(s), and (c) effective October
1, 1998, not be subject to a judgment secured through litigation with respect to
some Higher Education Act loans or some wage garnishment orders. A married
couple who agree to be jointly liable on a Consolidation Loan for which the
application is received on or after January 1, 1993 may be treated as an
individual for purposes of obtaining a Consolidation Loan. Various additional
limitations on the amount and type of loans that could be consolidated applied
to loans made prior to July 1, 1994.
Interest Rates
The Higher Education Act establishes maximum interest rates for each of the
various types of loans. These rates vary not only among loan types, but also
within loan types depending upon when the loan was made or when the borrower
first obtained a loan under the FFEL Program. The Higher Education Act allows
lesser rates of interest to be charged. Many lenders, including the transferor,
have offered repayment incentives or other programs that involve reduced
interest rates on some loans made under the FFEL Program.
Stafford Loans. For a Stafford Loan made prior to July 1, 1994, the
applicable interest rate for a borrower who, on the date the promissory note was
signed, did not have an outstanding balance on a previous loan which was made,
insured or guaranteed under the FFEL Program (a "New Borrower"):
(a) is 7% per annum for a loan covering a period of instruction
beginning before January 1, 1981;
(b) is 9% per annum for a loan covering a period of instruction
beginning on or after January 1, 1981, but before September 13, 1983;
(c) is 8% per annum for a loan covering a period of instruction
beginning on or after September 13, 1983, but before July 1, 1988;
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(d) for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, is 8% per annum for the
period from the disbursement of the loan to the date which is four years
after the loan enters repayment, and thereafter shall be adjusted annually,
and for any 12-month period commencing on a July 1 shall be equal to the
bond equivalent rate of 91-day U.S. Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.25% per annum (but not to
exceed 10% per annum); or
(e) for a loan made on or after October 1, 1992 shall be adjusted
annually, and for any 12- month period commencing on a July 1 shall be
equal to the bond equivalent rate of 91- day U.S. Treasury bills auctioned
at the final auction prior to the preceding June 1, plus 3.1% per annum
(but not to exceed 9% per annum).
For a Stafford Loan made prior to July 1, 1994, the applicable interest
rate for a borrower who, on the date the promissory note evidencing the
loan was signed, had an outstanding balance on a previous loan made,
insured or guaranteed under the FFEL Program (a "Repeat Borrower"):
(f) for a loan made prior to July 23, 1992 is the applicable interest
rate on the previous loan or, if such previous loan is not a Stafford Loan,
8% per annum; or
(g) for a loan made on or after July 23, 1992 shall be adjusted
annually, and for any twelve month period commencing on a July 1 shall be
equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned
at the final auction prior to the preceding June 1, plus 3.1% per annum but
not to exceed:
(1) 7% per annum in the case of a Stafford Loan made to a
borrower who has a loan described in clause (a) above;
(2) 8% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clause (c) above, (B) a Stafford
Loan which has not been in repayment for four years and which was made
to a borrower who has a loan described in clause (d) above or (C) a
Stafford Loan for which the first disbursement was made prior to
December 20, 1993 to a borrower whose previous loans do not include a
Stafford Loan or an Unsubsidized Stafford Loan;
(3) 9% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clauses (b) or (e) above or (B) a
Stafford Loan for which the first disbursement was made on or after
December 20, 1993 to a borrower whose previous loans do not include a
Stafford Loan or an Unsubsidized Stafford Loan; and
(4) 10% per annum in the case of a Stafford Loan which has been
in repayment for four years or more and which was made to a borrower
who has a loan described in clause (d) above.
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The interest rate on all Stafford Loans made on or after July 1, 1994 but
prior to July 1, 1998, regardless of whether the borrower is a New Borrower or a
Repeat Borrower, is the rate described in clause (g) above, except that such
rate shall not exceed 8.25% per annum. For any Stafford Loan made on or after
July 1, 1995, the interest rate is further reduced prior to the time the loan
enters repayment and during any deferment periods. During such periods, the
formula described in clause (g) above is applied, except that 2.5% is
substituted for 3.1%, and the rate shall not exceed 8.25% per annum.
For Stafford Loans made on or after July 1, 1998 but before July 1, 2003,
the applicable interest rate shall be adjusted annually, and for any twelve
month period commencing on a July 1 shall be equal to the bond equivalent rate
of 91-day U.S. Treasury bills auctioned at the final auction prior to the
preceding June 1, plus (x) 1.7% per annum prior to the time the loan enters
repayment and during any deferment periods, and (y) 2.3% per annum during
repayment, but not to exceed 8.25% per annum.
For Stafford Loans made on or after July 1, 2003, the applicable interest
rate will continue to be adjusted annually, but for any 12-month period
commencing on a July 1 will be equal to the bond equivalent rate of securities
with a comparable maturity (as established by the Secretary of Education), plus
1% per annum, but not to exceed 8.25% per annum.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to the
same interest rate provisions as Stafford Loans.
Plus Loans. The applicable interest rate on a Plus Loan:
(a) made on or after January 1, 1981, but before October 1, 1981, is
9% per annum;
(b) made on or after October 1, 1981, but before November 1, 1982, is
14% per annum;
(c) made on or after November 1, 1982, but before July 1, 1987, is
12% per annum;
(d) made on or after July 1, 1987, but before October 1, 1992, shall
be adjusted annually, and for any 12-month period beginning on July 1 shall
be equal to the bond equivalent rate of 52-week U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus 3.25%
per annum (but not to exceed 12% per annum);
(e) made on or after October 1, 1992, but before July 1, 1994, shall
be adjusted annually, and for any 12-month period beginning on July 1 shall
be equal to the bond equivalent rate of 52-week U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus 3.1% per
annum (but not to exceed 10% per annum);
(f) made on or after July 1, 1994, but before July 1, 1998, is the
same as that described in clause (e) above, except that such rate shall not
exceed 9% per annum; or
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(g) made on or after July 1, 1998, but before July 1,
2003, shall be adjusted annually, and for any 12-month period beginning
on July 1 shall be equal to the bond equivalent rate of 91-day U.S.
Treasury bills auctioned at the final auction prior to the preceding
June 1, plus 3.1% per annum (but not to exceed 9% per annum).
For Plus Loans made on or after July 1, 2003, the applicable interest
rate will continue to be adjusted annually, but for any 12-month period
commencing on a July 1 will be equal to the bond equivalent rate of securities
with a comparable maturity, as established by the Secretary of Education, plus
2.1% per annum, but not to exceed 9% per annum.
If requested by the borrower, an eligible lender may consolidate SLS or
Plus Loans of the same borrower held by the lender under a single repayment
schedule. The repayment period for each included loan shall be based on the
commencement of repayment of the most recent loan. The consolidated loan shall
bear interest at a rate equal to the weighted average of the rates of the
included loans. Such a consolidation shall not be treated as the making of a new
loan. In addition, at the request of the borrower, a lender may refinance an
existing fixed rate SLS or Plus Loan (including an SLS or Plus Loan held by a
different lender who has refused so to refinance such loan) at a variable
interest rate. In such a case, proceeds of the new loan are used to discharge
the original loan.
SLS Loans. The applicable interest rates on SLS Loans made prior to
October 1, 1992 are identical to the applicable interest rates on Plus Loans
made at the same time. For SLS Loans made on or after October 1, 1992, the
applicable interest rate is the same as the applicable interest rate on Plus
Loans, except that the ceiling is 11% per annum instead of 10% per annum.
Consolidation Loans. A Consolidation Loan made prior to July 1, 1994
bears interest at a rate equal to the weighted average of the interest rates on
the loans retired, rounded to the nearest whole percent, but not less than 9%
per annum. Except as described in the next sentence, a Consolidation Loan made
on or after July 1, 1994 bears interest at a rate equal to the weighted average
of the interest rates on the loans retired, rounded upward to the nearest whole
percent, but with no minimum rate. For a Consolidation Loan for which the
application is received by an eligible lender (a) on or after November 13, 1997
but before October 1, 1998, the interest rate shall be adjusted annually, and
for any twelve month period commencing on a July 1 shall be equal to the bond
equivalent rate of 91-day U.S. Treasury bills auctioned at the final auction
prior to the preceding June 1, plus 3.1% per annum, but not to exceed 8.25% per
annum, or (b) on or after October 1, 1998 but before July 1, 2003, the interest
rate shall be an annual rate equal to the weighted average of the interest rates
on the loans being consolidated, rounded upward to the nearest higher 1/8 of 1
percent, but not to exceed 8.25% per annum. Notwithstanding these general
interest rates, the portion, if any, of a Consolidation Loan that repaid a loan
made under the HEAL Program has a different variable interest rate. Such portion
is adjusted on July 1 of each year, but is the sum of the average of the bond
equivalent rates of 91-day U.S. Treasury bills auctioned for the quarter ending
on the preceding June 30, plus 3.0%, without any cap on the interest rate. For a
discussion of required payments that reduce the return on Consolidation Loans,
see "Fees--Rebate Fees on Consolidation Loans" below.
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Loan Limits
Each type of loan, other than Consolidation Loans, which are limited
only by the amount of eligible loans to be consolidated, is subject to limits as
to the maximum principal amount, both with respect to a given year and in the
aggregate. All of the loans are limited to the difference between the cost of
attendance and the other aid available to the student. Stafford Loans are also
subject to limits based upon the needs analysis as described above under
"Eligibility--Stafford Loans." Additional limits are described below.
Stafford and Unsubsidized Stafford Loans. Except as described in the
next paragraph, Stafford and Unsubsidized Stafford Loans are generally treated
as one loan type for loan limit purposes. A student who has not successfully
completed the first year of a program of undergraduate education may borrow up
to $2,625 in an academic year. A student who has successfully completed such
first year, but who has not successfully completed the second year may borrow up
to $3,500 per academic year. An undergraduate student who has successfully
completed the first and second year, but who has not successfully completed the
remainder of a program of undergraduate education, may borrow up to $5,500 per
academic year. For students enrolled in programs of less than an academic year
in length, the limits are generally reduced in proportion to the amount by which
such programs are less than one year in length. A graduate or professional
student may borrow up to $8,500 in an academic year. The 1998 Reauthorization
Amendments to the Higher Education Act establish special loan limits for some
students taking courses that may lead to enrollment in undergraduate ($2,625 for
Stafford and $4,000 for Unsubsidized Stafford) or in graduate or professional
($5,500 for Stafford and $5,000 for Unsubsidized Stafford) degree or certificate
programs, or necessary for professional credential or certification from a state
required for employment as an elementary or secondary school teacher ($5,500 for
Stafford and $5,000 for Unsubsidized Stafford). The maximum aggregate amount of
Stafford and Unsubsidized Stafford Loans (including that portion of a
Consolidation Loan used to repay such loans) which an undergraduate student may
have outstanding is $23,000. The maximum aggregate amount for a graduate and
professional student, including loans for undergraduate education, is $65,500.
The Secretary of Education is authorized to increase the limits applicable to
graduate and professional students who are pursuing programs which the Secretary
of Education determines to be exceptionally expensive.
Under the 1993 Amendments to the Higher Education Act, at the same time
that SLS Loans were eliminated, the loan limits for Unsubsidized Stafford Loans
to independent students, or dependent students whose parents cannot borrow a
Plus Loan, were increased by amounts equal to the prior SLS Loan limits (as
described below under "SLS Loans"). Prior to the enactment of the Higher
Education Amendments of 1992, the annual and aggregate loan limits were
generally lower.
Plus Loans. For Plus Loans made on or after July 1, 1993, the amounts of
Plus Loans are limited only by the student's unmet need. Prior to that time Plus
Loans were subject to limits similar to those to which SLS Loans were then
subject (see "SLS Loans" below), applied with respect to each student on behalf
of whom the parent borrowed.
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SLS Loans. A student who had not successfully completed the first and
second year of a program of undergraduate education could borrow an SLS Loan in
an amount of up to $4,000. A student who had successfully completed such first
and second year, but who had not successfully completed the remainder of a
program of undergraduate education could borrow up to $5,000 per year. Graduate
and professional students could borrow up to $10,000 per year. SLS Loans were
subject to an aggregate maximum of $23,000 and $73,000 for graduate and
professional students. Prior to the 1992 changes, the annual and aggregate loan
limits for SLS Loans were generally lower. The 1989 changes limited the amount
of SLS Loans for students enrolled in programs of less than an academic year in
length, similar to the limits described above under "Stafford Loans," and such
limits were continued by the 1992 Amendments.
Repayment
Except for loans to some new borrowers on or after October 7, 1998,
loans made under the FFEL Program, other than Consolidation Loans, generally
must provide for repayment of principal in periodic installments over a period
of not less than five nor more than ten years. A Consolidation Loan must be
repaid during a period agreed to by the borrower and lender, subject to maximum
repayment periods which vary depending upon the principal amount of the
borrower's outstanding student loans, but no longer than 30 years. For
Consolidation Loans for which the application was received prior to January 1,
1993, the repayment period could not exceed 25 years. The 1998 Reauthorization
Amendments provide that, effective October 1, 1998, a lender must offer the
borrower of a Stafford Loan or an Unsubsidized Stafford Loan, not more than six
months prior to the date on which the borrower's first payment is due, the
option of repaying the loan in accordance with a standard, graduated,
income-sensitive, or extended repayment schedule established by the lender in
accordance with regulations of the Secretary of Education. The borrower may
choose from:
. a standard repayment plan, with a fixed annual repayment amount paid
over a fixed period of time, not to exceed 10 years;
. a graduated repayment plan paid over a fixed period of time, not to
exceed 10 years;
. an income-sensitive repayment plan, with income-sensitive repayment
amounts paid over a fixed period of time, not to exceed 10 years,
except that the use of income-sensitive schedules may extend the 10-
year maximum term for up to five years; and
. for new borrowers on or after October 7, 1998 who accumulate (after
such date) outstanding loans under the FFEL Program totaling more
than $30,000, an extended repayment plan, with a fixed annual or
graduated repayment amount paid over an extended period of time, not
to exceed 25 years, except that the borrower shall repay a minimum
annual amount as described in the next paragraph.
If a borrower does not select a repayment plan, the lender shall provide the
borrower with a standard repayment plan. Once established, the borrower may
annually change the selection of a repayment plan. New Plus Loan borrowers on or
after October 7, 1998, who accumulate, after that date, outstanding loans under
the FFEL Program totaling more that $30,000, also are entitled
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to the 25-year extended repayment plan described above.
The repayment period commences
. not more than twelve months after the borrower ceases to pursue at
least a half-time course of study with respect to Stafford Loans
for which the applicable rate of interest is 7% per annum,
. not more than six months after the borrower ceases to pursue at
least a half-time course of study with respect to other Stafford
Loans and Unsubsidized Stafford Loans (the six month or twelve
month periods are the grace periods) and
. on the date of final disbursement of the loan in the case of SLS,
Plus and Consolidation Loans, except that the borrower of an SLS
Loan who also has a Stafford or Unsubsidized Stafford Loan may
defer repayment of the SLS Loan to coincide with the commencement
of repayment of the Stafford or Unsubsidized Stafford Loan.
The six month grace period excludes any period not in excess of three years
during which a borrower who is a member of the Armed Forces reserves is called
or ordered to active duty for a period of more than 30 days, which period of
exclusion includes the period necessary to resume enrollment at the borrower's
next available regular enrollment period. During periods in which repayment of
principal is required, payments of principal and interest must in general be
made at a rate of not less than the greater of $600 per year, except that a
borrower and lender may agree at any time before or during the repayment period
that repayment may be at a lesser rate or the interest that accrues during the
year. A borrower may agree, with concurrence of the lender, to repay the loan in
less than five years with the right subsequently to extend his minimum repayment
period to five years. Borrowers are entitled to accelerate, without penalty, the
repayment of all or any part of the loan.
In addition, since 1992, lenders of Consolidation Loans have been
required to establish graduated or income-sensitive repayment schedules and
lenders of Stafford and SLS Loans have been required to offer borrowers the
option of repaying in accordance with graduated or income-sensitive repayment
schedules. Use of income-sensitive repayment schedules may extend the ten-year
maximum term for up to five years. In addition, if the repayment schedule on a
loan that has been converted to a variable interest rate does not provide for
adjustments to the amount of the monthly installment payments, the ten-year
maximum term may be extended for up to three years.
No principal repayments need be made during periods of deferment
prescribed by the Higher Education Act. For loans to a borrower who first
obtained a loan which was disbursed before July 1, 1993, deferments are
available as follows:
(1) during a period not exceeding three years while the
borrower is a member of the Armed Forces, an officer in the Commissioned
Corps of the Public Health Service or, with respect to a borrower who
first obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of enrollment
beginning
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on or after July 1, 1987, an active duty member of the National Oceanic
and Atmospheric Administration Corps;
(2) during a period not in excess of three years while
the borrower is a volunteer under the Peace Corps Act,;
(3) during a period not in excess of three years while
the borrower is a full-time volunteer under the Domestic Volunteer Act
of 1973;
(4) during a period not exceeding three years while the
borrower is in service, comparable to the service referred to in clauses
(2) and (3), as a full-time volunteer for an organization which is
exempt from taxation under Section 501(c)(3) of the Internal Revenue
Code;
(5) during a period not exceeding two years while the
borrower is serving an internship, the successful completion of which is
required to receive professional recognition required to begin
professional practice or service, or a qualified internship or residency
program;
(6) during a period not exceeding three years while the
borrower is temporarily totally disabled, as established by sworn
affidavit of a qualified physician, or while the borrower is unable to
secure employment by reason of the care required by a dependent who is
so disabled;
(7) during a period not to exceed twenty-four months
while the borrower is seeking and unable to find full-time employment;
(8) during any period that the borrower is pursuing a
full-time course of study at an eligible institution (or, with respect
to a borrower who first obtained a student loan disbursed on or after
July 1, 1987, or a student loan to cover the cost of instruction for a
period of enrollment beginning on or after July 1, 1987, is pursuing at
least a half-time course of study for which the borrower has obtained a
loan under the FFEL Program), or is pursuing a course of study pursuant
to a graduate fellowship program or a rehabilitation training program
for disabled individuals approved by the Secretary of Education;
(9) during a period, not in excess of 6 months, while the
borrower is on parental leave; and
(10) only with respect to a borrower who first obtained a
student loan disbursed on or after July 1, 1987, or a student
loan to cover the cost of instruction for a period of enrollment
beginning on or after July 1, 1987,
. during a period not in excess of three years while the
borrower is a full-time teacher in a public or nonprofit
private elementary or secondary school in a "teacher
shortage area" (as prescribed by the Secretary of
Education), and
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. during a period not in excess of 12 months for mothers,
with preschool age children, who are entering or
re-entering the work force and who are compensated at a
rate not exceeding $1 per hour in excess of the federal
minimum wage.
For loans to a borrower who first obtains a loan on or after July 1, 1993,
deferments are available as follows:
. during any period that the borrower is pursuing at least a
half-time course of study at an eligible institution or a
course of study pursuant to a graduate fellowship program or
rehabilitation training program approved by the Secretary of
Education;
. during a period not exceeding three years while the borrower
is seeking and unable to find full-time employment; and
. during a period not in excess of three years for any reason
which the lender determines, in accordance with regulations
under the Higher Education Act, has caused or will cause the
borrower economic hardship. Economic hardships include working
full time and earning an amount not in excess of the greater
of the minimum wage or the poverty line for a family of two
and serving as a volunteer in the Peace Corps. Additional
categories of economic hardship are based on the relationship
between a borrower's educational debt burden and his or her
income.
Prior to the 1992 changes, only the deferment periods described above in clauses
(6) and (7), with respect to the parent borrower, and the deferment period
described in clause (8), with respect to the parent borrower or a student on
whose behalf the parent borrowed, were available to Plus Loan borrowers, and
only the deferment periods described above in clauses (6), (7) and (8) were
available to Consolidation Loan borrowers. Prior to the 1986 changes, Plus Loan
borrowers were not entitled to deferment periods. Deferment periods extend the
maximum repayment periods.
The Higher Education Act also provides for periods of forbearance during
which the borrower, in case of temporary financial hardship, may defer any
payments. A borrower is entitled to forbearance for a period not to exceed three
years while the borrower's debt burden under Title IV of the Higher Education
Act, which includes the FFEL Program, equals or exceeds 20% of the borrower's
gross income, and also is entitled to forbearance while he or she is serving in
a qualifying medical or dental internship or residency program or in a national
service position under the National and Community Service Trust Act of 1993. In
addition, mandatory administrative forbearances are provided when exceptional
circumstances such as a local or national emergency or military mobilization
exist; or when the geographical area in which the borrower or endorser resides
has been designated a disaster area by the President of the United States or
Mexico, the Prime Minister of Canada, or by the governor of a state. The 1998
Reauthorization Amendments authorize forbearance for up to 60 days if the lender
reasonably determines that such a suspension of collection activity is warranted
following a borrower's request for deferment, forbearance, a change in repayment
plan, or a request to consolidate loans, in order to collect or process
appropriate supporting documentation related to the request, during which period
interest shall accrue but not be capitalized. In other circumstances,
forbearance is at the lender's option. Such forbearance also extends the maximum
repayment periods.
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As described under "Contracts with Guarantee Agencies--Federal Interest
Subsidy Payments" below, the Secretary of Education makes interest payments on
behalf of the borrower of some eligible loans while the borrower is in school
and during grace and deferment periods. Interest that accrues during forbearance
periods and, if the loan is not eligible for Interest Subsidy Payments, while
the borrower is in school and during the grace and deferment periods, may be
paid monthly or quarterly or capitalized, added to the principal balance, not
more frequently than quarterly. Interest on Unsubsidized Stafford Loans
disbursed on or after October 7, 1998, that accrues during such periods,
however, may be capitalized only when the loan enters repayment, at the
expiration of the grace period, if the loan qualifies for grace period, the
deferment period or the forbearance period, or when the borrower defaults.
The Secretary of Education has promulgated regulations which apply the
new capitalization rules that apply to Unsubsidized Stafford Loans disbursed on
or after October 7, 1998, to Stafford Loans disbursed on or after July 1, 2000,
as they relate to interest accruing during forbearance periods not covered by
Interest Subsidy Payments. In addition, such regulations permit capitalization
to occur on Unsubsidized Stafford Loans (and Stafford Loans with respect to
Forbearance) disbursed on or after July 1, 2000, at the end of each covered
period rather than at the end of a series of consecutive covered periods.
Disbursement
Loans made under the FFEL Program, except Consolidation Loans, generally
must be disbursed in two or more installments, none of which may exceed 50% of
the total principal amount of the loan.
Fees
Guarantee Fee. A guarantee agency is authorized to charge a premium, or
guarantee fee, of up to 1% of the principal amount of the loan, which must be
deducted proportionately from each installment payment of the proceeds of the
loan to the borrower. Guarantee fees may not currently be charged to borrowers
of Consolidation Loans. However, lenders may be charged an insurance fee to
cover the costs of increased or extended liability with respect to Consolidation
Loans.
Origination Fee. An eligible lender is authorized to charge the borrower
of a Stafford, Unsubsidized Stafford or Plus Loan an origination fee in an
amount not to exceed 3% of the principal amount of the loan. These fees must be
deducted proportionately from each installment payment of the loan proceeds
prior to payment to the borrower and are not retained by the lender, but must be
passed on to the Secretary of Education. Effective October 1, 1998, eligible
lenders that charge origination fees must assess the same fees to all student
borrowers from the same State, unless a borrower demonstrates greater financial
need based on income. The Balanced Budget and Deficit Control Act of 1985, as
amended, known as the Gramm-Rudman Law, requires the President to issue a
sequester order for any federal fiscal year in which the projected budget
exceeds the target for that year. For all FFEL Program loans made during the
period when a sequestration order is in effect, origination fees shall be
increased by 0.50 percentage point.
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Lender Loan Fee. The lender of any loan under the FFEL Program made on
or after October 1, 1993 is required to pay to the Secretary of Education a fee
equal to 0.5% of the principal amount of such loan.
The Secretary of Education is authorized to collect from the lender or a
subsequent holder of the loan the maximum origination fee authorized to be
charged by the lender, regardless of whether the lender actually charges the
borrower, and the lender loan fee, either through reductions in Special
Allowance Payments and Interest Subsidy Payments or directly from the lender or
holder.
Rebate Fee on Consolidation Loans. The holder of any Consolidation Loan
made on or after October 1, 1993 is required to pay to the Secretary of
Education a monthly fee equal to .0875% (1.05% per annum) of the principal
amount of, and accrued interest on, such Consolidation Loan; provided that, for
Consolidation Loans based on applications received during the period from
October 1, 1998 through January 31, 1999, the monthly fee shall equal .0517%
(0.62% per annum).
Loan Guarantees
Under the FFEL Program, guarantee agencies are required to guarantee the
payment of 98% of the principal amount of loans made on or after October 1, 1993
and not less than 100% of the principal amount of loans made prior to October 1,
1993 and covered by their respective guarantee programs. For a description of
the requirements for loans to be covered by such guarantees, see "Description of
the Guarantee Agencies." Under some circumstances, guarantees may be assumed by
the Secretary of Education or another guarantee agency. See "Contracts with
Guarantee Agencies" below.
Contracts with Guarantee Agencies
Under the FFEL Program, the Secretary of Education is authorized to
enter into guaranty and interest subsidy agreements with guarantee agencies. The
FFEL Program provides for reimbursements to guarantee agencies for default
claims paid by guarantee agencies, support payments to guarantee agencies for
administrative and other expenses, advances for a guarantee agency's reserve
funds, and Interest Subsidy Payments and Special Allowance Payments to the
holders of qualifying student loans made pursuant to the FFEL Program.
The 1998 Reauthorization Amendments significantly modify requirements
regarding guarantee agencies' reserves and sources of revenues and authorized
the Secretary of Education to enter into agreements with guarantee agencies
which modify or waive many of the requirements of the FFEL Program covered under
existing agreements and otherwise required by the Higher Education Act. See
"Description of the Guarantee Agencies--1998 Reauthorization Amendments."
The Secretary of Education has oversight powers over guarantee agencies.
Guarantee agencies are required to maintain their Federal Funds, as defined
below, at a current minimum reserve level of at least 0.25 percent of the total
amount of all outstanding loans guaranteed by
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such agency, excluding some loans transferred to the guarantee agency from an
insolvent guarantee agency pursuant to a plan of the Secretary of Education. If
a guarantee agency falls below the required level in two consecutive years, its
claims rate exceeds 5% in any year, or the Secretary of Education determines
that the agency's administrative or financial condition jeopardizes its ability
to meet its obligations, the Secretary of Education can require the guarantee
agency to submit and implement a plan by which it will correct such problem(s).
If a guarantee agency fails to timely submit an acceptable plan or fails to
improve its condition, or if the Secretary of Education determines that the
guarantee agency is in danger of financial collapse, the Secretary of Education
may terminate the guarantee agency's reimbursement contract. The Secretary of
Education also may terminate such reimbursement contracts if the Secretary of
Education determines that such action is necessary to protect the federal fiscal
interest or to ensure continued availability of student loans.
The Secretary of Education is authorized to assume the guarantee
obligations of a guarantee agency. The Higher Education Act now provides that,
if the Secretary of Education terminates a guarantee agency's agreements under
the FFEL Program, the Secretary of Education shall assume responsibility for all
functions of the guarantee agency under its program. To that end, the Secretary
of Education is authorized to, among other options, transfer the guarantees to
another guarantee agency or assume the guarantees. It also provides that if the
Secretary of Education has determined that a guarantee agency is unable to meet
its guarantee obligations, holders of loans guaranteed by such guarantee agency
may submit claims directly to the Secretary of Education for payment, unless the
Secretary of Education has provided for the assumption of such guarantees by
another guarantee agency.
Federal Reimbursement
A guarantee agency's right to receive federal reimbursements for various
guarantee claims paid by such guarantee agency is governed by the Higher
Education Act and various contracts entered into between guarantee agencies and
the Secretary of Education. See "Description of the Guarantee Agencies--Federal
Agreements." Under the Higher Education Act and the federal reimbursement
contracts, as described under "Description of the Guarantee Agencies--Federal
Agreements," the Secretary of Education currently agrees to reimburse a
guarantee agency for the amounts expended by the guarantee agency in the
discharge of its guarantee obligation (i.e., the unpaid principal balance of and
accrued interest on loans guaranteed by the guarantee agency, which loans are
referred to as guaranteed loans) as a result of the default of the borrower. The
Secretary of Education currently agrees to reimburse the guarantee agency for up
to 100% of the amounts so expended with respect to loans made prior to October
1, 1993; 98% of the amount expended with respect to guaranteed loans made on or
after October 1, 1993 but before October 1, 1998; and 95% of the amount expended
with respect to guaranteed loans made on or after October 1, 1998. Depending on
the claims rate experience of a guarantee agency, such 100%, 98% or 95%
reimbursement may be reduced as discussed in the formula described below. The
Secretary of Education also agrees to repay 100% of the unpaid principal plus
applicable accrued interest expended by a guarantee agency in discharging its
guarantee obligation as a result of the bankruptcy, death, or total and
permanent disability of a borrower, or in the case of a Plus Loan, the death of
the student on behalf of whom the loan was borrowed, or in some circumstances,
as a result of school closures, or if a school fails to make a refund of loan
proceeds which the school
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owed to a student's lender, which reimbursements are not to be included in the
calculations of the guarantee agency's Claims Rate experience for the purpose of
federal reimbursement under the federal reimbursement contracts.
The formula for computing the percentage of federal reimbursement under
the federal reimbursement contracts is not accumulated over a period of years
but is measured by the amount of federal reimbursement payments in any one
federal fiscal year as a percentage of the original principal amount of loans
under the FFEL Program guaranteed by the guarantee agency and in repayment at
the end of the preceding fiscal year. Under the formula, federal reimbursement
payments to a guarantee agency in any one fiscal year not exceeding 5% of the
original principal amount of loans in repayment at the end of the preceding
fiscal year are to be paid by the Secretary of Education at 100% for loans made
before October 1, 1993; 98% for loans made on or after October 1, 1993 but
before October 1, 1998; and 95% for loans made on or after October 1, 1998.
Beginning at any time during any fiscal year that federal reimbursement payments
exceed 5%, and until such time as they may exceed 9%, of the original principal
amount of loans in repayment at the end of the preceding fiscal year, then
reimbursement payments on claims submitted during that period are to be paid at
90% for loans made before October 1, 1993; 88% for loans made on or after
October 1, 1993 but before October 1, 1998; and 85% for loans made on or after
October 1, 1998. Beginning at any time during any fiscal year that federal
reimbursement payments exceed 9% of the original principal amount of loans in
repayment at the end of the preceding fiscal year, then such payments for the
balance of that fiscal year will be paid at 80% for loans made before October 1,
1993; 78% for loans made on or after October 1, 1993 but before October 1, 1998;
and 75% for loans made on or after October 1, 1998. The original principal
amount of loans in repayment for purposes of computing reimbursement payments to
a guarantee agency means the original principal amount of all loans guaranteed
by such guarantee agency less: (1) guarantee payments on such loans, (2) the
original principal amount of such loans that have been fully repaid, and (3) the
original principal amount of such loans for which the first principal
installment payment has not become due or such first installment need not be
paid because of a deferment period.
Under present practice, after the Secretary of Education reimburses a
guarantee agency for a default claim paid on a guaranteed loan, the guarantee
agency continues to seek repayment from the borrower. The guarantee agency
returns to the Secretary of Education payments that it receives from a borrower
after deducting and retaining (1) a percentage amount equal to the complement of
the reimbursement percentage in effect at the time the loan was reimbursed, and
(2) an amount equal to 24%, or 23% beginning on October 1, 2003, and 18 1/2% in
the case of a payment from the proceeds of a Consolidation Loan, of such
payments for some administrative costs. The Secretary of Education may, however,
require the assignment to the Secretary of Education of defaulted guaranteed
loans, in which event no further collections activity need be undertaken by the
guarantee agency, and no amount of any recoveries shall be paid to the guarantee
agency.
A guarantee agency may enter into an addendum to its interest subsidy
agreement, which addendum provides for the guarantee agency to refer to the
Secretary of Education some defaulted guaranteed loans. Such loans are then
reported to the Internal Revenue Service to offset any tax refunds which may be
due any defaulted borrower. To the extent that the guarantee agency has
originally received less than 100% reimbursement from the Secretary of Education
with respect to such a referred loan, the guarantee agency will not recover any
amounts subsequently collected by
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the federal government which are attributable to that portion of the defaulted
loan for which the guarantee agency has not been reimbursed.
Rehabilitation of Defaulted Loans
Under Section 428F of the Higher Education Act, the Secretary of
Education is authorized to enter into an agreement with a guarantee agency
pursuant to which the guarantee agency shall sell defaulted loans that are
eligible for rehabilitation to an eligible lender. The guarantee agency shall
repay the Secretary of Education an amount equal to 81.5% of the then current
principal balance of such loan, multiplied by the reimbursement percentage in
effect at the time the loan was reimbursed. The amount of such repayment shall
be deducted from the amount of federal reimbursement payments for the fiscal
year in which such repayment occurs, for purposes of determining the
reimbursement rate for that fiscal year.
For a loan to be eligible for rehabilitation, the guarantee agency must
have received consecutive payments for 12 months of amounts owed on such loan.
Upon rehabilitation, a loan is eligible for all the benefits under the Higher
Education Act for which it would have been eligible had no default occurred,
except that a borrower's loan may only be rehabilitated once.
Eligibility for Federal Reimbursement
To be eligible for federal reimbursement payments, guaranteed loans must
be made by an eligible lender under the applicable guarantee agency's guarantee
program, which must meet requirements prescribed by the rules and regulations
promulgated under the Higher Education Act, including the borrower eligibility,
loan amount, disbursement, interest rate, repayment period and guarantee fee
provisions described herein and the other requirements set forth in Section
428(b) of the Higher Education Act.
Under the Higher Education Act, a guaranteed loan, for which the first
day of delinquency is on or after October 7, 1998, must be delinquent for 270
days if it is repayable in monthly installments or 330 days if it is payable in
less frequent installments before a lender may obtain payment on a guarantee
from the guarantee agency. These time periods were 180 days and 240 days,
respectively, for loans for which the first day of delinquency was before
October 7, 1998. The guarantee agency must pay the lender for the defaulted loan
prior to submitting a claim to the Secretary of Education for reimbursement. The
guarantee agency must submit a reimbursement claim to the Secretary of Education
within 45 days after it has paid the lender's default claim. As a prerequisite
to entitlement to payment on the guarantee by the guarantee agency, and in turn
payment of reimbursement by the Secretary of Education, the lender must have
exercised reasonable care and diligence in making, servicing and collecting the
guaranteed loan. Generally, these procedures require that completed loan
applications be processed, a determination of whether an applicant is an
eligible borrower attending an eligible institution under the Higher Education
Act 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
that the loan proceeds be disbursed by the lender in a specified manner. After
the loan is made, the lender must establish repayment terms with the borrower,
properly administer deferments and forbearances and credit the borrower for
payments made. If a borrower becomes delinquent in repaying a loan, a lender
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must perform collection procedures, primarily telephone calls, demand letters,
skiptracing procedures and requesting assistance from the applicable guarantee
agency, that vary depending upon the length of time a loan is delinquent.
Federal Interest Subsidy Payments
Interest Subsidy Payments are interest payments paid with respect to an
eligible loan during the period prior to the time that the loan enters repayment
and during grace and deferment periods. The Secretary of Education and the
guarantee agencies entered into the interest subsidy agreements as described in
"Description of the Guarantee Agencies--Federal Agreements," where the Secretary
of Education agrees to pay Interest Subsidy Payments to the holders of eligible
guaranteed loans for the benefit of students meeting applicable requirements,
subject to the holders' compliance with all requirements of the Higher Education
Act. Only Stafford Loans, and Consolidation Loans for which the application was
received on or after January 1, 1993, are eligible for Interest Subsidy
Payments. Consolidation Loans made after August 10, 1993 are eligible for
Interest Subsidy Payments only if all loans consolidated are Stafford Loans,
except that Consolidation Loans for which the application is received by an
eligible lender on or after November 13, 1997, are eligible for Interest Subsidy
Payments on that portion of the Consolidation Loan that repays Stafford Loans or
similar subsidized loans made under the direct loan program. In addition, to be
eligible for Interest Subsidy Payments, guaranteed loans must be made by an
eligible lender under the applicable guarantee agency's guarantee program, and
must meet requirements prescribed by the rules and regulations promulgated under
the Higher Education Act, including the borrower eligibility, loan amount,
disbursement, interest rate, repayment period and guarantee fee provisions
described herein and the other requirements set forth in Section 428(b) of the
Higher Education Act.
The Secretary of Education makes Interest Subsidy Payments quarterly on
behalf of the borrower to the holder of a guaranteed loan in a total amount
equal to the interest which accrues on the unpaid principal amount prior to the
commencement of the repayment period of the loan or during any deferment period.
A borrower may elect to forego Interest Subsidy Payments, in which case the
borrower is required to make interest payments.
Federal Advances
Pursuant to agreements entered into between the guarantee agencies and
the Secretary of Education under Sections 422 and 422(c) of the Higher Education
Act, the Secretary of Education was authorized to advance moneys from time to
time to the guarantee agencies for the purpose of establishing and strengthening
the guarantee agencies' reserves. Section 422(c) currently authorizes the
Secretary of Education to make advances to guarantee agencies in various
circumstances, on terms and conditions satisfactory to the Secretary, including
if the Secretary is seeking to terminate the guarantee agency's reimbursement
contract or assume the guarantee agency's functions, to assist the guarantee
agency in meeting its immediate cash needs or to ensure the uninterrupted
payment of claims.
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Federal Special Allowance Payments
The Higher Education Act provides for the payment by the Secretary of
Education of additional subsidies, called Special Allowance Payments, to holders
of qualifying student loans. The amount of the Special Allowance Payments, which
are made on a quarterly basis, is computed by reference to (1) for student loans
disbursed before January 1, 2000, the average of the bond equivalent rates of
the 91-day Treasury bills auctioned during the preceding quarter (the "91-day T-
Bill Rate"), or (2) for student loans disbursed on or after January 1, 2000, and
before July 1, 2003, the average of the bond equivalent rates of the quotes of
the 3-month commercial paper (financial) rates in effect for each of the days in
the quarter, as reported by the Federal Reserve in Publication H-15 or its
successor (the "Commercial Paper Rate"). The quarterly rate for Special
Allowance Payments for student loans made on or after October 1, 1981 is
computed by subtracting the applicable interest rate on such loans from the 91-
day T-Bill Rate or the Commercial Paper Rate, as applicable, adding a percent
specified by the Higher Education Act (the "Applicable SAP Percent") to the
resulting percent, and dividing the resulting percent by four. The Applicable
SAP Percent varies based on the type of loan and when the loan was made, often
determined by when the first disbursement was made. In general, the Applicable
SAP Percent:
. for loans made before November 16, 1986, is 3.5%;
. for loans made on or after November 16, 1986, or loans to cover the
costs of instruction for periods of enrollment beginning on or after
November 16, 1986, but made before October 1, 1992, is 3.25%;
. for loans made on or after October 1, 1992, is 3.1% (except as noted
below);
. for Stafford and Unsubsidized Stafford Loans made on or after July 1,
1995 but before July 1, 1998, is 2.5% prior to the time such loans
enter repayment and during any deferment periods;
. for Stafford and Unsubsidized Stafford Loans made on or after July 1,
1998 and before January 1, 2000, is 2.2% prior to the time such loans
enter repayment and during any deferment periods, and 2.8% while such
loans are in repayment
. for Stafford and Unsubsidized Stafford Loans made on or after January
1, 2000 and before July 1, 2003, is 1.74% prior to the time such
loans enter repayment and during any deferment periods, and 2.34%
while such loans are in repayment; or
. for PLUS Loans and Consolidation Loans made on or after January 1,
2000 and before July 1, 2003, is 2.64%.
For loans other than Consolidation Loans made on or after July 1, 2003,
the special allowance formula is to be revised similarly to the manner in which
the applicable interest rate formula is revised, as described above under "Loan
Terms--Interest Rates--Stafford Loans." The Higher Education Act currently
provides that the quarterly rate for Special Allowance Payments for
Consolidation Loans for which the application is received on or after July 1,
2003 will be
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computed by subtracting the applicable interest rate on such loans from the 91-
day T-Bill Rate, adding 3.1%, and dividing the resulting rate by four.
For Plus and SLS Loans which bear interest at rates adjusted annually,
Special Allowance Payments are made only in years during which the interest rate
ceiling on such loans operates to reduce the rate that would otherwise apply
based upon the applicable formula. See "Loan Terms--Interest Rates--Plus Loans"
and "SLS Loans" above. Special Allowance Payments are paid with respect to Plus
Loans made on or after July 1, 1994 but before July 1, 1998 only if the rate
that would otherwise apply exceeds 10% per annum, notwithstanding that the
interest rate ceiling on such loans is 9% per annum.
For Consolidation Loans for which the application is received (1) on or
after October 1, 1998 but before January 1, 2000, Special Allowance Payments are
only made for quarters during which the 91-day T-Bill Rate plus 3.1% exceeds the
applicable interest rate on such loans, or (2) on or after January 1, 2000 but
before July 1, 2003, Special Allowance Payments are only made for quarters
during which the Commercial Paper Rate plus 2.64% exceeds the applicable
interest rate on such loans. The portion, if any, of a Consolidation Loan that
repaid a loan made under the HEAL Program is ineligible for Special Allowance
Payments.
The Higher Education Act provides that if Special Allowance Payments or
Interest Subsidy Payments have not been made within 30 days after the Secretary
of Education receives an accurate, timely and complete request, the special
allowance payable to such holder shall be increased by an amount equal to the
daily interest accruing on the special allowance and Interest Subsidy Payments
due the holder.
Special Allowance Payments and Interest Subsidy Payments are reduced by
the amount which the lender is authorized or required to charge as an
origination fee, as described above under "Loan Terms--Fees--Origination Fee."
In addition, the amount of the lender loan fee described above under
"Loan Terms--Fees--Lender Loan Fees" is collected by offset to Special Allowance
Payments and Interest Subsidy Payments.
Federal Student Loan Insurance Fund
The Higher Education Act authorizes the establishment of a Student Loan
Insurance Fund by the Federal government for making the federal insurance and
the federal reimbursement payments on defaulted student loans to guarantee
agencies. If moneys in the fund are insufficient to make the federal payments on
defaults of such loans, the Secretary of Education is authorized, to the extent
provided in advance by appropriation acts, to issue to the Secretary of the
Treasury obligations containing terms and conditions prescribed by the Secretary
of Education and approved by the Secretary of the Treasury, bearing interest at
a rate determined by the Secretary of the Treasury. The Secretary of the
Treasury is authorized and directed by the Higher Education Act to purchase such
obligations.
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Direct Loans
The 1993 Amendments authorized a program of direct loans (the "Federal
Direct Student Loan Program") to be originated by schools with funds provided by
the Secretary of Education. Under the Federal Direct Student Loan Program, the
Secretary of Education is directed to enter into agreements with schools, or
origination agents in lieu of schools, to disburse loans with funds provided by
the Secretary. Participation in the program by schools is voluntary. The 1993
amendments established volume goals for the Federal Direct Student Loan Program
during academic years 1994 through 1999. The 1998 Reauthorization Amendments
repealed these goals.
The loan terms are generally the same under the Federal Direct Student
Loan Program as under the FFEL Program. At the discretion of the Secretary of
Education, students attending schools that participate in the Federal Direct
Student Loan Program, and their parents, may still be eligible for participation
in the FFEL Program, though no borrower could obtain loans under both programs
for the same period of enrollment.
It is difficult to predict the impact of the Federal Direct Student Loan
Program. There is no way to accurately predict the number of schools that will
participate in future years, or, if the Secretary authorizes students attending
participating schools to continue to be eligible for FFEL Program loans, how
many students will seek loans under the Federal Direct Student Loan Program
instead of the FFEL Program. In addition, it is impossible to predict whether
future legislation will eliminate, limit or expand the Federal Direct Student
Loan Program or the FFEL Program.
DESCRIPTION OF THE GUARANTEE AGENCIES
General
The financed Eligible Loans for a series of notes may be guaranteed by
any one or more guarantee agencies identified in the related prospectus
supplement. The following discussion relates to guarantee agencies under the
FFEL Program.
A guarantee agency guarantees loans made to students or parents of
students by lending institutions such as banks, credit unions, savings and loan
associations, some schools, pension funds and insurance companies. A guarantee
agency generally purchases defaulted student loans which it has guaranteed from
its cash and reserves constituting its guarantee fund. A lender may submit a
default claim to the guarantee agency after the student loan has been delinquent
for at least 270 days. The default claim package must include all information
and documentation required under the FFEL Program regulations and the guarantee
agency's policies and procedures. Under the guarantee agencies' current
procedures, assuming that the default claim package complies with the guarantee
agency's loan procedures manual or regulations, the guarantee agency pays the
lender for a default claim within 90 days of the lender's filing the claim with
the guarantee agency, which generally is expected to be 390 days following the
date a loan becomes delinquent. The guarantee agency will pay the lender
interest accrued on the loan for up to 450 days after delinquency. The guarantee
agency must file a reimbursement claim with the Department of Education within
45 days after the guarantee agency has paid the lender for the default claim.
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In general, a guarantee agency's guarantee fund has been funded
principally by administrative cost allowances paid by the Secretary of
Education, guarantee fees paid by lenders, the cost of which may be passed on to
borrowers, investment income on moneys in the guarantee fund, and a portion of
the moneys collected from borrowers on guaranteed loans that have been
reimbursed by the Secretary of Education to cover the guarantee agency's
administrative expenses.
The Secretary of Education is required to demand payment on September 1,
2002 of a total of one billion dollars from all the guarantee agencies
participating in the FFEL Program. The amounts to be demanded of each guarantee
agency shall be determined in accordance with formulas included in the Higher
Education Act. Each guarantee agency will be required to deposit funds in a
restricted account in installments, beginning in the federal fiscal year ending
September 30, 1998, to provide for such payment. The Secretary of Education has
made the determinations, and advised the guarantee agencies, of the amounts
required to be so transferred by the guarantee agencies. The 1998
Reauthorization Amendments include significant changes affecting the financial
structure of guarantee agencies in the FFEL Program and their sources of
revenue. These changes will affect the guarantee agencies and their guarantee
funds. See "1998 Reauthorization Amendments" below.
Additionally, the adequacy of a guarantee agency's guarantee fund to
meet its guarantee obligations with respect to existing student loans depends,
in significant part, on its ability to collect revenues generated by new loan
guarantees. The Federal Direct Student Loan Program may adversely affect the
volume of new loan guarantees. Future legislation may make additional changes to
the Higher Education Act that would significantly affect the revenues received
by guarantee agencies and the structure of the guarantee agency program. There
can be no assurance that relevant federal laws, including the Higher Education
Act, will not be further changed in a manner that may adversely affect the
ability of a guarantee agency to meet its guarantee obligations. For a more
complete description of provisions of the Higher Education Act that relate to
payments described in this paragraph or affect the funding of a guarantee fund,
see "Description of the FFEL Program."
Information relating to the particular guarantee agencies guaranteeing
the financed Eligible Loans will be set forth in the prospectus supplement. Such
information will be provided by the respective guarantee agencies, and neither
such information nor information included in the reports referred to therein has
been verified by, or is guaranteed as to accuracy or completeness by, EdLinc,
the transferor or the underwriters. No representation is made by EdLinc, the
transferor or the underwriters as to the accuracy or adequacy of such
information or the absence of material adverse changes in such information
subsequent to the dates thereof.
Department of Education Oversight
The Higher Education Act gives the Secretary of Education various
oversight powers over guarantee agencies. These include requiring a guarantee
agency to maintain its guarantee fund at a required level and taking various
actions relating to a guarantee agency if its administrative and financial
condition jeopardizes its ability to meet its obligations. These actions
include, among others, providing advances to the guarantee agency, terminating
the guarantee agency's federal reimbursement contracts, assuming responsibility
for all functions of the guarantee agency, and
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transferring the guarantee agency's guarantees to another guarantee agency or
assuming such guarantees. The Higher Education Act provides that a guarantee
agency's guarantee fund, except to the extent applicable to the "Operating Fund"
described below under "1998 Reauthorization Amendments," shall be considered to
be the property of the United States to be used in the operation of the FFEL
Program or the Federal Direct Student Loan Program, and, under some
circumstances, the Secretary of Education may demand payment of amounts in the
guarantee fund.
Pursuant to Section 432(o) of the Higher Education Act, if the
Department of Education has determined that a guarantee agency is unable to meet
its insurance obligations, the holders of loans guaranteed by such guarantee
agency may submit claims directly to the Department of Education and the
Department of Education is required to pay the full guarantee payment due in
accordance with guarantee claim processing standards no more stringent than
those applied by the guarantee agency. The Department of Education's obligation
to pay guarantee claims directly in this fashion, however, is contingent upon
the Department of Education making the determination referred to above. There
can be no assurance that the Department of Education would ever make such a
determination with respect to a guarantee agency or, if such a determination
were made, that such determination or the ultimate payment of such guarantee
claims would be made in a timely manner. See "Description of the FFEL Program."
There are no assurances as to the Secretary of Education's actions if a
guarantee agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a guarantee agency transfer
additional portions or all of its guarantee fund to the Secretary of Education.
Federal Agreements
Each guarantee agency and the Secretary of Education have entered into
federal reimbursement contracts pursuant to Section 428(c) of the Higher
Education Act, which include, for older guarantee agencies, a supplemental
contract pursuant to former Section 428A of the Higher Education Act, which
provide for the guarantee agency to receive reimbursement of a portion of
insurance payments that the guarantee agency makes to eligible lenders with
respect to loans guaranteed by the guarantee agency prior to the termination of
the federal reimbursement contracts or the expiration of the authority of the
Higher Education Act. The portion of reimbursement received by the Board of
Regents ranges from 80% to 100% for loans made prior to October 1, 1993; 78% to
98% for loans made on or after October 1, 1993 but before October 1, 1998; and
75% to 95% for loans made on or after October 1, 1998. See "Effect of Annual
Claims Rate" below. The federal reimbursement contracts provide for termination
under some circumstances and also provide for actions short of termination by
the Secretary of Education to protect the federal interest. See "Description of
the FFEL Program--Contracts with Guarantee Agencies--Federal Reimbursement."
In addition to guarantee benefits, qualified Stafford Loans, and some
Consolidation Loans, acquired under the FFEL Program benefit from federal
subsidies. Each guarantee agency and the Secretary of Education have entered
into an interest subsidy agreement under Section 428(b) of the Higher Education
Act, which entitles the holders of eligible loans guaranteed by the guarantee
agency to receive Interest Subsidy Payments from the Secretary of Education on
behalf of some
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students while the student is in school, during a six to twelve month grace
period after the student leaves school, and during some deferment periods,
subject to the holders' compliance with all requirements of the Higher Education
Act. See "Description of the FFEL Program--Contracts with Guarantee Agencies--
Federal Interest Subsidy Payments" for a more detailed description of the
Interest Subsidy Payments.
United States Courts of Appeals have held that the federal government,
through subsequent legislation, has the right unilaterally to amend the
contracts between the Secretary of Education and the guarantee agencies
described herein. Amendments to the Higher Education Act since 1986
. abrogated rights of guarantee agencies under contracts with
the Secretary of Education relating to the repayment of
advances from the Secretary of Education,
. authorized the Secretary of Education to withhold
reimbursement payments otherwise due to some guarantee
agencies until specified amounts of such guarantee agencies'
reserves had been eliminated,
. added new reserve level requirements for guarantee agencies
and authorized the Secretary of Education to terminate the
federal reimbursement contracts under circumstances that did
not previously warrant such termination, and
. expanded the Secretary of Education's authority to terminate
such contracts and to seize guarantee agencies' reserves.
There can be no assurance that future legislation will not further adversely
affect the rights of the guarantee agencies, or holders of loans guaranteed by a
guarantee agency under such contracts.
Effect of Annual Claims Rate
A guarantee agency's ability to meet its obligation to pay default
claims on financed Eligible Loans will depend on the adequacy of its guarantee
fund, which will be affected by the default experience of all lenders under the
guarantee agency's guarantee program. A high default experience among lenders
participating in a guarantee agency's guarantee program may cause the guarantee
agency's Claims Rate, as defined below, for its guarantee program to exceed the
5% and 9% levels described below, and result in the Secretary of Education
reimbursing the guarantee agency at lower percentages of default claims payments
made by the guarantee agency.
In general, guarantee agencies are currently entitled to receive
reimbursement payments under the federal reimbursement contracts in amounts that
vary depending on the Claims Rate experience of the guarantee agency. The Claims
Rate is computed by dividing total default claims since the previous September
30 by the total original principal amount of the guarantee agency's guaranteed
loans in repayment on such September 30. On October 1 of each year the Claims
Rate begins at zero, regardless of the experience in preceding years. For loans
made prior to October 1, 1993, if the Claims Rate remains equal to or below 5%
within a given federal fiscal year, for example October 1 through September 30,
the Secretary of Education is currently obligated to
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provide 100% reimbursement; if and when the Claims Rate exceeds 5% and until
such time, if any, as it exceeds 9% during the fiscal year, the reimbursement
rate is at 90%; if and when the Claims Rate exceeds 9% during the fiscal year,
the reimbursement rate for the remainder of the fiscal year is at 80%. For loans
made prior to October 1, 1993, each guarantee agency is currently entitled to at
least 80% reimbursement from the Secretary of Education on default claims that
it purchases, regardless of its Claims Rate. The reimbursement percentages for
loans made on or after October 1, 1993, but before October 1, 1998, are reduced
from 100%, 90% and 80% to 98%, 88% and 78%, respectively. The reimbursement
percentages for loans made on or after October 1, 1998 are further reduced to
95%, 85% and 75%, respectively. See "Description of the FFEL Program--Federal
Reimbursement."
1998 Reauthorization Amendments
General
The 1998 Reauthorization Amendments, enacted October 7, 1998, made
various changes to the Higher Education Act affecting guarantee agencies in the
FFEL Program, including the following:
. each guarantee agency had to establish a federal student loan
reserve fund (the "Federal Fund") and an agency operating fund (the
"Operating Fund") prior to December 7, 1998, each of which must be
funded, invested and used as prescribed by the 1998 Reauthorization
Amendments;
. each guarantee agency's sources of revenue have been modified;
. additional reserves of guarantee agencies have been recalled; and
. the Secretary of Education and a guarantee agency may enter into
voluntary flexible agreements in lieu of existing agreements.
The following briefly summarizes these changes.
The Federal Fund and the Operating Fund
Each guarantee agency was required to deposit prior to December 7, 1998,
all funds, securities and other liquid assets contained in its reserve fund into
the Federal Fund that it established, which shall be an account selected by the
guarantee agency with the approval of the Secretary of Education. The Federal
Fund, and any nonliquid asset, such as a building or equipment, developed or
purchased by the guarantee agency in whole or in part with federal reserve funds
of the guarantee agency, shall be considered to be property of the United
States, prorated based on the percentage of such asset developed or purchased
with federal reserve funds, which must be used in the operation of the FFEL
Program to pay lender guarantee claims, to pay Default Aversion Fees, as defined
below, into the guarantee agency's Operating Fund, and to the extent permitted,
to make transition payments into the Operating Fund and for other uses permitted
by the Secretary of Education's regulations. The Secretary of Education may
direct a guarantee
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agency, or its officers and directors, to cease any activity involving
expenditures, use or transfer of the Federal Fund that the Secretary of
Education determines is a misapplication, misuse or improper expenditure of the
Federal Fund or the Secretary of Education's share of such asset. A guarantee
agency is required to maintain in the Federal Fund a current minimum reserve
level of at least 0.25 percent of the total amount of all outstanding loans
guaranteed by such Agency, excluding some loans transferred to the guarantee
agency from an insolvent guarantee agency pursuant to a plan of the Secretary of
Education.
After the Federal Fund is established, the guarantee agency is required
to deposit into the Federal Fund all reinsurance payments received from the
Secretary of Education; from amounts collected from defaulted borrowers, a
percentage amount equal to the complement of the reinsurance percentage in
effect when the guarantee payment was made; all insurance premiums collected
from borrowers; all amounts received from the Secretary of Education as payment
for supplemental preclaims assistance activity performed prior to October 7,
1998; 70 percent of administrative cost allowances received from the Secretary
of Education after October 7, 1998 for loans guaranteed prior to that date; and
other receipts specified in regulations of the Secretary of Education. Funds
transferred to the Federal Fund are required to be invested in low-risk
securities and all earnings from the Federal Fund shall be the sole property of
the United States.
Each guarantee agency also was required to establish its Operating Fund
prior to December 7, 1998. The 1998 Reauthorization Amendments include various
transition rules allowing a guarantee agency to transfer transition amounts from
its Federal Fund to its Operating Fund from time to time during the first three
years following the establishment of the Operating Fund for use in the
performance of the guarantee agency's duties under the FFEL Program. In
determining the amounts that it may transfer, the guarantee agency must ensure
that sufficient funds remain in the Federal Fund to pay lender claims within the
required time periods and to meet reserve recall requirements. In general, the
transition rules require repayment to the Federal Fund of transition amounts
transferred therefrom to the Operating Fund.
The Operating Fund shall be considered to be the property of the
guarantee agency, except for transition amounts transferred from the Federal
Fund. The Secretary of Education may not regulate the uses or expenditure of
moneys in the Operating Fund, but may require necessary reports and audits,
except during any period in which transition funds are owed to the Federal Fund.
During such period, moreover, moneys in the Operating Fund may only be used for
expenses related to the FFEL Program.
Funds deposited into the Operating Fund shall be invested at the
discretion of the guarantee agency in accordance with prudent investor
standards, except that transition amounts transferred to the Operating Fund from
the Federal Fund must be invested in the same manner as amounts in the Federal
Fund. After establishing the Operating Fund, the guarantee agency shall deposit
into the Operating Fund: Loan Processing and Issuance Fees and Account
Maintenance Fees, as those terms are defined below, paid by the Secretary of
Education; Default Aversion Fees; 30 percent of administrative cost allowances
received from the Secretary of Education after October 7, 1998 for loans
guaranteed prior to that date; 24 percent, decreasing to 23 percent on and after
October 1, 2003, of amounts collected on defaulted loans, excluding such
collected amounts required to be
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transferred to the Federal Fund; and other receipts specified in regulations of
the Secretary of Education.
In general, funds in the Operating Fund shall be used by the guarantee
agency for application processing, loan disbursement, enrollment and repayment
status management, default aversion activities, default collection activities,
school and lender training, financial aid awareness and related outreach
activities, compliance monitoring, and other student financial aid related
activities, as selected by the guarantee agency. The guarantee agency may
transfer funds from the Operating Fund to the Federal Fund, however, such
transfers are irrevocable and transferred funds would become the property of the
United States.
Modifications in Sources of Revenue
The 1998 Reauthorization Amendments made the following modifications
with respect to principal sources of guarantee agency revenues:
. reduced reinsurance payment percentages for loans made on and
after October 1, 1998 as described above under "Effect of
Annual Claims Rate;"
. the percentage of the amount of collections on defaulted loans
that may be retained by the guarantee agency is reduced from
27 percent to 24 percent, with a further reduction to 23
percent on and after October 1, 2003;
. establishes a loan processing and issuance fee (the "Loan
Processing and Issuance Fee"), payable by the Secretary of
Education on a quarterly basis, equal to: (1) for loans
originated during fiscal years beginning on or after October
1, 1998 and before October 1, 2003, 0.65 percent of the total
principal amount of loans on which insurance was issued under
the FFEL Program during such fiscal year by the guarantee
agency, and (2) for loans originated during fiscal years
beginning on or after October 1, 2003, 0.40 percent of the
total principal amount of loans on which insurance was issued
under the FFEL Program during such fiscal year by the
guarantee agency;
. eliminates the discretionary administrative cost allowances or
expenses which had been paid at 0.85 percent of such amount;
. establishes a default aversion fee (the "Default Aversion
Fee") relating to default aversion activities required to be
undertaken by the guarantee agency, payable on a monthly basis
from the Federal Fund to the Operating Fund, in an amount
equal to 1 percent of the total unpaid principal and accrued
interest on a loan for which a default claim has not been paid
as a result of the loan being brought into current repayment
status on or before the 300th day after the loan becomes 60
days delinquent; and
. establishes an account maintenance fee (the "Account
Maintenance Fee"), payable by the Secretary of Education on a
quarterly basis (unless nationwide caps are met, in which case
the fee shall be transferred from the Federal Fund to the
Operating Fund), equal to (1) for fiscal years 1999 and 2000,
0.12 percent of the original principal
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amount of outstanding loans on which insurance was issued
under the FFEL Program, and (2) for fiscal years 2001, 2002
and 2003, 0.10 percent of the original principal amount of
outstanding loans on which insurance was issued under the FFEL
Program.
Additional Recalls of Reserves
The 1998 Reauthorization Amendments direct the Secretary of Education to
demand payment from all the guarantee agencies participating in the FFEL Program
of amounts held in their Federal Funds in fiscal years 2002 aggregating $85
million; 2006 aggregating $82.5 million; and 2007 aggregating $82.5 million. The
amounts demanded of each guarantee agency are determined in accordance with
formulas included in Section 422(i) of the Higher Education Act. If a guarantee
agency charges the maximum permitted 1 percent insurance premium, however, the
recall may not result in the depletion of such guarantee agency's reserve funds
below an amount equal to the amount of lender claim payments paid during the 90
days prior to the date of return.
Voluntary Flexible Agreements
The 1998 Reauthorization Amendments authorize the Secretary of Education
to enter into agreements with guarantee agencies which modify or waive many of
the requirements of the FFEL Program covered under existing agreements and
otherwise required by the Higher Education Act, including the sources and uses
of revenues and funds of guarantee agencies. The Secretary of Education is
authorized to enter into these "voluntary flexible agreements" with up to six
guarantee agencies during federal fiscal years 1999, 2000 and 2001, and with any
guaranty agency or consortium thereof beginning in federal fiscal year 2002. On
February 1, 2000, the Secretary of Education announced the selection of six
guarantee agencies with which these agreements would be negotiated. The
Secretary of Education has approved one of these agreements. Other guarantee
agencies have submitted proposals and conducted negotiations with the Department
of Education relating to the terms of these agreements, but no agreements have
been reached. One or more of these guarantee agencies may guarantee FFELP loans
held under the indenture.
DESCRIPTION OF THE ALTERNATIVE LOAN PROGRAMS
To the extent described in the prospectus supplement for a series, the
proceeds of such series may be used to purchase financed Alternative Loans
issued under one or more Alternative Loan Programs. The Alternative Loan
Programs will be specifically identified in the prospectus supplement with
respect to such series. The prospectus supplement may specify a maximum
percentage of financed Alternative Loans that may comprise part of the financed
Eligible Loans securing the notes. This summary identifies characteristics
common to most Alternative Loan Programs but is qualified by the specific
disclosure set forth in the related prospectus supplement.
Alternative Loans made under most Alternative Loan Programs are based on
the credit of the borrower or his or her parents or co-borrowers. In general,
applicants are required to have a minimum annual income and are evaluated as to
creditworthiness. In determining whether a student or co-borrower is
creditworthy, a credit bureau report is obtained for each applicant,
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including the student. The various Alternative Loan Programs have different
standards as to what constitutes a satisfactory credit history.
Eligible post-secondary borrowers of an Alternative Loan often are
required to be engaged in a course of study at a qualifying educational
institution, which may include two-year colleges, four-year colleges and
for-profit schools. Certain Alternative Loan Programs are specifically designed
for graduate or professional students, or for students attending elementary or
secondary private schools. The institutions generally must be located in the
United States or Canada. Often, the borrower, or a co-applicant, must be a
citizen or resident of the United States. Some Alternative Loans may be a
consolidation of existing Alternative Loans.
The amount that may be borrowed under an Alternative Loan Program varies
based upon the Alternative Loan Program. Typically, borrowers must borrow at
least a minimum amount with respect to any academic year, and may not borrow
more than a maximum amount per academic year, or a maximum amount under the
Alternative Loan Program. However, the amount of the Alternative Loan plus other
financial aid received by a student, normally may not exceed the cost of
education, as determined by the school.
A loan origination fee typically is deducted from the Alternative Loan
proceeds. All or a portion of this fee is paid to the originator of the
Alternative Loan and set aside as a reserve against possible default.
The interest rate on an Alternative Loan varies based upon the
Alternative Loan Program and can either be fixed or variable. Floating rates may
be based upon the prime rate or the T-Bill Rate, or some other objective
standard. Interest typically accrues at a rate equal to the index plus a margin,
sometimes subject to a maximum rate per annum, with the interest rate being
adjusted periodically.
Alternative Loan Programs usually permit a borrower to defer the
repayment of principal and, in some cases, interest, while the student is in
school, often up to a maximum number of years. In such event, principal
repayments, including deferred interest, typically begin within six months after
the student has left school. In some cases, repayment of an Alternative Loan may
be required to commence within 45 to 90 days following the borrowing. Most
Alternative Loan Programs permit prepayment of the Alternative Loan at any time
without penalty. Borrowers typically may schedule repayment over a 10- to
30-year period, subject to a minimum monthly payment obligation.
Alternative Loan Programs typically provide for an origination fee,
usually 4% to 6% of the amount of the loan, to be paid at the time of
origination of the loan.2000
DESCRIPTION OF THE NOTES
General
The notes will be issued in separate series pursuant to the terms of an
indenture of trust, as supplemented by a supplemental indenture relating to each
series, which will be entered into between EdLinc and the trustee. This
indenture of trust, as supplemented and amended, is referred
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to in this prospectus as the indenture. Any references in this prospectus to
notes generally, unless otherwise specified, are to all notes issued under the
Indenture. Any references in this prospectus to notes of a particular class,
unless otherwise specified, are to all notes of that class. Even though notes
will be issued in different series, they will all be part of the same issue,
secured by and payable from a common pool of assets comprising the Trust Estate
under the indenture, subject to certain priorities and exceptions as described
in this prospectus. Thus, all notes of a given class will have the same right to
be paid from the assets securing the notes as all other noteholders of the same
class, including noteholders of other series, except in those cases where a form
of credit enhancement has been provided only for the notes of a particular
series. The following summary describes the material terms of the notes. The
summary does not purport to be complete and is qualified in its entirety by
reference to the provisions of the notes, the indenture and the applicable
supplemental indenture, which provisions are incorporated by reference herein.
General Terms of Notes
Each series of notes will be created by and issued pursuant to a
supplemental indenture, which will designate the notes of that series as Senior
Notes, Subordinate Notes or Class C Notes.
The stated maturities and sinking fund payment dates of all notes will
occur on a June 1 or a December 1, unless otherwise specified in the related
supplemental indenture with respect to any series of variable rate notes, which
are notes bearing interest at a rate which varies from time to time in
accordance with a prescribed formula or method of determination. All EdLinc swap
payments and other payments to be made by EdLinc to credit facility providers
will be payable on a regularly scheduled interest payment date.
Except as may be otherwise provided in a supplemental indenture, in any
case where the principal of, premium, if any, or interest on the notes or
amounts due to any Other Beneficiary is due on a day other than a business day,
then payment thereof may be made on the next succeeding business day with the
same force and effect as if made on the date due and no interest will accrue for
the intervening period.
In the event a default occurs in the payment of any interest on any
note, interest will be payable thereon to the extent permitted by law on the
overdue installment of interest, at the interest rate borne by the note in
respect of which such interest is overdue.
The notes, including the principal, premium, if any, and interest and
any Carry-Over Amounts, and accrued interest, with respect thereto, and Other
Indenture Obligations are limited obligations of EdLinc, payable solely from the
revenues and assets of EdLinc pledged for that purpose under the indenture.
Issuance of Notes
Notes will be issued under the indenture only for the purposes of (a)
providing funds for the purchase or origination of Eligible Loans, (b) refunding
at or before their stated maturity any or all outstanding notes, and (c) paying
Administrative Costs, Note Fees, costs of issuance and capitalized interest on
the notes being issued and making deposits to the Reserve Fund.
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At any time, one or more series of notes may be issued upon compliance
with conditions specified in the indenture (including the requirement that each
Rating Agency shall have confirmed that no outstanding ratings on any of the
Outstanding Unenhanced Senior or Subordinate Notes will be reduced or withdrawn
as a result of such issuance) and any additional conditions specified in a
supplemental indenture.
It is expected that each class of the notes of a series will initially
be represented by one or more notes registered in the name of the nominee of DTC
acting as a securities depository. Notes generally will be available for
purchase in denominations of $50,000 and integral multiples thereof, for
variable rate notes, or $5,000 and integral multiples thereof, for fixed rate
notes, as the case may be, in book-entry form. EdLinc has been informed by DTC
that DTC's nominee will be Cede & Co. Accordingly, 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 or in the accompanying
prospectus supplement, no noteholder will be entitled to receive a physical
certificate representing his note. All references herein to actions by
noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein 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 with respect thereto. See "Book-Entry Registration" and
"Definitive Notes" below.
Comparative Security of Noteholders and Other Beneficiaries
The Senior Notes are equally and ratably secured under the indenture
with any Other Senior Obligations. The Senior Obligations have payment and other
priorities over the Subordinate Notes, the Other Subordinate Obligations and the
Class C Notes. The Subordinate Notes are equally and ratably secured under the
indenture with any Other Subordinate Obligations. The Subordinate Obligations
have payment and other priorities over the Class C Notes. See "Source of Payment
and Security for the Notes--Priorities." The Senior Notes and the Subordinate
Notes are each payable from the Note Fund and are secured by the Reserve Fund.
The Class C Notes are payable solely from the Surplus Fund.
EdLinc may at any time issue a series of notes, either as Senior Notes,
Subordinate Notes or Class C Notes or any combination thereof. In connection
with any such Senior Notes or Subordinate Notes, EdLinc may enter into a swap
agreement or credit enhancement facility as it deems in its best interest, and
the swap counterparty or the credit facility provider may become a Senior
Beneficiary or a Subordinate Beneficiary, as herein described. See "Source of
Payment and Security for the Notes--Additional Indenture Obligations."
Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement
Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement
No redemption, other than mandatory sinking fund redemption of Senior
Notes, prepayment of principal or purchase, other than on a Purchase Date or
mandatory tender date, of notes by the trustee will be effective under the
indenture unless, prior to the trustee giving notice of redemption, determining
that such prepayment will be made or soliciting such purchase, EdLinc furnishes
the trustee a certificate to the effect that:
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. if Senior Notes are to be called for redemption, prepaid or purchased,
either (A) after giving effect thereto, the Senior Asset Requirement
will be met, or (B) (1) prior thereto, the Senior Asset Requirement is
not being met, (2) no Subordinate Notes or Class C Notes will be
called for redemption, prepaid or purchased, and (3) after giving
effect thereto, the Senior Percentage will be greater than it would
have been without such redemption, prepayment or purchase;
. if Subordinate Notes are to be called for redemption, prepaid or
purchased, after giving effect thereto, the Senior Asset Requirement
will be met; and
. if Class C Notes are to be called for redemption, prepaid or
purchased, after giving effect thereto, the Senior Asset Requirement
will be met and there shall be no deficiency then existing in the Note
Fund or the Reserve Fund.
In general, compliance with the foregoing conditions is determined as of
the date of selection of notes to be called for redemption or as of the date on
which moneys are transferred to the Retirement Account to make any prepayment
and any failure to satisfy such conditions as of the redemption date or
prepayment date, as applicable, will not affect such determination; provided
that, if notes have been defeased and are to be called for redemption,
compliance with such conditions will be determined on the date of defeasance
instead of as of the date of selection. See "Discharge of Notes and Indenture"
below.
Any election to call notes for redemption or to prepay notes may also be
conditioned upon such additional requirements as may be set forth in the
supplemental indenture authorizing the issuance of such notes.
Interest
Interest will accrue on the principal balance of each class of notes of
a series at a specified rate per annum. Interest is expected to accrue initially
from and including the closing date on which the related series was issued, or
some other specified date, through and including the date set forth in the
related prospectus supplement. Thereafter, except as otherwise set forth in the
related prospectus supplement, interest will accrue for interest periods, which,
with respect to a series and class of notes, is the period of time in which
interest may accrue, consisting of (1) with respect to notes that bear interest
based upon LIBOR, which are referred to in this prospectus as LIBOR rate notes,
generally a one-month or three-month period beginning and ending on the dates
set forth in the related prospectus supplement, (2) with respect to notes that
bear interest at an auction rate, which are referred to in this prospectus as
auction rate notes, as set forth in the related prospectus supplement, (3) with
respect to fixed rate notes, which are notes that bear interest at a fixed rate,
the six-month periods ending on May 31 and November 30, or (4) with respect to
notes accruing interest based on some other method, the period set forth in the
related prospectus supplement. Interest on each class of notes of each series
will be payable on the interest payment dates described in the applicable
prospectus supplement.
If on any interest rate determination date, an auction for a class of
auction rate notes of a series is not held for any reason, then the interest
rate for such class of notes will be the Net Loan
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Rate or such other rate as may be described in a prospectus supplement. The
interest rate on each class of notes bearing interest based upon a method other
than LIBOR or an auction rate will be described in the related prospectus
supplement.
With respect to auction rate notes, EdLinc may, from time to time,
change the length of one or more auction periods, which are the interest periods
applicable to auction rate notes, to conform with then current market practice
or accommodate other economic or financial factors that may affect or be
relevant to the length of the auction period or any class interest rate. An
auction period adjustment will not cause an auction period to be less than 7
days nor more than one year and will not be allowed unless conditions specified
in the auction procedures described in the related prospectus supplement are
satisfied. If an auction period adjustment is made, the intervals between
interest payment dates will be adjusted accordingly.
Payment of Interest. Payments of interest will be made on each interest
payment date, as specified in the accompanying prospectus supplement. Interest
payments on the notes will be made from amounts available therefor in the
Interest Account, including amounts transferred from other funds and accounts
under the indenture.
Carry-Over Amounts. If set forth in a prospectus supplement, with
respect to any class of notes of a series for any interest period the LIBOR rate
plus the applicable margin or the auction rate, as the case may be, exceeds the
Net Loan Rate, the applicable interest rate for such class for such interest
period will be the Net Loan Rate, and the excess of the amount of interest on
such class that would have accrued at a rate equal to the LIBOR rate plus any
applicable margin or the auction rate, as appropriate, over the amount of
interest on such class actually accrued at the Net Loan Rate will accrue as the
Carry-Over Amount with respect to such class of notes. Such determination of the
Carry-Over Amount will be made separately for each class of each series of
notes. The Carry-Over Amount on any class of notes will bear interest at a rate
equal to the rate set forth in the related prospectus supplement, from the
interest payment date for the interest period for which the Carry-Over Amount
was calculated until paid.
Carry-Over Amounts will be paid as described under "Description of the
Indenture--Funds and Accounts--Interest Account."
Principal
All payments of principal of notes of a series will be made in amounts
determined as set forth in the related prospectus supplement and will be paid at
the times and will be allocated among the classes of notes of such series in the
order and amounts, all as specified in the related prospectus supplement.
Determination of LIBOR
Pursuant to the indenture, for each interest period after the initial
interest period, the trustee will determine the applicable LIBOR rate for
purposes of calculating the interest rate on the LIBOR rate notes for each given
interest period on a specified interest rate determination date preceding the
commencement of each interest period.
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LIBOR means the rate of interest per annum equal to the London interbank
offered rate for deposits in U.S. dollars having the applicable maturity, i.e.,
one month or three months, commencing on the related interest rate determination
date (the "Index Maturity") which appears on Telerate Page 5 as of 11:00 a.m.,
London time, on such interest rate determination date. If such rate does not
appear on Telerate Page 5, the rate for that day will be determined by reference
to the Reuters Screen LIBOR Page. If such rate does not appear on Telerate Page
5 or the Reuters Screen LIBOR Page, 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 such interest rate determination
date to prime banks in the London interbank market by four reference banks
selected by the trustee or an agent of the trustee. The trustee or a specified
agent will request the principal London office of each of such LIBOR rates to
provide a quotation of its rate. If at least two such quotations are provided,
LIBOR for that day will be the arithmetic mean, rounded upwards, if necessary,
to the nearest .01%, of the quotations. If fewer than two quotations are
provided, LIBOR for that day will be the arithmetic mean, rounded upwards, if
necessary, to the nearest .01%, of the rates quoted by three major banks in New
York City, selected by the trustee or a specified agent, as applicable, at
approximately 11:00 a.m., New York City time, on such interest rate
determination date for loans in U.S. dollars to leading European banks having
the Index Maturity and in a principal amount equal to an amount of not less than
U.S. $1,000,000; provided, however, that if the banks selected as aforesaid are
not quoting as mentioned in this sentence, LIBOR in effect for the applicable
interest period will be LIBOR in effect for the previous interest period.
Auction Procedures
A series of notes may contain one or more classes of auction rate notes.
The following discussion summarizes procedures that will be used in determining
the auction rates on the auction rate notes. If any auction rate notes are
included in a series, the prospectus supplement will contain a more detailed
description of these procedures. Prospective investors in the auction rate notes
should read carefully the following summary, along with the more detailed
description in the prospectus supplement.
The auction rate on each class of auction rate notes will be determined
periodically, generally, for periods ranging from 7 days to one year, by means
of a Dutch Auction. In this Dutch Auction, investors and potential investors
submit orders through an eligible broker/dealer as to the principal amount of
auction rate notes such investors wish to buy, hold or sell at various auction
rates. The broker/dealers submit their clients' orders to the auction agent, who
processes all orders submitted by all eligible broker/dealers and determines the
auction rate for the upcoming interest period. The broker/dealers are notified
by the auction agent of the auction rate for the upcoming interest period and
are provided with settlement instructions relating to purchases and sales of
auction rate notes.
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In the auction procedures, the following types of orders may be
submitted:
. Bid/Hold Orders - the minimum auction rate that a current investor is
willing to accept in order to continue to HOLD some or all of its
auction rate notes for the upcoming interest period;
. Sell Orders - an order by a current investor to SELL a specified
principal amount of auction rate notes, regardless of the upcoming
auction rate; and
. Potential Bid Orders - the minimum auction rate that a potential
investor, or a current investor wishing to purchase additional auction
rate notes, is willing to accept in order to BUY a specified principal
amount of auction rate notes.
If an existing investor does not submit orders with respect to all its
auction rate notes of the applicable class, the investor will be deemed to have
submitted a Hold Order at the new auction rate for that portion of the auction
rate notes for which no order was received.
In connection with each auction, auction rate notes will be purchased
and sold between investors and potential investors at a price equal to their
then outstanding principal balance, i.e., par, plus any accrued interest. The
following example helps illustrate how the above-described procedures are used
in determining the auction rate on the auction rate notes.
(a) Assumptions:
1. Denominations (Units) = $50,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
(b) Summary of All Orders Received For The Auction
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
100 Units at 3.10% 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
50 Units at 3.14%
100 Units at 3.15%
Total units under existing Bid/Hold Orders and Sell Orders must always
equal issue size (in this case 500 Units).
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(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Cumulative Cumulative
Order Number Total Order Number Total
Number of Units (Units) % Number of Units (Units) %
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 60(W) 150 3.05% 11 50(L) 3.14%
6 50(W) 200 3.05% 12 100(L) 3.15%
</TABLE>
_____________________________
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units.
All winning orders are awarded the winning rate, in this case, 3.12%, as the
auction rate for the next interest period. Multiple orders at the winning rate
are allocated units on a pro rata basis.
The above example assumes that a successful auction has occurred, i.e.,
all Sell Orders and all Bid/Hold Orders below the new auction rate were
fulfilled. In some circumstances, there may be insufficient Potential Bid Orders
to purchase all the auction rate notes offered for sale. In such circumstances,
the auction rate for the upcoming interest period will equal the maximum auction
rate. Also, if all the auction rate notes are subject to Hold Orders, i.e., each
holder of auction rate notes wishes to continue holding its auction rate notes,
regardless of the interest rate, the auction rate for the upcoming interest
period will equal the rate at which all investors are willing to hold the notes.
Notwithstanding the foregoing discussion, in no event will the actual
interest rate on the notes exceed the lesser of the Net Loan Rate, the maximum
auction rate or any other maximum interest rate limitation specified in the
related prospectus supplement.
Book-Entry Registration
The description which follows of the procedures and record keeping with
respect to beneficial ownership interests in a series of notes, payment of
principal of and interest on the notes to DTC Participants, Clearstream
Participants and Euroclear Participants or to purchasers of the notes,
confirmation and transfer of beneficial ownership interests in the notes, and
other securities-related transactions by and between DTC, Clearstream,
Euroclear, DTC Participants, Clearstream Participants, Euroclear Participants
and Beneficial Owners, is based solely on information furnished by DTC,
Clearstream and Euroclear and has not been independently verified by EdLinc or
the underwriters.
If specified in the accompanying prospectus supplement, noteholders may
hold their certificates through DTC, in the United States, or Clearstream or
Euroclear, in Europe, if they are participants of such systems, or indirectly
through organizations that are participants in such systems.
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DTC will hold the global notes. Clearstream and Euroclear will hold
omnibus positions on behalf of the Clearstream Participants and the Euroclear
Participants, respectively, through customers securities accounts in
Clearstream's and Euroclear's names on the books of their respective
depositories (collectively, the "Depositories") which in turn will hold such
positions in customers' securities accounts in the Depositories' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a banking organization within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its Participants and facilitates the clearance and
settlement among DTC Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic book-entry changes in
DTC Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. DTC Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Indirect access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its DTC Participants
are on file with the SEC.
Transfers between DTC Participants will occur 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.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depository; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines based on European time. The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its depository 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 Depositories.
Because of time-zone differences, credits of securities in Clearstream
or Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Clearstream Participant or Euroclear Participant on such 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. Day traders that use Clearstream or
Euroclear and that
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purchase the globally offered notes from DTC Participants for delivery to
Clearstream Participants or Euroclear Participants should note that these trades
may fail on the sale side unless affirmative actions are taken. Participants
should consult with their clearing system to confirm that adequate steps have
been taken to assure settlement.
Purchases of notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual owner of a note (a "Beneficial Owner") is in
turn to be recorded on the DTC Participants' and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Transfers of ownership interests
in the notes are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interest in notes, except when
use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of notes with DTC and their registration in the name of Cede & Co.
effects no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the notes; DTC's records reflect only the identity of the
DTC Participants to whose accounts such notes are credited, which may or may not
be the Beneficial Owners. The DTC Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect Participants, and by DTC
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Beneficial Owners may desire to make
arrangements with a DTC Participant or an Indirect Participant so that all
notices of redemption of their notes or other communications to DTC which affect
these Beneficial Owners, and notification of all interest payments, will be
forwarded in writing by the DTC Participant or Indirect Participant. Any failure
of DTC to advise any DTC Participant, or of any DTC Participant or Indirect
Participant to advise a Beneficial Owner, of any notice of redemption or its
content or effect will not affect the validity of the redemption of notes called
for redemption or any other action premised on such notice. If less than all of
the notes of a particular maturity and series are being redeemed, DTC's practice
is to determine by lot the amount of the interest of each DTC Participant within
such maturity to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
notes. Under its usual procedures, DTC mails an omnibus proxy to the issuer as
soon as possible after the record date, which assigns Cede's consenting or
voting rights to those DTC Participants to whose accounts the notes are credited
on the record date, identified in an attached listing.
Principal and interest payments on the notes will be made to DTC. DTC's
practice is to credit the accounts of the DTC Participants, upon DTC's receipt
of funds and corresponding detail
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information from the trustee, on payment dates in accordance with their
respective holdings shown on the records of DTC. Payments by DTC Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name" and will be the responsibility of
such DTC Participant and not of DTC, the trustee or EdLinc, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the trustee,
disbursement of such payments to DTC Participants will be the responsibility of
DTC, and disbursement of such payments to Beneficial Owners will be the
responsibility of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the notes at any time by giving reasonable notice to EdLinc or the
trustee. Under such circumstances, if a successor securities depository is not
obtained, definitive notes are required to be printed and delivered. EdLinc may
decide to discontinue use of the system of book-entry transfers through DTC, or
a successor securities depository. In that event, definitive notes will be
delivered to noteholders. See " --Definitive Notes" below.
Clearstream is a limited liability company (a societe anonyme) organized
under Luxembourg law that operates as a professional depository. Clearstream
holds securities for its participating organizations ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions between Clearstream Participants through electronic book-entry
changes in accounts of Clearstream Participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in
Clearstream in any of 36 currencies, including United States dollars.
Clearstream provides to its 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. Clearstream
Participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations and may include the underwriters of any
series of notes. Indirect access to Clearstream is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream Participant, either
directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in 25 countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by the Belgian branch of a New York banking corporation which
is a member bank of the Federal Reserve System (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, Societe
Cooperative, a Belgian cooperative corporation (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
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Operator, not the Cooperative. The Cooperative establishes policy for the
Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include investment banks, banks (including central banks), securities brokers
and dealers, supranationals, investment managers, corporations, trust companies
and other professional financial intermediaries and may include the underwriters
of any series of notes. Indirect access to the Euroclear System is also
available to other firms that maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator holds securities and book-entry interests in
securities for Euroclear Participants and facilitates the clearance and
settlement of securities transactions between Euroclear Participants, and
between Euroclear Participants and participants of certain other securities
intermediaries, through electronic book-entry changes in accounts of such
participants or other securities intermediaries. The Euroclear Operator provides
Euroclear Participants, among other things, with safekeeping, administration,
clearance and settlement, securities lending and borrowing, and related
services.
Investors electing to acquire notes through an account with the
Euroclear Operator or some other securities intermediary must follow the
settlement procedures of such an intermediary.
The Euroclear Operator has advised as follows: Under Belgian law,
investors that are credited with securities on the records of the Euroclear
Operator have a co-property right in the fungible pool of interests in
securities on deposit with the Euroclear Operator in an amount equal to the
amount of interests in securities credited to their accounts. In the event of
the insolvency of the Euroclear Operator, Euroclear Participants would have a
right under Belgian law to the return of the amount and type of interests in
securities credited to their accounts with the Euroclear Operator. If the
Euroclear Operator did not have a sufficient amount of interests in securities
on deposit of a particular type to cover the claims of all Euroclear
Participants credited with such interests in securities on the Euroclear
Operator's records, all Euroclear Participants having an amount of interests in
securities of such type credited to their accounts with the Euroclear Operator
would have the right under Belgian law to the return of their pro-rata share of
the amount of interests in securities actually on deposit. Under Belgian law,
the Euroclear Operator is required to pass on the benefits of ownership in any
interests in securities on deposit with it (such as dividends, voting rights and
other entitlements) to any person credited with such interests in securities on
its records.
Distributions with respect to notes held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its depository. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "United States Federal Income Tax Consequences." Clearstream or
the Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a noteholder under the Agreement on behalf of a Clearstream
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its depository's ability to effect such actions on
its behalf through DTC.
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Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
Definitive Notes
If set forth in the accompanying prospectus supplement, notes of any
series will be issued in fully registered, certificated form to Beneficial
Owners or their nominees rather than to DTC or its nominee, if (1) the notes of
such series are not eligible for the services of DTC, (2) DTC determines to
discontinue providing its services with respect to the notes of such series or
(3) EdLinc determines that a system of book-entry transfers for the notes of
such series, or the continuation thereof, through DTC is not in the best
interest of the Beneficial Owners or EdLinc. In that event, EdLinc may either
identify another qualified securities depository or direct or cause note
certificates for such series to be delivered to Beneficial Owners thereof or
their nominees and, if certificates are delivered to the Beneficial Owners, the
Beneficial Owners or their nominees, upon authentication of the notes of such
series in authorized denominations and registration thereof in the Beneficial
Owners' or nominees' names, will become the holders of such notes for all
purposes. In that connection, the trustee is to mail an appropriate notice to
the securities depository for notification to DTC Participants and Beneficial
Owners of the substitute securities depository or the issuance of note
certificates to Beneficial Owners or their nominees, as applicable.
Distribution of principal of and interest on the notes will be made by
the trustee directly to noteholders of definitive notes in accordance with the
procedures set forth herein and in the indenture.
Definitive notes will be transferable and exchangeable at the offices of
the registrar for the notes, which will initially be the trustee. No service
charges will be imposed for any registration of transfer or exchange, but the
registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Denomination and Payment
The notes of each series will be issued in the denominations specified
in the related prospectus supplement.
The principal of and premium, if any, on the notes, together with
interest payable on the notes at the maturity thereof if the date of such
maturity is not a regularly scheduled interest payment date, will be payable in
lawful money of the United States of America upon, except as otherwise provided
in the indenture with respect to a securities depository, presentation and
surrender of such notes at the principal office of the trustee, as paying agent
with respect to the notes, or a duly appointed successor paying agent. Interest
on each series of notes will be payable on each regularly scheduled interest
payment date with respect to such series, except as otherwise provided in the
indenture with respect to a securities depository, by check or draft drawn upon
the paying agent and mailed to the person who is the registered holder thereof
as of the regular record date for such interest payment date, or, if provided in
the related prospectus supplement, by
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electronic transfer in immediately available funds to an account designated by
such holder. Any interest not so timely paid or duly provided for, which is
referred to as defaulted interest, will cease to be payable to the person who is
the registered holder thereof at the close of business on the regular record
date and will be payable to the person who is the registered holder thereof at
the close of business on a special record date established by the trustee for
the payment of any such defaulted interest. Such special record date will be
fixed by the trustee whenever moneys become available for payment of the
defaulted interest. All payments of principal of and interest on the notes will
be made in lawful money of the United States of America.
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES
General
The notes will be limited obligations of EdLinc payable solely from the
Trust Estate created under the indenture, consisting of revenues and funds and
accounts pledged under the indenture. The pledged revenues include:
. payments of interest and principal made by obligors of financed
student loans;
. guarantee payments made by the guarantee agencies to or for the
account of the trustee as the holder of defaulted financed FFELP
Loans;
. Interest Subsidy Payments and Special Allowance Payments made by the
Department of Education to or for the account of the trustee as the
holder of financed FFELP Loans, excluding any Special Allowance
Payments and Interest Subsidy Payments accrued prior to the date of
financing the related FFELP Loan which are not included in the
purchase price thereof;
. income from investment of moneys in the pledged funds and accounts;
. payments from a swap counterparty under a swap agreement;
. proceeds of any sale or assignment by EdLinc of any financed student
loans; and
. available note proceeds. In addition, the pledged revenues with
respect to one or more series of notes may include payments made by a
credit facility provider pursuant to a credit enhancement facility.
The principal of, premium, if any, and interest on the notes will be
secured by a pledge of and a security interest in all rights, title, interest
and privileges of EdLinc (1) with respect to financed student loans, in, to and
under any servicing agreement, the student loan purchase agreements, the
Guarantee Agreements and the federal reimbursement contracts; (2) in, to and
under all financed student loans, including the evidences of indebtedness and
related documentation, any swap agreement and, subject to the limitations
therein or in the indenture limiting the benefits thereunder to the notes of one
or more series, any credit enhancement facility; and (3) in and to the proceeds
from the sale of the notes, until expended for the purpose for which
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issued, and the pledged revenues, moneys, evidences of indebtedness,
instruments, securities and other financial assets in the pledged funds and
accounts. The security interest in revenues, moneys, evidences of indebtedness,
instruments and, unless registered in the name of the trustee, securities and
other financial assets payable into the various funds and accounts does not
constitute a perfected security interest until received by the trustee. Certain
pledged revenues are subject to withdrawal from the pledged funds and accounts,
to prior applications to pay costs of issuance, administrative expenses and Note
Fees, and to other applications as described under "Summary of the Indenture--
Funds and Accounts."
Additional Indenture Obligations
The indenture provides that, upon the satisfaction of specified
conditions, EdLinc may issue one or more series of notes thereunder. Notes may
be issued as Senior Notes on a parity basis with any previously issued Senior
Notes; as Subordinate Notes on a parity basis with any previously issued
Subordinate Notes; or as Class C Notes on a subordinate basis to the Senior
Notes and the Subordinate Notes. In addition, EdLinc may enter into swap
agreements and may obtain credit enhancement facilities from one or more credit
facility providers. EdLinc's obligations under the swap agreements, and its
obligations to pay the premiums or fees of credit facility providers and, if
applicable, to reimburse payments made under credit enhancement facilities, may
be parity obligations with the Senior Notes (such Other Senior Obligations,
together with the Senior Notes, being referred to as "Senior Obligations") or
parity obligations with the Subordinate Notes (such Other Subordinate
Obligations, together with the Subordinate Notes, being referred to as
"Subordinate Obligations"). The Senior Obligations, the Subordinate Obligations
and any Class C Notes are referred to as "Indenture Obligations." See
"Description of the Notes--Issuance of Notes" and "Description of the
Indenture--Covenants--Credit Enhancement Facilities and Swap Agreements."
Under the indenture, EdLinc may not execute a swap agreement unless the
swap counterparty's obligations are rated by each Rating Agency not lower than
in its third highest specific rating category. No swap agreement shall be a
Senior Obligation unless, as of the date EdLinc enters into such swap agreement,
the Senior Asset Requirement will be met and the trustee shall have received
written confirmation from each Rating Agency that the execution and delivery of
the swap agreement will not cause the reduction or withdrawal of any rating or
ratings then applicable to any Outstanding notes.
No limitations are imposed by the indenture on the ability of EdLinc to
obtain credit enhancement facilities or to enter into agreements with respect
thereto, or as to the identity or creditworthiness of any credit facility
provider. Any credit enhancement facility may be obtained for the sole benefit
of the series of notes designated therein, in which event payments under such
credit enhancement facility would not be available for the payment of principal
of, premium, if any, or interest on any other series of notes. However, any
payments required to be made to any credit facility provider would be parity
obligations with the other Senior Obligations or Subordinate Obligations, as the
case may be, payable from any revenues available to pay such Indenture
Obligations.
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The indenture also permits EdLinc to issue Class C Notes from time to
time upon satisfaction of the conditions specified therein. See "Description of
the Notes--Issuance of Notes."
Priorities
The Senior Notes, and any other Senior Obligations, are entitled to
payment and other priorities over the Subordinate Notes, and any other
Subordinate Obligations. Current payments of interest and principal due on the
Subordinate Notes on an interest payment date or principal payment date will be
made, on a parity basis with any other Subordinate Obligations, only to the
extent there are sufficient moneys available for such payment, after making all
such payments due on such date with respect to Senior Obligations. So long as
any Senior Obligations remain Outstanding under the indenture, the failure to
make interest or principal payments with respect to Subordinate Notes will not
constitute an event of default under the indenture. In the event of an
acceleration of the notes, the principal of and accrued interest on the
Subordinate Notes will be paid, on a parity basis with any other Subordinate
Obligations, only to the extent there are moneys available under the indenture
after payment of the principal of, and accrued interest on, all Senior Notes and
the satisfaction of all other Senior Obligations. In addition, holders of Senior
Notes and Beneficiaries of other Senior Obligations are entitled to direct
actions to be taken by the trustee prior to and upon the occurrence of an event
of default under the indenture, including election of remedies. See "Description
of the Indenture--Remedies."
Senior Obligations and Subordinate Obligations are entitled to payment
and other priorities over any Class C Notes. Principal of and interest on the
Class C Notes are not payable from moneys in the Note Fund or the Reserve Fund,
but are payable solely from amounts available therefor in the Surplus Fund. See
"Description of the Indenture--Funds and Accounts--Surplus Fund."
DESCRIPTION OF THE SLFC SERVICING AGREEMENT
General
EdLinc and the trustee, prior to the issuance of any series of notes,
will have entered into a servicing and administration agreement with SLFC, as
servicer and administrator. This servicing and administration agreement is
referred to in this prospectus as the SLFC servicing agreement. The following is
a summary of the material terms of the SLFC servicing agreement. The summary
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the SLFC servicing agreement. The SLFC servicing agreement
will be in substantially the form filed as part of the registration statement of
which this prospectus is a part.
Pursuant to the SLFC servicing agreement, SLFC agrees to provide
services to EdLinc and the trustee in connection with the acquisition of student
loans to be financed, and to service the financed student loans, all in
accordance with the SLFC servicing agreement. SLFC may perform all or part of
its acquisition and servicing activities through a subcontractor. See
"Sub-Servicers" below. SLFC is required to perform or cause its subcontractor to
perform all services under the SLFC servicing agreement in compliance with the
Higher Education Act, each Alternative Loan
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Program, applicable requirements of each guarantee agency and all other
applicable federal, state and local laws and regulations. SLFC also agrees to
perform various duties of EdLinc under the indenture.
Acquisition Process
SLFC agrees to provide to the trustee all certificates and directions
required to be delivered by EdLinc to the trustee under the indenture in
connection with the financing of Eligible Loans and student loans thereunder.
SLFC also agrees to work with the transferor and lenders to obtain from them
loan documentation and information relating to each student loan to be financed
and to establish and maintain all records delivered to SLFC with respect to each
financed student loan, and complete records of SLFC's servicing of the financed
student loan from the date SLFC's servicing commences. However, SLFC will not
conduct a complete file and note examination of each student loan to be
financed.
Origination Process
Unless and until otherwise directed in writing by EdLinc, SLFC agrees to
provide to the trustee all certificates and directions required to be delivered
by EdLinc to the trustee under the indenture in connection with the financing
through origination of Eligible Loans and student loans thereunder. SLFC also
agrees to provide disbursement and origination services in connection with the
origination and disbursement of Eligible Loans under the indenture.
Servicing
SLFC agrees to perform all servicing obligations relating to the
financed student loans required of EdLinc or the trustee, or which EdLinc or the
trustee is required to cause the servicer to perform. The SLFC servicing
agreement specifies various activities and obligations to be performed by SLFC
in servicing the financed student loans. These activities and obligations
include, without limitation, file maintenance; maintaining Guarantee coverage on
financed FFELP Loans; handling borrower requests for forbearance and deferments;
exercising due diligence, within the meaning of the Higher Education Act, the
guarantee program regulations and applicable Alternative Loan Programs, in the
servicing, administration and collection of all financed student loans;
collecting payments of principal and interest, Special Allowance Payments, and
guarantee payments with respect to financed student loans and causing all such
Interest Subsidy Payments and Special Allowance Payments to be forwarded by the
Secretary of Education directly to the trustee for immediate deposit into the
appropriate fund or account under the indenture and depositing all other such
payments immediately upon receipt into a lock-box account, which will be part of
the Revenue Fund, to be established by the trustee in the name of and for the
account of the trustee; representing the interests of EdLinc and the trustee in
handling discrepancies or disputes, if any, with the Secretary of Education;
preparing and maintaining all appropriate accounting records with respect to all
transactions related to each financed student loan; for defaulted financed FFELP
Loans, taking steps necessary to file and prove a claim for loss with the
Secretary of Education or the guarantee agency, as the case may be and as
required, and assuming responsibility for all necessary communications and
contacts with the Secretary of Education or the guarantee agency, as the case
may be and as required, to recover on such defaulted financed
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FFELP Loans within the time required by the Higher Education Act and the
requirements of the guarantee agency; if a claim is denied by the Secretary of
Education or the guarantee agency, as the case may be, under circumstances
resulting in a lender being required by a student loan purchase agreement to
repurchase a financed FFELP Loan, taking such action as shall be necessary to
allow EdLinc or the trustee to cause such lender to repurchase such financed
FFELP Loan; preparing and filing various reports with the Secretary of
Education, the guarantee agency, EdLinc and the trustee; identifying on the
servicing system the notes as the source of financing for each such financed
student loan; and maintaining duplicates or copies of some file documents.
SLFC is also the servicer of the student loans owned by the transferor.
Pursuant to the SLFC servicing agreement, SLFC agrees to indemnify EdLinc for
any problems with the student loans acquired by EdLinc from the transferor which
were the result of those student loans not being properly serviced after the
acquisition by the transferor and prior to the transfer to EdLinc.
Right of Inspection and Audits
The SLFC servicing agreement provides that, subject to any restrictions
of applicable law, EdLinc, the trustee, the guarantee agency, the Secretary of
Education or any governmental agency having jurisdiction over EdLinc or the
trustee, and, in each case, those entities' representatives, will have the
right, at any time and from time to time, during normal business hours, and upon
reasonable notice to SLFC, to examine and audit any and all of the SLFC's
records or accounts pertaining to any financed student loan. EdLinc and the
trustee also may require SLFC to furnish such documents as they from time to
time deem necessary to determine that SLFC has complied with the provisions of
the SLFC servicing agreement, the student loan purchase agreements and the
indenture.
SLFC also agrees to have prepared and submitted to the Secretary of
Education and the guarantee agencies any third-party servicer compliance audits
and audited financial statements required under the Higher Education Act and the
guarantee program regulations relating to SLFC and its servicing of financed
FFELP Loans, and any lender compliance audits required under the Higher
Education Act, the guarantee program regulations and applicable Alternative Loan
Programs relating to the trustee, as the holder of the financed student loans,
and the financed student loans. SLFC agrees to provide to EdLinc and the trustee
these and various other specified reports and audits.
Administration and Management
SLFC agrees to perform various administrative activities and obligations
on behalf of EdLinc under the SLFC servicing agreement. These include providing
all necessary personnel, facilities, equipment, forms and supplies for operating
EdLinc's student loan acquisition program in accordance with the indenture;
disseminating information on EdLinc's program to lenders and to student
financial aid officers and to other persons as necessary; controlling and
accounting for the receipt and expenditure of EdLinc's funds in accordance with
the resolutions of EdLinc's board of directors and the indenture and maintaining
accurate and complete records on all aspects of the program; reviewing all
statements and reports to EdLinc required of the trustee, the servicer and the
lender in accordance with the provisions of the indenture, the SLFC servicing
agreement and
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the student loan purchase agreements; preparing and submitting to the trustee
the monthly servicing reports required to be delivered to the noteholders
pursuant to the indenture; and determining and notifying the trustee and auction
agent of the Net Loan Rate. SLFC also agrees to prepare for filing, and provide
such other assistance as is required by EdLinc to file, any other reports
required to be filed by EdLinc under the indenture or under any applicable law,
including without limitation, the Higher Education Act and any federal and state
securities laws.
Servicing Fees
The SLFC servicing agreement provides that SLFC will be paid for the
performance of its functions under the SLFC servicing agreement, from funds
available for such purpose under the indenture, a monthly fee in an amount each
month equal to .0875% of the outstanding principal balance of all financed
student loans as of the last day of the immediately preceding month. Such fee is
required to be paid to SLFC on a monthly basis within fifteen (15) days of
receipt by the trustee of a written monthly billing statement from SLFC. If SLFC
believes that it is necessary to increase the monthly fee payable under the SLFC
servicing agreement, it will provide a written request to EdLinc and the trustee
of its need for an increase in such fee, together with all information required
under the indenture for the trustee to approve an increase in the fees payable
thereunder. SLFC acknowledges in the SLFC servicing agreement that such fee will
not be increased unless the conditions for increasing such fees under the
indenture have been satisfied. Upon the occurrence of specified conditions
relating to the relationship of one-month LIBOR to 91-day U.S. Treasury bills or
to the Subordinate Percentage, a portion of the monthly fee may be deferred
until such condition ceases to exist.
SLFC also acknowledges in the SLFC servicing agreement that EdLinc and
the trustee contemplate paying all servicing fees payable under the SLFC
servicing agreement solely from funds available for such purpose in the
Administration Fund created under the indenture, which funds are primarily
dependent upon collection by SLFC and receipt by the trustee of payments with
respect to the financed student loans. SLFC agrees to continue to be bound by
the terms and provisions of the SLFC servicing agreement relating to financed
student loans in all respects, and to perform for a period of 120 days its
obligations thereunder, regardless of the receipt or non-receipt on a timely
basis by it of any payments in respect of servicing fees.
Sub-Servicers
Under the SLFC servicing agreement, SLFC may enter into sub-servicing
agreements with one or more sub-servicers providing for the sub-servicers to
perform some or all of the obligations of SLFC with respect to servicing the
financed student loans. Pursuant to a sub-servicing agreement, each sub-servicer
will agree to service, and perform all other related tasks with respect to, the
financed student loans in compliance with applicable standards and procedures.
SLFC will be responsible for the performance of its obligations under the SLFC
servicing agreement, whether such obligations are performed by SLFC or by a
sub-servicer, and SLFC will be responsible for any fees and payments required by
the sub-servicer. The prospectus supplement for each series of notes will
identify each sub-servicer sub-servicing 10% or more by principal balance of the
financed student loans.
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Term and Termination
The term of the SLFC servicing agreement continues for so long as any of
the notes remain Outstanding, unless the SLFC servicing agreement is terminated
in accordance with its terms. The SLFC servicing agreement may be terminated
upon the occurrence of specified events, including the insolvency of SLFC and
the failure by SLFC to perform its obligations thereunder.
SLFC agrees to promptly notify the trustee and EdLinc of any occurrence
or condition which constitutes, or which with the passage of time or the giving
of notice or both would constitute, an event permitting the termination of the
SLFC servicing agreement. SLFC also agrees to continue performing its
obligations under the servicing agreement until a successor servicer has been
appointed.
DESCRIPTION OF THE INDENTURE
General
EdLinc and the trustee have entered into the indenture, under which each
series of notes will be issued. The following is a summary of the material terms
of the indenture. The summary does not purport to be complete and is qualified
in its entirety by reference to the provisions of the indenture. The indenture
will be in substantially the form filed as part of the registration statement of
which this prospectus is a part.
The indenture establishes the general provisions of notes issued by
EdLinc thereunder and sets forth various covenants and agreements of EdLinc
relating thereto, default and remedy provisions, responsibilities and duties of
the trustee and establishes the various funds into which EdLinc's revenues
related to the notes are deposited and transferred for various purposes.
Funds and Accounts
Acquisition Fund
The indenture establishes an Acquisition Fund. With respect to each
series of notes, the trustee will, upon delivery to the initial purchasers
thereof and from the proceeds thereof, credit to the Acquisition Fund the
amount, if any, specified in the supplemental indenture providing for the
issuance of such series of notes. The trustee will also deposit in the
Acquisition Fund: (1) any funds to be transferred thereto from the Surplus Fund,
and (2) any other amounts specified in a supplemental indenture.
Balances in the Acquisition Fund will be used only for (a) the purchase
or origination of Eligible Loans, (b) the redemption of notes which are called
for redemption or the purchase of notes as provided in a supplemental indenture,
(c) the payment of debt service on the Senior Notes and Other Senior
Obligations, or (d) the payment of the purchase price of any Senior Notes
required to be purchased on a Purchase Date or a mandatory tender date. The
trustee will make, or authorize any deposit agent to make, payments to the
transferor, lenders or SLFC from the Acquisition Fund for the purchase of
Eligible Loans, such payments to be made at a purchase
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price not in excess of 100% of the remaining unpaid principal amount of such
Eligible Loan, plus accrued noncapitalized borrower interest thereon, if any, to
the date of purchase, reasonable transfer, origination or assignment fees, if
applicable, and a premium not to exceed the limitations set forth in the
applicable supplemental indenture. The trustee will also make, or authorize the
deposit agent to make, payments from the Acquisition Fund for the origination of
Eligible Loans.
Balances in the Acquisition Fund, other than any portion of such
balances consisting of student loans, will be (1) transferred to the Note Fund
on the last business day preceding any interest payment date, principal payment
date or redemption date to the extent required to pay the debt service due on
the Senior Notes and any Other Senior Obligations, as described under "Note
Fund" below, and (2) after such transfer, if any, to be made pursuant to the
preceding clause (1) has been taken into account, transferred to the Principal
Account on any Purchase Date or mandatory tender date with respect to Senior
Notes, to the extent described under "Note Fund" below. If any amounts have been
transferred to the Note Fund pursuant to this paragraph, the trustee will, to
the extent necessary to cure the deficiency in the Acquisition Fund as a result
of such transfer, transfer to the Acquisition Fund amounts from the Revenue Fund
as described below under "Revenue Fund."
Pending application of moneys in the Acquisition Fund for one or more
authorized purposes, such moneys will be invested in investment securities, as
described under "Investments" below, and any income from said investments will
be deposited in the Revenue Fund.
Revenue Fund
The indenture establishes a Revenue Fund, which is comprised of two
accounts: the Repayment Account and the Income Account. The trustee and any
deposit agent will credit to the Revenue Fund:
(1) all amounts received as interest and principal payments with
respect to financed student loans, including all guarantee payments,
Interest Subsidy Payments and Special Allowance Payments with respect to
financed FFELP Loans,
(2) unless otherwise provided in a supplemental indenture,
proceeds of the resale to a lender or SLFC of any financed student loans
pursuant to such lender's or SLFC's repurchase obligation under the
applicable student loan purchase agreement,
(3) all amounts received as income from investment securities in
the Acquisition Fund, the Reserve Fund, the Administration Fund, the
Surplus Fund and the Note Fund, and
(4) all amounts to be transferred to the Revenue Fund from the
Alternative Loan Guarantee Fund.
The trustee will deposit and credit all such amounts received as payments of
principal of financed student loans to the Repayment Account, and all other such
amounts to the Income Account.
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Pending transfers from the Revenue Fund, the moneys therein will be
invested in investment securities as described under "Investments" below, and
any income from said investments will be retained therein.
Repayment Account. On each Monthly Payment Date and on any other date on
which the balance in the Note Fund is not sufficient to pay all amounts payable
therefrom on such date, the trustee will transfer the moneys received since the
preceding Monthly Payment Date in the Repayment Account as follows:
. first, to the appropriate party, amounts in respect of moneys
previously received from the Secretary of Education or a guarantee
agency on financed FFELP Loans for which the Secretary of Education or
such guarantee agency has reimbursed itself through withholding
payments on other FFELP Loans not financed under the indenture;
. second, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Senior Notes or Other Senior Obligations payable therefrom;
. third, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the redemption of
Senior Notes or payment of principal or the purchase price of Senior
Notes or the payment of Other Senior Obligations payable therefrom;
. fourth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of Senior
Notes from the Retirement Account or the payment of Other Senior
Obligations payable therefrom;
. fifth, to the Acquisition Fund, to the extent described above under
"Acquisition Fund;"
. sixth, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Subordinate Notes or Other Subordinate Obligations payable
therefrom;
. seventh, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of
principal at stated maturity or the purchase price of Subordinate
Notes or the payment of Other Subordinate Obligations payable
therefrom;
. eighth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of
Subordinate Notes from the Retirement Account or payment of Other
Subordinate Obligations payable therefrom;
. ninth, to the Reserve Fund, to the extent necessary to increase the
balance thereof to the Reserve Fund Requirement;
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. tenth, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required to meet the sinking fund
installment with respect to the redemption of Subordinate Notes on the
next sinking fund payment date therefor;
. eleventh, to the Special Redemption and Prepayment Account, to the
extent necessary to increase the balance thereof to the Special
Redemption and Prepayment Account Requirement with respect to each
series of notes;
. twelfth, to the Alternative Loan Guarantee Fund, the aggregate amount
received by the Servicer and deposited in the Revenue Fund with
respect to Financed Alternative Student Loans for which a transfer has
been made from the Alternative Loan Guarantee Fund, less the aggregate
amount transferred to the Alternative Loan Guarantee Fund from the
Revenue Fund on previous Monthly Payment Dates; and
. thirteenth, any remainder to the Surplus Account.
Income Account. On each Monthly Payment Date and on any other date on
which the balance in the Note Fund is not sufficient to pay all amounts payable
therefrom on such date, the trustee will, after transferring all amounts
received in the Repayment Account pursuant to the preceding paragraph, transfer
the moneys received since the preceding Monthly Payment Date in the Income
Account, (1) to the extent amounts in the Repayment Account were not sufficient
therefor, make any periodic rebate fee payments required to be made to the
Secretary of Education in connection with financed FFELP Loans, and (2) transfer
the remainder of such moneys as follows:
. first, to the appropriate party, amounts in respect of moneys
previously received from the Secretary of Education or a guarantee
agency on financed FFELP Loans for which the Secretary of Education or
such guarantee agency has reimbursed itself through withholding
payments on other FFELP Loans not financed under the indenture;
. second, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Senior Notes or Other Senior Obligations payable therefrom;
. third, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the redemption of
Senior Notes or payment of principal or the purchase price of Senior
Notes or the payment of Other Senior Obligations payable therefrom;
. fourth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of Senior
Notes from the Retirement Account or payment of Other Senior
Obligations payable therefrom;
. fifth, to the Acquisition Fund, to the extent described above under
"Acquisition Fund;"
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. sixth, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Subordinate Notes or Other Subordinate Obligations payable
therefrom;
. seventh, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of
principal at stated maturity or the purchase price of Subordinate
Notes or the payment of Other Subordinate Obligations payable
therefrom;
. eighth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of
Subordinate Notes from the Retirement Account or payment of Other
Subordinate Obligations payable therefrom;
. ninth, to the Administration Fund, to extent necessary to increase the
balance thereof to such amounts as an authorized officer of EdLinc
shall direct for costs and expenses;
. tenth, to the Reserve Fund, to the extent necessary to increase the
balance thereof to the Reserve Fund Requirement;
. eleventh, to the Principal Account, to the extent necessary to
increase the balance thereof to the amount required to meet the
sinking fund installment with respect to the redemption of Subordinate
Notes on the next sinking fund payment date therefor;
. twelfth, to the Special Redemption and Prepayment Account, to the
extent necessary to increase the balance thereof to the Special
Redemption and Prepayment Account Requirement with respect to each
series of notes;
. thirteenth, to the Alternative Loan Guarantee Fund, the aggregate
amount received by the Servicer and deposited in the Revenue Fund with
respect to Financed Alternative Student Loans for which a transfer has
been made from the Alternative Loan Guarantee Fund, less the aggregate
amount transferred to the Alternative Loan Guarantee Fund from the
Revenue Fund on previous Monthly Payment Dates; and
. fourteenth, any remainder to the Surplus Account.
Note Fund
The indenture establishes a Note Fund, which is comprised of three
accounts: the Interest Account, the Principal Account and the Retirement
Account. The Note Fund will be used only for the payment when due of principal
of, premium, if any, and interest on the Senior Notes and the Subordinate Notes,
the purchase price of Senior Notes and Subordinate Notes to be purchased on a
Purchase Date or mandatory tender date in accordance with the indenture, Other
Indenture Obligations and Carry-Over Amounts (including any accrued interest
thereon). The principal of and interest on the Class C Notes are payable from
the Surplus Fund.
Interest Account. The trustee will deposit in the Interest Account (1)
that portion of the
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proceeds from the sale of financed student loans representing accrued interest
and Special Allowance Payments, (2) that portion of the proceeds from the sale
of EdLinc's bonds, notes or other evidences of indebtedness, if any, to be used
to pay interest on the Senior Notes or the Subordinate Notes, (3) all
counterparty swap payments, (4) all payments under any credit enhancement
facilities to be used to pay interest on the notes and (5) all amounts required
to be transferred thereto from the funds and accounts specified in the last
sentence of the following paragraph. The moneys in the Interest Account will be
invested in investment securities as described under "Investments" below, and
any income from such investments will be deposited in the Revenue Fund.
To provide for the payment of interest on Senior Notes or Subordinate
Notes on each regularly scheduled interest payment date and all EdLinc swap
payments and fees to a credit facility provider payable on such interest payment
date, the trustee will make deposits to the Interest Account on each Monthly
Payment Date. If, on any interest payment date, including a redemption date or a
date that notes are to be purchased that is not a regularly scheduled interest
payment date, moneys in the Interest Account are insufficient to pay the accrued
interest due on the Senior Notes and Subordinate Notes and all EdLinc swap
payments and fees to a credit facility provider payable on such interest payment
date or constituting a portion of the purchase price of notes to be so
purchased, the trustee will deposit immediately to the Interest Account an
amount equal to such deficiency. Each deposit required by this paragraph will be
made by transfer from the following funds and accounts, in the following order
of priority: the Revenue Fund, the Surplus Fund, other than that portion of the
balance consisting of Eligible Loans, the Reserve Fund, the Administration Fund,
the Surplus Fund, including any portion of the balance consisting of Eligible
Loans, the Retirement Account, the Principal Account and, as to Senior Notes and
Other Senior Obligations only, the Acquisition Fund, other than that portion of
the balance consisting of student loans; provided that such transfers in respect
of Subordinate Notes or Other Subordinate Obligations will be so made from the
Principal Account or the Retirement Account only if, and to the extent, any
amounts to be so transferred are in excess of the requirements of such accounts
with respect to Senior Obligations payable therefrom.
If, as of any regularly scheduled interest payment date, any Carry-Over
Amount, including any accrued interest, is due and payable with respect to a
series of notes, as provided in the related supplemental indenture, the trustee
will transfer to the Interest Account, to the extent amounts are available
therefor in the Surplus Account, after taking into account all other amounts
payable from the Surplus Fund on such interest payment date, an amount equal to
such Carry-Over Amount, including any accrued interest, so due and payable.
Apart from transfers to the Principal Account as described under
"Principal Account" below, balances in the Interest Account will be applied in
the following order of priority:
. first, to the payment of interest on all Senior Notes, EdLinc swap
payments under senior swap agreements and fees payable to senior
credit facility providers due on an interest payment date, and if such
money is less than such interest and Other Senior Obligations on such
interest payment date, such money will be applied, pro rata, among
such indebtedness based upon such amounts then owing to Senior
Beneficiaries and to be paid from the Interest Account;
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. second, to the payment of interest on all Subordinate Notes,
EdLinc swap payments under subordinate swap agreements and
fees payable to subordinate credit facility providers due on
an interest payment date, and if such money is less than such
interest and Other Subordinate Obligations on such interest
payment date, such money will be applied, pro rata, among such
indebtedness based upon such amounts then owing to Subordinate
Beneficiaries and to be paid from the Interest Account;
. third, to the payment of all Carry-Over Amounts, including any
accrued interest on Carry-Over Amounts, due and payable on all
series of Senior Notes, and if such money is less than such
Carry-Over Amounts, including any accrued interest, on an
interest payment date, such money will be applied, pro rata,
among such Carry-Over Amounts, including any accrued interest,
based upon such amounts then otherwise due and payable to
Senior Noteholders and to be paid from the Interest Account;
and
. fourth, to the payment of all Carry-Over Amounts, including
any accrued interest on Carry-Over Amounts, due and payable on
all series of Subordinate Notes, and if such money is less
than such Carry-Over Amounts, including any accrued interest,
on an interest payment date, such money will be applied, pro
rata, among such Carry-Over Amounts, including any accrued
interest, based upon such amounts then otherwise due and
payable to Subordinate Noteholders and to be paid from the
Interest Account.
Other Indenture Obligations payable from the Interest Account will
include reimbursement to any credit facility provider for interest paid on
Senior Notes or Subordinate Notes from amounts derived from the related credit
enhancement facility, which reimbursement will have the same priority of payment
from the Interest Account as the interest so paid.
Principal Account. The trustee will deposit to the Principal Account:
(1) that portion of the proceeds from the sale of financed student loans
representing principal thereof, (2) that portion of the proceeds from the sale
of EdLinc's bonds, notes or other evidences of indebtedness, if any, to be used
to pay principal of the Senior Notes and the Subordinate Notes, (3) all payments
under any credit enhancement facilities to be used to pay principal of Senior
Notes or Subordinate Notes or the purchase price of Senior Notes or Subordinate
Notes to be purchased on a Purchase Date or mandatory tender date, and (4) all
amounts required to be transferred thereto from the following funds, in the
following order of priority: (a) in the case of payment of principal of notes at
stated maturity, redemption of Senior Notes called for redemption on a sinking
fund payment date or the purchase of notes on a Purchase Date or mandatory
tender date, the Revenue Fund, the Surplus Fund, other than that portion of the
balance consisting of Eligible Loans, the Reserve Fund, the Administration Fund
and the Surplus Fund, including any portion of the balance consisting of
Eligible Loans, and (b) in the case of redemption of Subordinate Notes called
for redemption on a sinking fund payment date, the Revenue Fund and the Surplus
Fund, other than that portion of the balance consisting of Eligible Loans;
provided, however, that if principal is payable on Senior Notes at the stated
maturity thereof or upon a sinking fund payment date therefor, or the purchase
price is payable on Senior Notes on a Purchase Date or mandatory tender date,
and money credited to the Principal Account, after the foregoing transfers, is
insufficient to pay such principal or purchase price, funds will be transferred,
to the extent necessary, to the Principal Account for this purpose, (1) from the
Interest Account, but only to the extent that the balance in the Interest
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Account exceeds any then accrued payments of interest on the Senior Notes,
EdLinc swap payments under senior swap agreements and fees owing to senior
credit facility providers and (2) thereafter from the Acquisition Fund, other
than that portion of the balance thereof consisting of student loans.
To provide for the payment of principal due on the stated maturity of
Senior or Subordinate Notes or on a sinking fund payment date for Senior or
Subordinate Notes, the trustee will make deposits to the Principal Account on
each Monthly Payment Date from amounts available therefor in the Revenue Fund
and the other funds referred to above. To the extent there are not available
moneys to make any monthly payment with respect to the cumulative sinking fund
redemption of Subordinate Notes, subsequent monthly payments will be increased
to make up any such deficiency, and to the extent that on any sinking fund
payment date the aggregate of such payments actually made as of the
next-to-the-last Monthly Payment Date prior to such sinking fund payment date is
less than the amount of the sinking fund installment due on such sinking fund
payment date, the amount of such deficiency will be added to the amount of the
sinking fund installment due on the next sinking fund payment date, and the
increased amount thereupon will be deemed to be the amount due for such next
sinking fund installment. However, the requirement for payments of cumulative
sinking fund installments on Subordinate Notes will not be construed to create
an event of default under the indenture in the event of any such deficiency,
other than in amounts due with respect to the stated maturity of Subordinate
Notes, unless a sinking fund installment of such Subordinate Notes shall not
only be due and not applied to the redemption of Subordinate Notes, but also
that all contingencies upon the obligation so to apply it as of such time in
fact have been satisfied.
If EdLinc is required to furnish moneys to a depositary to purchase notes
on a Purchase Date or mandatory tender date, the trustee will, subject to the
applicable provisions of the related supplemental indenture, immediately deposit
to the Principal Account moneys sufficient to pay the purchase price thereof.
Balances in the Principal Account will be applied in the following order of
priority:
. first, to the Interest Account to the extent required (see
"Interest Account" above) for the payment of interest on
Senior Notes and Other Senior Obligations payable therefrom;
. second, to the payment of Senior Notes at their stated
maturity or on their sinking fund payment date and Other
Senior Obligations payable therefrom;
. third, to the payment of the purchase price of Senior Notes on
a Purchase Date or mandatory tender date;
. fourth, to the Interest Account to the extent required (see
"Interest Account" above) for the payment of interest on
Subordinate Notes and Other Subordinate Obligations payable
therefrom;
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. fifth, to the payment of Subordinate Notes at their stated
maturity and Other Subordinate Obligations payable therefrom;
. sixth, to the payment of the purchase price of Subordinate
Notes on a Purchase Date or mandatory tender date; and
. seventh, to the payment of Subordinate Notes on a sinking fund
payment date.
Other Indenture Obligations payable from the Principal Account will
include reimbursement to any credit facility provider for principal or the
purchase price paid on Senior Notes or Subordinate Notes from amounts derived
from the related credit enhancement facility, which reimbursement will have the
same priority of payment from the Principal Account as the principal so paid.
Subject to compliance with the provisions of the indenture described under
"Description of the Notes--Redemption, Prepayment or Purchase of Notes; Senior
Asset Requirement," balances in the Principal Account may also be applied to the
purchase of Senior Notes or Subordinate Notes at a purchase price not to exceed
the principal amount thereof plus accrued interest, as determined by EdLinc at
such time, provided the trustee will have first certified that no deficiencies
exist at such time in the Note Fund. Any such purchase will be limited to those
Senior Notes or Subordinate Notes whose stated maturity or sinking fund payment
date is the next succeeding principal payment date.
The moneys in the Principal Account will be invested in investment
securities as described under "Investments" below, and any income from such
investments will be deposited in the Revenue Fund.
Retirement Account. The trustee will deposit to the Retirement Account (1)
any amounts transferred to the Retirement Account from the Reserve Fund and the
Surplus Fund, (2) that portion of the proceeds from the sale of EdLinc's bonds,
notes or other evidences of indebtedness, if any, to be used to pay the
principal or redemption price of Senior Notes or Subordinate Notes on a date
other than the stated maturity thereof or a sinking fund payment date therefor,
and (3) all payments under any credit enhancement facilities to be used to pay
the redemption price of notes payable from the Retirement Account. All Senior
Notes or Subordinate Notes which are to be retired, or the principal of which is
to be prepaid, other than with moneys in the Principal Account will be retired
or prepaid with moneys deposited to the Retirement Account.
Balances in the Retirement Account will be transferred to the Interest
Account to the extent required (see "Interest Account" above) for the payment of
interest on notes and Other Indenture Obligations payable therefrom.
Other Indenture Obligations payable from the Retirement Account will
include reimbursement to any credit facility provider for the redemption price
paid on Senior Notes or Subordinate Notes from amounts derived from the related
credit enhancement facility, which reimbursement will have the same priority of
payment from the Retirement Account as the redemption price so paid.
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Subject to compliance with the provisions of the indenture described under
"Description of the Notes--Redemption, Prepayment or Purchase of Notes; Senior
Asset Requirement," balances in the Retirement Account, other than any portion
thereof to be applied to the mandatory prepayment of principal of any notes, may
also be applied to the purchase of Senior Notes or Subordinate Notes at a
purchase price not to exceed the principal amount thereof plus accrued interest
plus any then applicable redemption premium, as determined by EdLinc at such
time; provided the trustee shall have first certified that no deficiencies exist
at such time in the Note Fund.
The moneys in the Retirement Account will be invested in investment
securities as described under "Investments" below, and any income from such
investment will be deposited in the Revenue Fund.
Administration Fund
With respect to each series of notes, the trustee will, upon delivery
thereof and from the proceeds thereof, credit to the Administration Fund
established under the indenture the amount, if any, specified in the
supplemental indenture providing for the issuance of such series of notes. The
trustee will also credit to the Administration Fund all amounts transferred
thereto from the Revenue Fund and the Surplus Account. Amounts in the
Administration Fund will be used to pay costs of issuance, administrative
expenses and Note Fees or to reimburse another fund, account or other source of
EdLinc for the previous payment of costs of issuance, administrative expenses or
Note Fees. Balances in the Administration Fund will also be applied to remedy
deficiencies in the Note Fund after transfers thereto from the Revenue Fund, the
Surplus Fund, other than that portion of the balance thereof consisting of
Eligible Loans, and the Reserve Fund.
The trustee will transfer and credit to the Administration Fund moneys
available under the indenture for transfer thereto from the sources set forth in
the following paragraph and in such amounts and at such times as an authorized
officer of EdLinc shall direct; provided such officer shall certify that the
amounts are required and have been or will be expended within the next 90 days
for a purpose for which the Administration Fund may be used and applied.
Deposits to the Administration Fund will be made from the following
sources in the following order of priority:
. the Income Account after transfers therefrom to the Interest
Account, the Principal Account, other than with respect to the
payment of sinking fund installments for Subordinate Notes,
and the Retirement Account; and
. the Surplus Account after transfers therefrom to the Interest
Account, the Principal Account, other than with respect to the
payment of sinking fund installments for Subordinate Notes and
the Retirement Account, provided that any such deposit from
the Surplus Account will only be made to the extent that
portion of the balance thereof not consisting of Eligible
Loans is sufficient therefor.
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Pending transfers from the Administration Fund, the moneys therein will
be invested in investment securities, as described under "Investments" below,
and any income from such investments will be deposited in the Revenue Fund.
Reserve Fund
The Reserve Fund is established under the indenture only for the
security of the Senior Beneficiaries and the Subordinate Beneficiaries, and not
for the holders of the Class C Notes. Immediately upon the delivery of any
series of Senior Notes or Subordinate Notes, and from the proceeds thereof or,
at the option of EdLinc, from any amounts to be transferred thereto from the
Surplus Fund and from any other available moneys of EdLinc not otherwise
credited to or payable into any Fund or Account under the indenture or otherwise
subject to the pledge and security interest created by the indenture, the
trustee will credit to the Reserve Fund the amount, if any, specified in the
supplemental indenture providing for the issuance of that series of notes, such
that, upon issuance of such notes, the balance in the Reserve Fund shall not be
less than the Reserve Fund Requirement.
If on any Monthly Payment Date the balance in the Reserve Fund is less
than the Reserve Fund Requirement, the trustee will transfer and credit thereto
an amount equal to the deficiency from moneys available therefor in the
following funds and accounts in the following order of priority: the Repayment
Account, the Income Account and the Surplus Fund; provided that any such
transfer from the Surplus Fund will only be made to the extent that portion of
the balance thereof not consisting of Eligible Loans is sufficient therefor.
The balance in the Reserve Fund will be used and applied solely for the
payment when due of principal and interest on the Senior Notes and the
Subordinate Notes and any Other Indenture Obligations and the purchase price of
Senior Notes and Subordinate Notes on a Purchase Date or mandatory tender date,
and the other purposes specified in the indenture (see "Note Fund" above), and
will be so used and applied by transfer by the trustee to the Note Fund, (a) at
any time and to the extent that the balance therein and the balances available
for deposit to the credit thereof from the Revenue Fund and the Surplus Fund,
other than that portion of the balance consisting of Eligible Loans, are
insufficient to meet the requirements specified in the indenture for deposit to
the Note Fund at such time, provided, however, that such amounts will be
applied, first, to the payment of interest on the Senior Notes and Other Senior
Obligations payable from the Interest Account, second, to the payment of
principal and the purchase price of Senior Notes and Other Senior Obligations
payable from the Principal Account, third, to the payment of interest on the
Subordinate Notes and Other Subordinate Obligations payable from the Interest
Account, and, fourth, to the payment of principal and the purchase price of
Subordinate Notes and Other Subordinate Obligations payable from the Principal
Account, and (b) at any time when a portion of the balance therein is required
to be transferred to the Retirement Account to pay a portion of the redemption
price of Senior Notes or Subordinate Notes called for redemption as provided in
a supplemental indenture relating thereto. If on any Monthly Payment Date the
balance in the Reserve Fund exceeds the Reserve Fund Requirement, such excess
will, upon order of an authorized officer of EdLinc, be transferred to the
Principal Account, to the extent necessary to make the deposits required to be
made to the Principal Account on such Monthly Payment Date, whether or not other
moneys are available to make such deposits.
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Pending transfers from the Reserve Fund, the moneys therein will be
invested in investment securities as described under "Investments" below and any
income from such investments will be deposited in the Revenue Fund.
Surplus Fund
The indenture establishes a Surplus Fund, which is comprised of two
accounts: the Special Redemption and Prepayment Account and the Surplus Account.
The trustee will deposit to the Surplus Fund balances in the Revenue Fund not
required for deposit to any other Fund or Account. Deposits to the Surplus Fund
from the Revenue Fund will be credited to the Special Redemption and Prepayment
Account to the extent the balance thereof is less than the Special Redemption
and Prepayment Account Requirement for each series of notes, and otherwise to
the Surplus Account.
Balances in the Surplus Fund will be applied to the following purposes
in the following order of priority:
. first, to remedy deficiencies in the Interest Account, after
transfers thereto from the Revenue Fund, for the payment of
interest on Senior Notes or Other Senior Obligations payable
therefrom;
. second, to remedy deficiencies in the Principal Account, after
transfers thereto from the Revenue Fund, for the redemption of
Senior Notes or the payment of principal or the purchase price
of Senior Notes or the payment of Other Senior Obligations
payable therefrom;
. third, to remedy deficiencies in the Retirement Account, after
transfers thereto from the Revenue Fund, for the redemption of
Senior Notes or the payment of Other Senior Obligations
payable therefrom;
. fourth, to remedy deficiencies in the Interest Account, after
transfers thereto from the Revenue Fund, for the payment of
interest on Subordinate Notes or Other Subordinate Obligations
payable therefrom;
. fifth, to remedy deficiencies in the Principal Account, after
transfers thereto from the Revenue Fund, for the payment of
the principal at stated maturity or the purchase price of
Subordinate Notes or the payment of Other Subordinate
Obligations payable therefrom;
. sixth, to remedy deficiencies in the Retirement Account, after
transfers thereto from the Revenue Fund, for the redemption of
Subordinate Notes or the payment of Other Subordinate
Obligations payable therefrom;
. seventh, to make deposits, but only from the Surplus Account,
to the Administration Fund, after transfers thereto from the
Revenue Fund, to the extent required pursuant to an order of
an authorized officer of EdLinc for costs and expenses;
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. eighth, to remedy deficiencies in the Reserve Fund, to the
extent that the balance is less than the Reserve Fund
Requirement after transfers thereto from the Revenue Fund;
. ninth, to remedy deficiencies in the Principal Account, after
transfers thereto from the Revenue Fund, to meet the sinking
fund installment with respect to the redemption of Subordinate
Notes on a sinking fund payment date;
. tenth, to make transfers to the Retirement Account to redeem
Senior Notes or Subordinate Notes which are called for
redemption or to prepay Senior or Subordinate Notes as
provided in a supplemental indenture relating thereto,
provided that any such transfers will be made only from
balances in the Special Redemption and Prepayment Account; and
. eleventh, to make deposits, but only from the Surplus Account,
to the Interest Account for the payment of Carry-Over Amounts,
and accrued interest thereon.
Notwithstanding the foregoing, Balances in the Surplus Fund consisting of
Eligible Loans will not be required to be applied (1) pursuant to priorities
first through sixth above until after any transfers from the Reserve Fund have
been taken into account, and (2) in any event pursuant to priorities seventh
through eleventh above. If the Surplus Fund is to be used to make such
transfers, transfers will be made, first, from any cash or investment securities
included in the Surplus Account or the Special Redemption and Prepayment
Account, in that order, and, second, from the proceeds of any sale of student
loans included in the Surplus Account.
Balances in the Special Redemption and Prepayment Account may also be
transferred to the Acquisition Fund for the purchase or origination of Eligible
Loans as provided in the indenture and as further authorized or limited in a
supplemental indenture.
Subject to compliance with the provisions of the indenture described
under "Description of the Notes--Redemption, Prepayment or Purchase of Notes;
Senior Asset Requirement" and satisfaction of other conditions set forth in the
indenture, balances in the Special Redemption and Prepayment Account, other than
any portion to be applied to the mandatory prepayment of principal of any notes,
may also be transferred to the Note Fund for the purchase of notes.
Balances in the Surplus Account may, subject to satisfaction of
conditions set forth in the indenture, including the requirement that, after
taking into account any such payments, the Senior Asset Requirement will be met,
also be applied, as determined by EdLinc from time to time, to the payment of
principal of or interest on Class C Notes when due or upon the redemption
thereof at the option of EdLinc.
Subject to compliance with the provisions of the indenture described
under "Description of the Notes--Redemption, Prepayment or Purchase of Notes;
Senior Asset Requirement," balances in the Surplus Account may also be applied
to any one or more of the following purposes at any time as determined by
EdLinc, provided the trustee will have first certified that no deficiencies
exist at such time in the Note Fund, the Reserve Fund or the Special Redemption
and Prepayment Account:
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(1) transfer to the Retirement Account for the redemption of Senior
Notes or Subordinate Notes called for redemption;
(2) transfer to the Principal Account or the Retirement Account for
the purchase of Senior Notes or Subordinate Notes; or
(3) upon satisfaction of conditions set forth in the indenture, (a)
the acquisition of student loans meeting the requirements of clauses (A)
(1) and (2) or (B) of the definition of "Eligible Loan"; (b) to reimburse
another fund, account or other source of EdLinc for the previous payment of
costs of issuance; and (c) for such other purposes as EdLinc shall
determine; provided, however, that balances in the Surplus Account will not
be applied to any of the purposes specified in the preceding clause (3)(b)
or (c) or to the purchase of student loans that are not Eligible Loans
unless, after taking into account any such application and excluding, for
these purposes only, from the calculation of the value of the Trust Estate,
any financed student loans which are not Eligible Loans and any moneys
reasonably expected to be needed to be used to pay costs of issuance, Note
Fees or administrative expenses, (i) the Senior Percentage will not be less
than 112%, or such lower percentage which, if Unenhanced Senior Notes are
Outstanding, will not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Senior Notes Outstanding, or, if no Unenhanced Senior Notes are Outstanding
but Other Senior Obligations are Outstanding, is acceptable to the Other
Senior Beneficiaries, and (ii) the Subordinate Percentage will not be less
than 102%, or such lower percentage which, if Unenhanced Subordinate Notes
are Outstanding, will not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Subordinate Notes Outstanding, or, if no Unenhanced Subordinate Notes are
Outstanding but Other Subordinate Obligations are Outstanding, is
acceptable to the Other Subordinate Beneficiaries; and provided, further,
that balances in the Surplus Account may be applied to the purchase of
Eligible Loans as specified in the preceding clause (3)(a) without
satisfying any other condition of this clause (3), to the extent provided
in a supplemental indenture.
The trustee will use its best efforts to sell student loans included in
the balance of the Surplus Account at the best price available to the extent
necessary to make any transfer or payment therefrom described above. In
addition, EdLinc may, at any time, sell to any purchaser (A) one or more
Eligible Loans financed with moneys in the Surplus Account at a price not less
than 100% of the principal balance thereof plus accrued noncapitalized interest
thereon payable by the borrower, or (B) one or more student loans financed with
moneys in the Surplus Account that are not Eligible Loans at a price not less
than the lesser of 100% of the principal balance thereof or the percentage of
the principal balance thereof paid to finance such student loan plus, in either
case, accrued noncapitalized interest thereon payable by the borrower. Student
loans from time to time held in the Surplus Account may also be purchased at any
time with the proceeds of EdLinc's bonds, notes or other evidences of
indebtedness, at a purchase price equal to 100% of the principal balance of the
student loans so purchased plus accrued noncapitalized interest thereon payable
by the borrower. Any money received by EdLinc in connection with a sale of
financed student loans pursuant to this paragraph will be deposited to the
Surplus Account.
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Pending transfers from the Surplus Fund, the moneys therein will be
invested in investment securities as described under "Investments" below, and
any income from such investments will be deposited in the Revenue Fund.
Alternative Loan Guarantee Fund
The indenture establishes an Alternative Loan Guarantee Fund. Upon the
transfer to the trustee of Alternative Loans pursuant to a transfer agreement,
the trustee will deposit an amount to the Alternative Loan Guarantee Fund
specified in the related supplemental indenture. The trustee will, upon the
purchase of additional Alternative Loans with proceeds of a series of notes,
deposit to the Alternative Loan Guarantee Fund with respect to each of these
Alternative Loans an amount specified in the related supplemental indenture. It
is anticipated that these subsequent deposits would relate to the origination
fees, if any, charged in connection with the origination of the Alternative
Loans. The trustee will also deposit to the Alternative Loan Guarantee Fund any
amounts transferred thereto from the Revenue Fund.
To the extent, as of the end of any calendar month, any payment on a
financed Alternative Loan has not been received within 180 days after the due
date therefor, such financed Alternative Loan will be deemed a Liquidated
Alternative Loan. The trustee will, on each Monthly Payment Date, transfer from
the Alternative Loan Guarantee Fund to the Revenue Fund an amount equal to the
unpaid principal balance of and accrued interest on each financed Alternative
Loan that became a Liquidated Alternative Loan during the preceding calendar
month.
If on any monthly payment date the balance in the Alternative Loan
Guarantee Fund exceeds the principal balance of Alternative Loans held under the
Indenture, the trustee shall transfer to the Revenue Fund an amount equal to
such excess.
Pending transfers from the Alternative Loan Guarantee Fund, the moneys
therein will be invested in investment securities as described under
"Investments" below, and any income from such investments will be retained
therein.
Pledge; Encumbrances
The notes and all Other Indenture Obligations are special, limited
obligations of EdLinc specifically secured by the pledge of the proceeds of the
sale of notes, until expended for the purpose for which the notes were issued,
the financed student loans and the revenues, moneys and securities in the
Acquisition Fund, the Note Fund, the Revenue Fund, the Administration Fund, the
Reserve Fund, the Alternative Loan Guarantee Fund and the Surplus Fund, in the
manner and subject to the prior applications provided in the indenture. Financed
student loans purchased with the proceeds of EdLinc's bonds, notes or
obligations or sold to another purchaser, or resold to a lender or SLFC pursuant
to its repurchase obligation under a student loan purchase agreement, or sold or
exchanged for Eligible Loans in accordance with the provisions of the indenture,
are, contemporaneously with receipt by the trustee of the purchase price, no
longer pledged to nor serve as security for the payment of the principal of,
premium, if any, or interest on, or any Carry-Over Amounts, or accrued interest,
with respect to the notes or any Other Indenture Obligations.
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EdLinc agrees that it will not create, or permit the creation of, any
pledge, lien, charge or encumbrance upon the financed student loans or the
revenues and other assets pledged under the indenture, except only as to a lien
subordinate to the lien of the indenture created by any other indenture
authorizing the issuance of bonds, notes or other evidences of indebtedness of
EdLinc, the proceeds of which have been or will be used to refund or otherwise
retire all or a portion of the Outstanding notes or as otherwise provided in or
permitted by the indenture. EdLinc agrees that it will not issue any bonds or
other evidences of indebtedness, other than the notes as permitted by the
indenture and other than swap agreements and credit enhancement facilities
relating to notes as permitted by the indenture, secured by a pledge of the
revenues and other assets pledged under the indenture, creating a lien or charge
equal or superior to the lien of the indenture; provided that nothing in the
indenture is intended to prevent EdLinc from issuing obligations secured by
revenues and assets of EdLinc other than the revenues and other assets pledged
in the indenture.
Covenants
Certain covenants with the holders of the notes and Other Beneficiaries
contained in the indenture are summarized as follows:
Trustee to Hold Financed Student Loans. EdLinc will cause all financed
student loans to be endorsed and otherwise conveyed to the trustee on behalf of
EdLinc in accordance with the provisions of the applicable student loan purchase
agreement or, in the case of any origination of financed student loans, will
cause such student loans to be originated in the name of the trustee. The
trustee will be the legal owner of all financed FFELP Loans for all purposes of
the Higher Education Act and each guarantee program. The trustee will so hold
such financed student loans in its capacity as trustee pursuant to the indenture
and, in such capacity, will be acting on behalf of EdLinc, as the beneficial
owner of such student loans, as well as the holders of the notes and all Other
Beneficiaries, as their interests may appear.
Enforcement and Amendment of Guarantee Agreements. So long as any notes
or Other Indenture Obligations are Outstanding and financed FFELP Loans are
Guaranteed by a guarantee agency, EdLinc agrees that it (1) will, from and after
the date on which the trustee on its behalf shall have entered into the
Guarantee Agreement, cause the trustee to maintain the same and diligently
enforce the trustee's rights under the Guarantee Agreement, (2) will cause the
trustee to enter into such other similar or supplemental agreements as shall be
required to maintain benefits for all financed FFELP Loans covered thereby, and
(3) will not consent to or permit any rescission of or consent to any amendment
to or otherwise take any action under or in connection with the same which in
any manner will materially adversely affect the rights of the noteholders or
Other Beneficiaries under the indenture.
Acquisition, Collection and Assignment of Student Loans. EdLinc agrees
that it will, except as provided with regard to the Surplus Fund (see "Funds and
Accounts--Surplus Fund" above), cause the trustee to purchase or originate only
Eligible Loans with moneys in any of the funds and, subject to any adjustments
referred to in the following paragraph, will diligently cause to be collected
all principal and interest payments on all the financed student loans and other
sums to which EdLinc is entitled pursuant to any student loan purchase
agreement, and all grants, subsidies, donations, insurance payments, Special
Allowance Payments and all defaulted payments Guaranteed by any guarantee agency
which relate to such financed student loans. EdLinc will
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also make, or cause to be made by lenders or servicers, every effort to perfect
EdLinc's, the trustee's or such lender's or servicer's claims for payment from
the Secretary of Education or a guarantee agency, as soon as possible, of all
payments related to financed FFELP Loans. EdLinc will cause the trustee to
assign such financed FFELP Loans for payment of guarantee or insurance benefits
within the time required under applicable law and regulations. EdLinc will cause
all United States and state statutes, rules and regulations which apply to
financed student loans to be complied with.
Enforcement of Financed Student Loans. EdLinc agrees that it will cause
to be diligently enforced, and cause to be taken all steps, actions and
proceedings reasonably necessary for the enforcement of, all terms, covenants
and conditions of all financed student loans and agreements in connection
therewith, including the prompt payment of all principal and interest payments
(as such payments may be adjusted to take into account (1) any discount EdLinc
may cause to be made available to borrowers who make payments on financed
student loans through automatic withdrawals, and (2) any reduction in the
interest payable on financed student loans provided for in any special program
under which such loans were originated) and all other amounts due EdLinc or the
trustee thereunder. Nothing in the provisions of the indenture described in this
paragraph, however, shall be construed to prevent EdLinc from settling a default
or curing a delinquency on any financed student loan on such terms as shall be
required by law. In addition, EdLinc may cause the trustee to amend the terms of
a financed student loan to provide for a different rate of interest thereon to
the extent required by law or, if such financed student loan is a Plus or SLS
Loan, to effect a reissuance of such Plus or SLS Loan at a variable rate.
Servicing and Other Agreements. EdLinc may contract with other entities
to assist it in performing its duties under the indenture, and any performance
of such duties by an entity so identified to the trustee will be deemed to be
action taken by EdLinc. EdLinc is required to enter into a servicing agreement
providing for the servicing of the financed student loans and performance of its
other obligations under the indenture.
Administration and Collection of Financed Student Loans. EdLinc agrees
that all financed student loans will be administered and collected by a servicer
selected by EdLinc in a competent, diligent and orderly fashion and in
accordance with all requirements of the Higher Education Act, the Secretary of
Education, the indenture, the Contract of Insurance, the federal reimbursement
contracts, each guarantee program, each Guarantee Agreement and each Alternative
Loan Program.
Books of Account, Annual Audit. EdLinc agrees that it will cause to be
kept and maintained proper books of account in which full, true and correct
entries will be made, in accordance with generally accepted accounting
principles, of all dealings or transactions of or in relation to the business
and affairs of EdLinc, and within 120 days after the end of each fiscal year
will cause such books of account to be audited by an independent accountant. A
copy of each audit report, annual balance sheet and income and expense statement
showing in reasonable detail the financial condition of EdLinc as at the close
of each fiscal year, and summarizing in reasonable detail the income and
expenses for such year, including the transactions relating to the funds and
accounts, will be filed promptly with the trustee and be available for
inspection by any noteholder or Other Beneficiary.
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Punctual Payments. EdLinc agrees that it will duly and punctually pay,
or cause to be paid, the principal of, premium, if any, and interest on and any
Carry-Over Amount, and accrued interest, with respect to each and every note and
each Other Indenture Obligation from the revenues and other assets pledged under
the indenture on the dates and at the places, and in the manner provided, in the
notes and with respect to each Other Indenture Obligation according to the true
intent and meaning thereof, and EdLinc will faithfully do and perform and at all
times fully observe and keep any and all of its covenants, undertakings,
stipulations and provisions contained in the notes, the Other Indenture
Obligations and the indenture.
Monthly Servicing Reports. EdLinc will prepare, or cause a servicer to
prepare, a monthly servicing report for each calendar month and will furnish, or
cause to be furnished, to the trustee a copy of each such report by the 25th day
of the next calendar month, or the next succeeding business day if such 25th day
is not a business day.
Limitation on Administrative Expenses and Note Fees. EdLinc covenants
and agrees that the administrative expenses and Note Fees will not, in any
fiscal year, exceed those that are reasonable and necessary in light of all
circumstances then existing and will not, in any event, be in such amounts as
will materially adversely affect the ability of EdLinc to pay or perform, as the
case may be, any of its obligations under the indenture or the security for any
Beneficiaries.
Amendment of Student Loan Purchase Agreements. EdLinc will notify the
trustee in writing of any proposed amendments to the student loan purchase
agreements. No such amendment will become effective unless and until the trustee
consents in writing thereto, which consent will not be given unless the trustee
receives an opinion of counsel that such amendment is required by the Higher
Education Act or is not to the prejudice of the holders of the notes or Other
Beneficiaries.
Credit Enhancement Facilities and Swap Agreements. EdLinc may from time
to time enter into any credit enhancement facilities or swap agreements with
respect to any notes of any series; provided that a supplemental indenture is
entered into authorizing the execution and delivery of such agreement. See
"Supplemental Indentures" below.
No supplemental indenture will authorize the execution of a swap
agreement unless, as of the date EdLinc enters into such swap agreement, the
swap counterparty has outstanding obligations rated by each Rating Agency not
lower than in its third highest specific rating category, or each Rating Agency
has a comparable other rating with respect to such swap counterparty, such as a
comparable rating of claims paying ability or deposits. No such swap agreement
will be designated as a senior swap agreement unless, as of the date EdLinc
enters into such swap agreement, the Senior Asset Requirement will be met and
the trustee shall have received written confirmation from each Rating Agency
that the execution and delivery of the swap agreement will not cause the
reduction or withdrawal of any rating or ratings then applicable to any
Outstanding Unenhanced Senior or Subordinate Notes.
Any supplemental indenture authorizing the execution by EdLinc of a swap
agreement or credit enhancement facility may include provisions with respect to
the application and use of all amounts to be paid thereunder. No amounts paid
under any such credit enhancement facility will
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be part of the Trust Estate except to the extent, if any, specifically provided
in such supplemental indenture and no Beneficiary will have any rights with
respect to any such amounts so paid except as may be specifically provided in
such supplemental indenture.
No Petition
The trustee, by entering into the indenture, and each noteholder, by
accepting a note, covenants and agrees that it will not at any time institute
against EdLinc, or join in any institution against EdLinc of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the notes or the indenture.
Investments
Moneys from time to time on deposit in the funds and accounts may be
invested in one or more of the following investment securities:
. Government Obligations;
. interest-bearing time or demand deposits, certificates of deposit
or other similar banking arrangements with any bank, trust
company, national banking association or other depositary
institution, including the trustee or any of its affiliates,
provided that, at the time of deposit or purchase, if the
investment is for a period exceeding one year, such depository
institution shall have long-term unsecured debt rated by each
Rating Agency not lower than in its highest applicable specific
rating category or if the investment is for a period of less than
one year, such depository institution shall have short-term
unsecured debt rated by each Rating Agency not lower than its
highest applicable specific rating category;
. obligations issued or guaranteed as to principal and interest by
any of the following: (a) the Government National Mortgage
Association; (b) the Federal National Mortgage Association; or
(c) the Federal Farm Credit Banks, the Federal Intermediate
Credit Banks, the Export-Import Bank of the United States, the
Federal Land Banks, the Student Loan Marketing Association, the
Federal Financing Bank, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation or the Farmers Home
Administration, or any agency or instrumentality of the United
States of America which will be established for the purpose of
acquiring the obligations of any of the foregoing or otherwise
providing financing therefor, provided that any such obligation
described in this clause (c) will either be rated by Fitch IBCA,
Inc. or, if not rated by Fitch IBCA, Inc., rated by Moody's, (1)
if such obligation has a term of less than one year, not lower
than in its highest applicable specific rating category, or (2)
if such obligation has a term of one year or longer, not lower
than in its highest applicable specific rating category;
. repurchase agreements with banks, which may include the trustee
or any of its affiliates, which are members of the Federal
Deposit Insurance Corporation or with
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government bond dealers insured by the Securities Investor
Protection Corporation, which such agreements are secured by
Government Obligations to a level sufficient to obtain a rating
by each Rating Agency in its highest applicable specific rating
category, or with brokers or dealers whose unsecured long-term
debt is rated by each Rating Agency in its highest applicable
specific rating category;
. any money market fund, including a qualified regulated investment
company described in I.R.S. Notice 87-22, rated by each Rating
Agency not lower than its highest applicable specific rating
category;
. any debt instrument; provided that such instrument has a term of
less than one year , is rated by each Rating Agency not lower
than in its highest applicable Specific Rating Category and
notice of such investment is given to each Rating Agency;
. any investment agreement which constitutes a general obligation
of an entity whose debt, unsecured securities, deposits or claims
paying ability is rated by each Rating Agency, (a) if such
investment agreement has a term of less than one year, not lower
than in its highest applicable specific rating category, or (b)
if such investment agreement has a term of one year or longer,
not lower than in its highest applicable specific rating
category; and
. any other investment if the trustee shall have received written
evidence from each Rating Agency that treating such investment as
an investment security will not cause any rating then applicable
to any Outstanding Unenhanced Senior or Subordinate Notes to be
lowered or withdrawn or, if no Unenhanced Senior or Subordinate
Notes are then Outstanding but Other Indenture Obligations are
Outstanding, is acceptable to the Other Beneficiaries entitled to
such Other Indenture Obligations.
Reports to Noteholders
The trustee, in accordance with the indenture, is required to mail a
copy of each monthly servicing report to each noteholder of record as of the
most recent record date. In addition, Beneficial Owners of the notes may receive
such reports, upon written request to the trustee together with a certification
that they are Beneficial Owners of the notes.
Events of Default
If any of the following events occur, it is an event of default under
the indenture:
(A) default in the due and punctual payment of any interest on any
Senior Note; or
(B) default in the due and punctual payment of the principal of, or
premium, if any, on, any Senior Note; or
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(C) default by EdLinc in its obligation to purchase any Senior Note
on a Purchase Date or mandatory tender date therefor; or
(D) default in the due and punctual payment of any amount owed by
EdLinc to any Other Senior Beneficiary under a senior swap agreement or
senior credit enhancement facility; or
(E) if no Senior Obligations are Outstanding, default in the due
and punctual payment of any interest on any Subordinate Note; or
(F) if no Senior Obligations are Outstanding, default in the due
and punctual payment of the principal of, or premium, if any, on, any
Subordinate Note; or
(G) if no Senior Obligations are Outstanding, default by EdLinc in
its obligation to purchase any Subordinate Note on a Purchase Date or
mandatory tender date therefor; or
(H) if no Senior Obligations are Outstanding, default in the due
and punctual payment of any amount owed by EdLinc to any Other Subordinate
Beneficiary under a subordinate swap agreement or a subordinate credit
enhancement facility; or
(I) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of any interest on any
Class C Note; or
(J) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of the principal of,
or premium, if any, on, any Class C Note; or
(K) default in the performance of any of EdLinc's obligations with
respect to the transmittal of moneys to be credited to the Revenue Fund,
the Acquisition Fund, the Alternative Loan Guarantee Fund or the Note Fund
under the provisions of the indenture and such default shall have continued
for a period of 30 days; or
(L) default in the performance or observance of any other of the
covenants, agreements or conditions on the part of EdLinc in the indenture
or in the notes contained, and such default shall have continued for a
period of 30 days after written notice thereof, specifying such default,
shall have been given by the trustee to EdLinc, which may give such notice
in its discretion and will give such notice at the written request of the
Acting Beneficiaries Upon Default, or by the holders of not less than 10% in
aggregate principal amount of the Outstanding notes to EdLinc and the
trustee, provided that, if the default is such that it can be corrected, but
not within such 30 days, it will not constitute an event of default if
corrective action is instituted by EdLinc within such 30 days and is
diligently pursued until the default is corrected; or
(M) events of bankruptcy or insolvency of EdLinc.
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Remedies
Whenever any event of default other than that described in paragraph (L)
under "Events of Default" above shall have occurred and be continuing, the
trustee may (and, upon the written request of the Acting Beneficiaries Upon
Default, the trustee shall), by notice in writing delivered to EdLinc, declare
the principal of and interest accrued on all notes then Outstanding due and
payable.
Whenever any event of default described in paragraph (L) under "Events
of Default" above shall have occurred and be continuing, (1) the trustee may, by
notice in writing delivered to EdLinc, declare the principal of and interest on
all notes then Outstanding due and payable; and (2) the trustee will, upon the
written request of the Acting Beneficiaries Upon Default, by notice in writing
delivered to EdLinc, declare the principal of and interest on all notes then
Outstanding due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the trustee, the Acting Beneficiaries Upon Default, by written notice to EdLinc
and the trustee, may rescind and annul such declaration and its consequences if:
(1) There has been paid to or deposited with the trustee by or for
the account of EdLinc, or provision satisfactory to the trustee has been made
for the payment of, a sum sufficient to pay:
(A) if Senior Notes or Other Senior Obligations are Outstanding:
(i) all overdue installments of interest on all Senior Notes; (ii) the
principal of (and premium, if any, on) any Senior Notes which have
become due other than by such declaration of acceleration, together with
interest thereon at the rate or rates borne by such Senior Notes; (iii)
to the extent that payment of such interest is lawful, interest upon
overdue installments of interest on the Senior Notes at the rate or
rates borne by such Senior Notes; (iv) all Other Senior Obligations
which have become due other than as a direct result of such declaration
of acceleration; (v) all other sums required to be paid to satisfy
EdLinc's obligations with respect to the transmittal of moneys to be
credited to the Revenue Fund, the Acquisition Fund and the Interest
Account under the provisions of the indenture; and (vi) all sums paid or
advanced by the trustee under the indenture and the reasonable
compensation, expenses, disbursements and advances of the trustee, its
agents and counsel and any paying agents, deposit agents, remarketing
agents, depositaries, auction agents and broker-dealers; or
(B) if no Senior Obligations are Outstanding, but Subordinate
Notes or Other Subordinate Obligations are Outstanding: (i) all overdue
installments of interest on all Subordinate Notes; (ii) the principal of
(and premium, if any, on) any Subordinate Notes which have become due
other than by such declaration of acceleration, together with interest
thereon at the rate or rates borne by such Subordinate Notes; (iii) to
the extent that payment of such interest is lawful, interest upon
overdue installments of interest on the Subordinate Notes at the rate or
rates borne by such Subordinate Notes; (iv) all Other
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Subordinate Obligations which have become due other than as a direct
result of such declaration of acceleration; (v) all other sums required
to be paid to satisfy EdLinc's obligations with respect to the
transmittal of moneys to be credited to the Revenue Fund, the
Acquisition Fund and the Interest Account under the provisions of the
indenture; and (vi) all sums paid or advanced by the trustee under the
indenture and the reasonable compensation, expenses, disbursements and
advances of the trustee, its agents and counsel and any paying agents,
deposit agents, remarketing agents, depositaries, auction agents and
broker-dealers; or
(C) if no Senior Obligations or Subordinate Obligations are
Outstanding: (i) all overdue installments of interest on all Class C
Notes and all overdue sinking fund installments for the retirement of
Class C Notes; (ii) the principal of, and premium, if any, on, any Class
C Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates borne by such
Class C Notes; (iii) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest on the Class C
Notes at the rate or rates borne by such Class C Notes; (iv) all other
sums required to be paid to satisfy EdLinc's obligations with respect to
the transmittal of moneys to be credited to the Revenue Fund and the
Acquisition Fund under the provisions of the indenture; and (v) all sums
paid or advanced by the trustee under the indenture and the reasonable
compensation, expenses, disbursements and advances of the trustee, its
agents and counsel and any paying agents, deposit agents, remarketing
agents, depositaries, auction agents and broker-dealers; and
(2) All events of default, other than the nonpayment of the
principal of and interest on notes or amounts owing to Other Beneficiaries
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in the indenture.
If an event of default has occurred and is continuing, the trustee may,
subject to applicable law, pursue any available remedy by suit at law or in
equity to enforce the covenants of EdLinc in the indenture and may pursue such
appropriate judicial proceedings as the trustee shall deem most effective to
protect and enforce, or aid in the protection and enforcement of, the covenants
and agreements in the indenture. The trustee is also authorized to file proofs
of claims in any equity, receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization or other similar proceedings.
Notwithstanding any other provisions of the indenture, if an "event of
default" (as defined therein) occurs under a swap agreement or a credit
enhancement facility and, as a result, the Other Beneficiary that is a party
thereto is entitled to exercise one or more remedies thereunder, such Other
Beneficiary may exercise such remedies, including, without limitation, the
termination of such agreement, as provided therein, in its own discretion;
provided that the exercise of any such remedy does not adversely affect the
legal ability of the trustee or Acting Beneficiaries Upon Default to exercise
any remedy available under the indenture.
If an event of default has occurred and is continuing, and if it shall
have been requested so to do by the holders of not less than 25% in aggregate
principal amount of all notes then Outstanding or any Other Beneficiary and
shall have been indemnified as provided in the
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indenture, the trustee is obliged to exercise such one or more of the rights and
powers conferred by the indenture as the trustee shall deem most expedient in
the interests of the Beneficiaries; provided, however, that the trustee has the
right to decline to comply with any such request if the trustee shall be advised
by counsel that the action so requested may not lawfully be taken or if the
trustee receives, before exercising such right or power, contrary instructions
from the holders of not less than a majority in aggregate principal amount of
the notes then Outstanding or from any Other Beneficiary.
The Acting Beneficiaries Upon Default have the right to direct the
method and place of conducting all proceedings to be taken in connection with
the enforcement of the terms and conditions of the indenture; provided that (a)
such direction shall not be otherwise than in accordance with the provisions of
law and of the indenture; (b) the trustee shall not determine that the action so
directed would be unjustly prejudicial to the holders of notes or Other
Beneficiaries not taking part in such direction, other than by effect of the
subordination of any of their interests thereunder; and (c) the trustee may take
any other action deemed proper by the trustee which is not inconsistent with
such direction.
Except as may be permitted in a supplemental indenture with respect to
an Other Beneficiary, no holder of any note or Other Beneficiary will have any
right to institute any suit, action or proceeding in equity or at law for the
enforcement of the indenture or for the execution of any trust under the
indenture or for the appointment of a receiver or any other remedy under the
indenture unless (1) an event of default shall have occurred and be continuing,
(2) the holders of not less than 25% in aggregate principal amount of notes then
Outstanding or any Other Beneficiary shall have made written request to the
trustee, (3) such Beneficiary or Beneficiaries shall have offered to the trustee
indemnity, (4) the trustee shall have thereafter failed for a period of 60 days
after the receipt of the request and indemnification or refused to exercise the
powers granted in the indenture or to institute such action, suit or proceeding
in its own name and (5) no direction inconsistent with such written request
shall have been given to the trustee during such 60-day period by the holders of
not less than a majority in aggregate principal amount of the notes then
Outstanding or by any Other Beneficiary; provided, however, that,
notwithstanding the foregoing provisions of the indenture, the Acting
Beneficiaries Upon Default may institute any such suit, action or proceeding in
their own names for the benefit of the holders of all Outstanding notes and
Other Beneficiaries under the indenture.
The trustee, unless it has declared the principal of and interest on all
Outstanding notes immediately due and payable and a judgment or decree for
payment of the money due has been obtained by the trustee, must waive any event
of default and its consequences upon written request of the Acting Beneficiaries
Upon Default; provided, however, that there will not be waived (a) any event of
default arising from the acceleration of the maturity of the notes, except upon
the rescission and annulment of such declaration as described in the third
paragraph under this caption "Remedies;" (b) any event of default in the payment
when due of any amount owed to any Beneficiary (including payment of principal
of or interest on any note) except with the consent of such Beneficiary or
unless, prior to such waiver, EdLinc has paid or deposited with the trustee a
sum sufficient to pay all amounts owed to such Beneficiary; (c) any event of
default arising from the failure of EdLinc to pay unpaid expenses of the
trustee, its agents and counsel, and any authenticating agent, paying agents,
note registrars, deposit agents, remarketing agents,
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depositaries, auction agents and broker-dealers as required by the indenture,
unless, prior to such waiver, EdLinc has paid or deposited with the trustee sums
required to satisfy such obligations of EdLinc under the provisions of the
indenture.
Application of Proceeds
All moneys received by the trustee pursuant to any remedy will, after
payment of the cost and expenses of the proceedings resulting in the collection
of such moneys and of the expenses, liabilities and advances incurred or made by
the trustee with respect thereto, be applied as follows:
(A) Unless the principal of all the Outstanding notes shall have become
or shall have been declared due and payable, all such moneys will be applied as
follows:
. FIRST, to the payment to the Senior Beneficiaries of all
installments of principal and interest then due on the Senior
Notes and all Other Senior Obligations, and if the amount
available will not be sufficient to pay all such amounts in full,
then to the payment ratably, in proportion to the amounts due, to
the Senior Noteholders and to each Other Senior Beneficiary,
without any discrimination or preference, and the trustee will
apply the amount so apportioned to the Senior Noteholders first
to the payment of interest and thereafter to the payment of
principal;
. SECOND, to the payment to the Subordinate Beneficiaries of all
installments of principal and interest then due on the
Subordinate Notes and all Other Subordinate Obligations, and if
the amount available will not be sufficient to pay all such
amounts in full, then to the payment ratably, in proportion to
the amounts due, without regard to due date, to the Subordinate
Noteholders and to each Other Subordinate Beneficiary, without
any discrimination or preference, and the trustee will apply the
amount so apportioned to the Subordinate Noteholders first to the
payment of interest and thereafter to the payment of principal;
and
. THIRD, to the payment of the holders of the Class C Notes of all
installments of principal and interest, other than interest on
overdue principal, then due and payable.
(B) If the principal of all Outstanding notes shall have become due or
shall have been declared due and payable and such declaration has not been
annulled and rescinded under the provisions of the indenture, all such moneys
will be applied as follows:
. FIRST, to the payment to the Senior Beneficiaries of all
principal and interest then due on the Senior Notes and all Other
Senior Obligations, without preference or priority of principal
over interest or of interest over principal, or of any
installment of interest over any other installment of interest,
or of any Senior Beneficiary over any other Senior Beneficiary,
ratably, according to the amounts due, to the persons entitled
thereto without any discrimination or preference; and
. SECOND, to the payment to the Subordinate Beneficiaries of the
principal and interest then due on the Subordinate Notes and all
Other Subordinate Obligations,
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without preference or priority of principal over interest or of
interest over principal, or of any installment of interest over
any other installment of interest, or of any Subordinate
Beneficiary over any other Subordinate Beneficiary, ratably,
according to the amounts due, to the person entitled thereto
without any discrimination or preference, and
. THIRD, to the payment of the principal and premium, if any, and
interest then due and unpaid upon the Class C Notes, without
preference or priority of principal over interest or of interest
over principal, or of any installment of interest over any other
installment of interest, or of any Class C Note over any other
Class C Note, ratably, according to the amounts due respectively
for principal and interest, and other amounts owing, to the
persons entitled thereto without any discrimination or
preference.
(C) If the principal of all Outstanding notes shall have been declared
due and payable and if such declaration will thereafter have been rescinded
and annulled, then, subject to the provisions described in paragraph (B)
above, if the principal of all the Outstanding notes shall later become or
be declared due and payable, the money held by the trustee under the
indenture will be applied in accordance with the provisions described in
paragraph (A) above.
Trustee
Prior to the occurrence of an event of default under the indenture which
has not been cured, the trustee is required to perform such duties and only such
duties as are specifically set forth in the indenture. Upon the occurrence and
continuation of an event of default, the trustee will exercise the rights and
powers vested in it by indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in his own affairs.
Before taking any action under the indenture, the trustee may require
that satisfactory indemnity be furnished to it for the reimbursement of all
expenses to which it may be put and to protect it against all liability by
reason of any action so taken, except liability which is adjudicated to have
resulted from its negligence or willful misconduct.
The trustee may at any time resign upon 60 days' notice to EdLinc and to
the Beneficiaries, such resignation to take effect upon the appointment of a
successor trustee. The trustee may be removed at any time by EdLinc at the
request of the holders of a majority in principal amount of notes Outstanding,
except during the existence of an event of default under the indenture. No such
removal will be effective until the appointment of a successor trustee.
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Supplemental Indentures
Supplemental Indentures Not Requiring Consent of Beneficiaries
EdLinc and the trustee may, from time to time and at any time, without
the consent of, or notice to, any of the noteholders or any Other Beneficiary,
enter into an indenture or indentures supplemental to the indenture to, among
other things:
. cure any ambiguity or formal defect or omission in the indenture or
in any supplemental indenture,;
. grant to the trustee for the benefit of the Beneficiaries any
additional rights, remedies, powers, authority or security;
. describe or identify more precisely any part of the Trust Estate or
subject additional revenues, properties or collateral to the lien and
pledge of the indenture;
. authorize the issuance of a series of notes, subject to the
requirements of the indenture (see "Description of the Notes--
Issuance of Notes");
. amend the assumptions contained in the definition of "cash flow
projection;"
. modify the indenture as required by any credit facility provider or
swap counterparty, or otherwise necessary to give effect to any
credit enhancement facility or swap agreement; provided that no such
modifications will be effective (1) if the consent of any noteholders
would be required therefor under the proviso described in the next
succeeding paragraph and such consent has not been obtained, or (2)
the trustee will determine that such modifications are to the
prejudice of any Class C Noteholder; or
. make any other change in the indenture which, in the judgment of the
trustee, is not to the prejudice of the trustee or any Beneficiary.
Supplemental Indentures Requiring Consent of Noteholders
Exclusive of supplemental indentures described in the preceding
paragraph, the trustee, upon receipt of an instrument evidencing the consent to
the below-mentioned supplemental indenture by: (1) if they are affected thereby,
the holders of not less than two-thirds of the aggregate principal amount of the
Outstanding Senior Notes not held by EdLinc or a related person, (2) if they are
affected thereby, the holders of not less than two-thirds of the aggregate
principal amount of the Outstanding Subordinate Notes not held by EdLinc or a
related person, and (3) each other person which must consent to such
supplemental indenture as provided in any then outstanding supplemental
indenture authorizing the issuance of a series of notes, will join with EdLinc
in the execution of such other supplemental indentures for the purpose of
modifying, altering, amending, adding to or rescinding any of the terms or
provisions contained in the
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indenture; provided, however, that no such supplemental indenture will permit
without the consent of each Beneficiary which would be affected thereby:
. an extension of the maturity of the principal of or the interest on
any note;
. a reduction in the principal amount, redemption price or purchase
price of any note or the rate of interest thereon;
. a privilege or priority of any Senior Obligation over any other
Senior Obligation;
. a privilege or priority of any Subordinate Obligation over any other
Subordinate Obligation;
. a privilege or priority of any Class C Note over any other Class C
Note;
. a privilege of any Senior Notes over any Subordinate Notes or Class C
Notes, or of any Subordinate Notes over any Class C Notes, other than
as theretofore provided in the indenture;
. the surrendering of a privilege or a priority granted by the
indenture if, in the judgment of the trustee, to the detriment of
another Beneficiary under the indenture;
. a reduction or an increase in the aggregate principal amount of the
notes required for consent to such supplemental indenture;
. the creation of any lien ranking prior to or on a parity with the
lien of the indenture on the Trust Estate or any part thereof, except
as expressly permitted in the indenture;
. any Beneficiary to be deprived of the lien created on the rights,
title, interest, privileges, revenues, moneys and securities pledged
under the indenture;
. the modification of any of the provisions of the indenture described
in this paragraph; or
. the modification of any provision of a supplemental indenture which
states that it may not be modified without the consent of the holders
of notes issued pursuant thereto or any notes of the same class or
any Beneficiary that has provided a credit enhancement facility or
swap agreement of such class.
Rights of Trustee
If, in the opinion of the trustee, any supplemental indenture adversely
affects the rights, duties or immunities of the trustee under the indenture or
otherwise, the trustee may, in its discretion, decline to execute such
supplemental indenture.
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Consent of Depositaries, Remarketing Agents, Auction Agents and Broker-Dealers
So long as any depositary agreement, remarketing agreement, auction
agent agreement or broker-dealer agreement is in effect, no supplemental
indenture which materially adversely affects the rights, duties or immunities of
the depositary, the remarketing agent, the auction agent or the broker-dealer
will become effective unless and until delivery to the trustee of a written
consent of the depositary, the remarketing agent, the auction agent or the
broker-dealer, as the case may be, to such supplemental indenture.
Opinion and Rating Agency Approval Required Prior to Execution of Supplemental
Indenture
No supplemental indenture will be executed unless, prior to the
execution thereof, the trustee shall have received written evidence from each
Rating Agency that execution and delivery of such supplemental indenture will
not adversely affect any rating or ratings then applicable to any of the
Outstanding notes.
Discharge of Notes and Indenture
The obligations of EdLinc under the indenture, and the liens, pledges,
charges, trusts, covenants and agreements of EdLinc therein made or provided
for, will be fully discharged and satisfied as to any note and such note will no
longer be deemed to be Outstanding thereunder
. when such note shall have been canceled, or shall have been
purchased by the trustee from moneys held by it under the indenture;
or
. as to any note not canceled or so purchased, when payment of the
principal of and the applicable redemption premium, if any, on such
note, plus interest on such principal to the due date thereof,
either (a) shall have been made in accordance with the terms of the
indenture, or (b) shall have been provided for by irrevocably
depositing with the trustee exclusively for such payment, (1) moneys
sufficient to make such payment or (2) Government Obligations
maturing as to principal and interest in such amount and at such
times as will ensure the availability of sufficient moneys to make
such payment and, if payment of all then outstanding notes is to be
so provided for, the payment of all fees and expenses of the trustee
and any other fiduciaries under the indenture.
Notices to Noteholders
Except as is otherwise provided in the indenture, any provision in the
indenture for the mailing of notice or other instrument to holders of notes will
be fully complied with if it is mailed by first-class mail, postage prepaid, to
each holder of notes outstanding at the address appearing on the note register
maintained by the trustee. In addition, whenever notice is to be mailed under
the indenture to the holders of notes, the trustee is also, upon request, to
mail a copy of such notice to (1) any holder of at least $1,000,000 in aggregate
principal amount of the notes, or, in the event less than $1,000,000 in
aggregate principal amount of notes is outstanding, the holder of all
outstanding notes, in addition to the copy mailed to such holder's address
appearing on the note register, at such other address as such holder shall
specify in writing to the trustee, and (2) any
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person that is the Beneficial Owner of a note, as evidenced to the satisfaction
of the trustee, at such address as such Beneficial Owner shall specify in
writing to the trustee; provided that any defect in or failure to mail any such
notice prescribed by this sentence will not affect the validity of any
proceedings to be taken, including, without limitation, for the redemption of
notes, pursuant to such notice.
Rights of Other Beneficiaries
All rights of any Other Beneficiary under the indenture to consent to or
direct remedies, waivers, actions and amendments thereunder will cease for so
long as such Other Beneficiary is in default of any of its obligations or
agreements under the swap agreement or the credit enhancement facility by reason
of which such person is an Other Beneficiary.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences resulting from the beneficial ownership of notes by specified
persons. This summary does not consider all the possible United States federal
tax consequences of the purchase, ownership or disposition of the notes and is
not intended to reflect the individual tax position of any beneficial owner.
Moreover, except as expressly indicated, it addresses initial purchasers of a
note at its issue price, which is the first price to the public at which a
substantial amount of the notes in an issue is sold, and does not address
beneficial owners that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or currencies, purchasers that hold
notes as a hedge, or that are hedged, against currency or interest rate risks or
as part of a straddle with other investments or as part of a synthetic security
or other integrated investment, including a conversion transaction, comprised of
a note and one or more other investments, or purchasers that have a functional
currency other than the U.S. dollar.
Except to the extent discussed below under "United States Federal Income
Tax Consequences to Non-United States Holders," this summary is not applicable
to non-United States persons not subject to United States federal income tax on
their worldwide income. This summary is based upon the United States federal tax
laws and regulations currently in effect and as currently interpreted and does
not take into account possible changes in the tax laws or interpretations of
those laws, any of which may be applied retroactively. It does not discuss the
tax laws of any state, local or foreign governments. It does not discuss the tax
treatment of notes denominated in hyperinflationary currencies or dual currency
notes.
Persons considering the purchase of notes should consult their own tax
advisors concerning the United States federal income tax consequences to them in
light of their particular situations as well as any consequences to them under
the laws of any other taxing jurisdiction.
Characterization of the Trust Estate
In Dorsey & Whitney LLP's opinion, based upon various assumptions and
representations of EdLinc, the notes will be treated as debt of EdLinc, rather
than as an interest in the financed Eligible Loans and other assets of the Trust
Estate, for federal income tax purposes. This opinion
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will not be binding on the courts or the Internal Revenue Service. It is
possible that the Internal Revenue Service could assert that, for purposes of
the Internal Revenue Code, the transaction contemplated by this prospectus
constitutes a sale of the assets comprising the Trust Estate (or of an interest
in the Trust Estate) to the noteholders or that the relationship which will
result from this transaction is that of a partnership or of an association
taxable as a corporation.
If, instead of treating the transaction as creating secured debt in the
form of the notes issued by EdLinc as a corporate entity, the Internal Revenue
Service treats the transaction as creating a partnership among the noteholders,
the servicer and EdLinc, which has purchased the underlying Trust Estate assets,
the resulting partnership would not be subject to federal income tax. Rather,
the servicer, EdLinc and each noteholder would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. If the Internal Revenue Service holds that the notes
constitute partnership interests rather than indebtedness, the amount and timing
of items of income and deduction of the noteholder may differ from the tax
consequences set forth in the following summary.
If, alternatively, the Internal Revenue Service determines that this
transaction created an entity other than EdLinc which was classified as a
corporation or a publicly traded partnership taxable as a corporation and which
was treated as having sold the assets comprising the Trust Estate, the Trust
Estate would be subject to federal income tax at corporate income tax rates on
the income it derives from the financed Eligible Loans and other assets.
Imposition of this corporate income tax would reduce the amounts available for
payment to the noteholders. Cash payments to the noteholders generally would be
treated as dividends for tax purposes to the extent of the corporation's
earnings and profits. A similar result would apply if the noteholders were
deemed to have acquired stock or other equity interests in EdLinc. However, as
noted above, EdLinc has been advised that the notes will be treated as debt of
EdLinc for federal income tax purposes.
Characterization of the Notes as Indebtedness
EdLinc and the noteholders express in the indenture their intent that,
for applicable tax purposes, the notes will be indebtedness of EdLinc secured by
the Trust Estate. EdLinc and the noteholders, by accepting the notes, have
agreed to treat the notes as indebtedness of EdLinc for federal income tax
purposes. EdLinc intends to treat this transaction as a financing reflecting the
notes as its indebtedness for tax and financial accounting purposes.
In general, the characterization of a transaction as a sale of property
or a secured loan, for federal income tax purposes, is a question of fact, the
resolution of which is based upon the economic substance of the transaction
rather than upon its form or the manner in which it is characterized. While the
Internal Revenue Service and the courts have set forth several factors to be
taken into account in determining whether the substance of a transaction is a
sale of property or a secured indebtedness, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Notwithstanding the foregoing, in some instances, courts have
held that a taxpayer is bound by the particular form it has chosen for a
transaction, even if the substance of the transaction does not accord with its
form.
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EdLinc believes that it has retained the preponderance of the primary
benefits and burdens associated with the financed Eligible Loans and other
assets comprising the Trust Estate and should therefore be treated as the owner
of these assets for federal income tax purposes. If, however, the Internal
Revenue Service were to successfully assert that this transaction should be
treated as a sale of the Trust Estate assets, the Internal Revenue Service could
further assert that the entity created pursuant to the indenture, as the owner
of the Trust Estate for federal income tax purposes, should be deemed engaged in
a business and, therefore, characterized as an association taxable as a
corporation.
United States Federal Income Tax Consequences to United States Holders
Payments of Interest
In general, interest on a note will be taxable to a beneficial owner
which is a United States holder of the note. For purposes of the following
summary, the term United States holder refers generally to: (1) a citizen or
resident of the United States, (2) a corporation created or organized under the
laws of the United States or any state, including the District of Columbia, or
(3) a person otherwise subject to United States federal income taxation on its
worldwide income. Interest will be taxable as ordinary income at the time it is
received or accrued, depending on the holder's method of accounting for tax
purposes. If a partnership holds notes, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships holding notes should consult their tax
advisors.
Although the matter is not free from doubt, it is anticipated that the
notes will be treated as providing for stated interest at qualified floating
rates, as this term is defined by applicable Treasury Regulations, and
accordingly as having been issued without original issue discount. EdLinc
intends to report interest income in respect of the notes in a manner consistent
with this treatment. If the Internal Revenue Service were to determine that the
notes do not provide for stated interest at qualified floating rates, the notes
would be treated as having been issued with original issue discount. In that
event, the noteholder would be required to include original issue discount in
gross income as it accrues on a constant yield to maturity basis in advance of
the receipt of any cash attributable to the income, regardless of whether the
holder is a cash or accrual basis taxpayer. We anticipate, however, that even if
the notes were treated as issued with original issue discount under these
circumstances, the amount which a noteholder would be required to include in
income currently under this method would not differ materially from the amount
of interest on the note otherwise includable in income.
Although the matter is also not free from doubt, EdLinc intends to take
the position that the Carry-Over Amounts are taxable as interest payments when
received or accrued, depending on the noteholder's method of accounting. It is
possible, however, that the Internal Revenue Service could take the position
that the Carry-Over Amounts are contingent payments and accordingly that the
notes were issued with original issue discount includable in income as it
accrues, as described above. If the holder does not ultimately collect the
accrued Carry-Over Amounts, the amount of the unpaid Carryover Amounts would
first reduce the interest (including any original issue discount) includable in
the holder's taxable income for that taxable year, and any excess would be
treated as ordinary loss to the extent of prior year interest income inclusions
on the note.
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Notes Purchased at a Premium
Under the Internal Revenue Code, a United States holder that purchases a
note for an amount in excess of its stated redemption price at maturity may
elect to treat this excess as amortizable bond premium. If the holder makes this
election, the amount of interest which the United States holder must include in
income each year with respect to interest on the note will be reduced by the
amount of amortizable bond premium allocable, based on the note's yield to
maturity, to that year. If the amortizable bond premium allocable to a year
exceeds the amount of interest allocable to that year, the excess would be
allowed as a deduction for that year but only to the extent of the United States
holder's prior interest inclusions on the note. Any excess is generally carried
forward and allocable to the next year. A holder who elects to amortize bond
premium must reduce his tax basis in the note as described below under
"Purchase, Sale, Exchange and Retirement of the Notes." Any election to amortize
bond premium is applicable to all bonds, other than bonds the interest on which
is excludable from gross income, held by the United States holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States holder, and may not be revoked without the consent
of the Internal Revenue Service.
Notes Purchased at a Market Discount
A note, other than a note that matures one year or less from the date of
issuance, will be treated as acquired at a market discount (a "market discount
note") if the amount for which a United States holder purchased the note is less
than the note's issue price, unless the difference is less than a specified de
minimis amount.
In general, any partial payment of principal or any gain recognized on
the maturity or disposition of a market discount note will be treated as
ordinary income to the extent that the gain does not exceed the accrued market
discount on the note. Alternatively, a United States holder of a market discount
note may elect to include market discount in income currently over the life of
the market discount note. That election applies to all debt instruments with
market discount acquired by the electing United States holder on or after the
first day of the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
Market discount accrues on a straight-line basis unless the United
States holder elects to accrue it on a constant yield to maturity basis. That
election is applicable only to the market discount note with respect to which it
is made and is irrevocable. A United States holder of a market discount note
that does not elect to include market discount in income currently generally
will be required to defer deductions for interest on borrowings allocable to the
note in an amount not exceeding the accrued market discount on the note until
the maturity or disposition of the note.
Purchase, Sale, Exchange and Retirement of the Notes
A United States holder's tax basis in a note generally will equal its
cost, increased by any market discount and original issue discount included in
the United States holder's income with respect to the note, and reduced by the
amount of any amortizable bond premium applied to reduce interest on the note. A
United States holder generally will recognize gain or loss on the sale,
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exchange or retirement of a note equal to the difference between the amount
realized on the sale or retirement and the United States holder's tax basis in
the note. Except to the extent described above under "Notes Purchased at a
Market Discount," and except to the extent attributable to accrued but unpaid
interest, gain or loss recognized on the sale, exchange or retirement of a note
will be capital gain or loss and will be long-term capital gain or loss if the
note was held for more than one year. In the event that the Internal Revenue
Service takes the position that the notes were issued with original issue
discount as a result of the Carry-Over Amounts, as discussed in "Payments of
Interest" above, this gain would be recharacterized as ordinary gain and a
portion of the loss would be recharacterized as ordinary loss.
United States Federal Income Tax Consequences to Non-United States Holders
The following is a general discussion of the principal United States
federal income and estate tax consequences resulting from the beneficial
ownership of notes by a non-United States holder, which refers generally to a
person other than a United States holder.
Subject to the discussions of Carry-Over Amounts and backup withholding
below, payments of principal, any premium and interest by us or any agent of
ours (acting in its capacity as agent) to any non-United States holder will not
be subject to United States federal withholding tax, provided, in the case of
interest, that (1) the non-United States holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock entitled to vote, (2) the non-United States holder is not a
controlled foreign corporation for United States tax purposes that is related to
us, directly or indirectly, through stock ownership and (3) either (A) the non-
United States holder certifies to us or our agent under penalties of perjury
that it is not a United States person and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business and holds
the note certifies to us or our agent under penalties of perjury that it has
received this statement from the non-United States holder and furnishes the
payor with a copy.
It is possible that any payments of Carry-Over Amounts may be treated as
contingent interest and that the Internal Revenue Service may accordingly take
the position that these payments do not qualify for the exemption from
withholding described above.
A non-United States holder that does not qualify for exemption from
withholding as described above generally will be subject to United States
federal withholding tax at the rate of 30%, or lower applicable treaty rate,
with respect to payments of interest on the notes.
If a non-United States holder is engaged in a trade or business in the
United States and interest on the note is effectively connected with the conduct
of this trade or business, the non-United States holder, although exempt from
the withholding tax discussed above, provided that such holder timely furnishes
the required certification to claim this exemption, may be subject to United
States federal income tax on the interest in the same manner as if it were a
United States holder. In addition, if the non-United States holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30%, or lower
applicable treaty rate, of its effectively connected earnings and profits for
the taxable year, subject to adjustments. For purposes of the branch profits
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tax, interest on a note will be included in the earnings and profits of the
holder if the interest is effectively connected with the conduct by the holder
of a trade or business in the United States. The holder must provide the payor
with a properly executed Internal Revenue Service Form 4224 or Internal Revenue
Service Form W-8ECI to claim an exemption from United States Federal withholding
tax.
Any capital gain or market discount realized on the sale, exchange,
retirement or other disposition of a note by a non-United States holder will not
be subject to United States federal income or withholding taxes if (a) the gain
is not effectively connected with a United States trade or business of the
non-United States holder and (b) in the case of an individual, the non-United
States holder is not present in the United States for 183 days or more in the
taxable year of the sale, exchange, retirement or other disposition, and other
conditions are met.
Notes held by an individual who is neither a citizen nor a resident of
the United States for United States federal tax purposes at the time of the
individual's death will not be subject to United States federal estate tax,
provided that the income from the notes was not or would not have been
effectively connected with a United States trade or business of the individual
and that the individual qualified for the exemption from United States federal
withholding tax, without regard to the certification requirements, described
above.
On January 1, 2001, new withholding tax regulations will take effect
with respect to payments made to non-United States holders. Among other things,
these regulations generally will require any non-United States holder that seeks
the protection of an income tax treaty with respect to the imposition of U.S.
withholding tax to obtain a taxpayer identification number from the Internal
Revenue Service and provide verification that the holder is entitled to the
protection of the relevant income tax treaty. Tax-exempt non-United States
holders will generally be required to provide verification of their tax-exempt
status.
Effective January 1, 2001, statements made on Internal Revenue Service
forms issued under the prior regulations will no longer be valid and non-United
States holders will be required to provide certification on new forms that
comply with the new withholding rules. Under a special transition rule, prior to
the January 1, 2001 effective date we or our paying agent may request
certification of non-United States status on forms complying with the new rules.
Purchasers of notes that are non-United States holders should consult
their own tax advisors with respect to the possible applicability of United
States withholding and other taxes upon income realized in respect of the notes.
Information Reporting and Back-up Withholding
For each calendar year in which the notes are outstanding, we are
required to provide the Internal Revenue Service with information, including the
holder's name, address and taxpayer identification number, either the holder's
Social Security number or its employer identification number, as the case may
be, the aggregate amount of principal and interest paid to that holder during
the calendar year and the amount of tax withheld, if any. This obligation,
however, does not apply with respect to some United States holders, including
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts.
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If a United States holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or under reports its tax liability, we,
our agents or paying agents or a broker may be required to backup withhold a tax
equal to 31% of each payment of interest, principal and any premium on the
notes. This backup withholding is not an additional tax and may be credited
against the United States holder's federal income tax liability, provided that
the holder furnishes the required information to the Internal Revenue Service.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments of interest made by us or any of our agents
(in their capacity as such) to a non-United States holder of a note if the
holder has provided the required certification that it is not a United States
person as set forth in clause (3) in the first paragraph under "Non-United
States Holders" above, or has otherwise established an exemption, provided that
neither we nor our agent has actual knowledge that the holder is a United States
person or that the conditions of an exemption are not in fact satisfied.
Payments of the proceeds from the sale of a note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding. However, information reporting, but not backup withholding, may
apply to those payments if the broker is one of the following:
. a United States person,
. a controlled foreign corporation for United States tax purposes,
. a foreign person 50 percent or more of whose gross income from all
sources for the three-year period ending with the close of its
taxable year preceding the payment was effectively connected with a
United States trade or business or
. for payments made after December 31, 2000, a foreign partnership with
specified connections to the United States.
Payment of the proceeds from a sale of a note to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
New Treasury regulations unify current certification procedures and
forms relating to information reporting and backup withholding for payments made
after December 31, 2000. Among other things, these regulations provide
presumptions under which a non-United States holder is subject to information
reporting and backup withholding unless we or our agent receives certification
from the holder regarding non-United States status.
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The federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon a holder's
particular situation. Holders should consult their tax advisors with respect to
the tax consequences to them of the purchase, ownership and disposition of the
notes, including the tax consequences under state, local, foreign and other tax
laws and the possible effects of changes in federal or other tax laws.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "United
States Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership and disposition of
the notes. State income tax law may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state. Therefore, potential investors should consult
their own tax advisors with respect to the various state tax consequences of an
investment in the notes.
ERISA CONSIDERATIONS
ERISA imposes fiduciary and prohibited transaction restrictions on
employee pension and welfare benefit plans subject to ERISA ("ERISA Plans").
Section 4975 of the Internal Revenue Code imposes essentially the same
prohibited transaction restrictions on tax-qualified retirement plans described
in Section 401(a) of the Internal Revenue Code ("Qualified Retirement Plans")
and on Individual Retirement Accounts ("IRAs") described in Section 408(b) of
the Internal Revenue Code (collectively, "Tax-Favored Plans"). Certain employee
benefit plans, such as governmental plans, as defined in Section 3(32) of ERISA,
and, if no election has been made under Section 410(d) of the Internal Revenue
Code, church plans (as defined in Section 3(33) of ERISA), are not subject to
ERISA requirements. Accordingly, assets of such plans may be invested in notes
of a series without regard to the ERISA considerations described below, subject
to the provisions of applicable federal and state law. Any such plan which is a
Qualified Retirement Plan and exempt from taxation under Sections 401(a) and
501(a) of the Internal Revenue Code, however, is subject to the prohibited
transaction rules set forth in the Internal Revenue Code.
In addition to the imposition of general fiduciary requirements,
including those of investment prudence and diversification and the requirement
that a plan's investment be made in accordance with the documents governing the
plan, Section 406 of ERISA and Section 4975 of the Internal Revenue Code
prohibit a broad range of transactions involving assets of ERISA Plans and Tax-
Favored Plans and entities whose underlying assets include plan assets by reason
of ERISA Plans or Tax-Favored Plans investing in such entities (collectively,
"Benefit Plans") and persons who have specified relationships to the Benefit
Plans ("Parties in Interest" or "Disqualified Persons"), unless a statutory or
administrative exemption is available. Certain Parties in Interest, or
Disqualified Persons, that participate in a prohibited transaction may be
subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA, or Section 4975 of the Internal Revenue Code, unless a statutory or
administrative exemption is available.
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Certain transactions involving the purchase, holding or transfer of
notes of a series might be deemed to constitute prohibited transactions under
ERISA and the Internal Revenue Code if assets of EdLinc 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 EdLinc would be treated as
plan assets of a Benefit Plan for the purposes of ERISA and the Internal Revenue
Code only if the Benefit Plan acquires an "equity interest" in EdLinc 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 in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. Although
there can be no assurances in this regard, it appears that the notes should be
treated as debt 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 EdLinc or the trustee, 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, some exemptions from the prohibited 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") 96-23, regarding
transactions effected by "in-house asset managers;" PTCE 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 95-60, regarding
transactions effected by "insurance company general account;" PTCE 91-38,
regarding investments by bank collective investment funds; and PTCE 84-14,
regarding transactions effected by "qualified professional assets managers."
Any ERISA Plan fiduciary considering whether to purchase notes of a
series on behalf of an ERISA Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Internal Revenue Code to such investment and the
availability of any of the exemptions referred to above. Persons responsible for
investing the assets of Tax-Favored Plans that are not ERISA Plans should seek
similar counsel with respect to the prohibited transaction provisions of the
Internal Revenue Code.
AVAILABLE INFORMATION
EdLinc has filed with the SEC a registration statement under the
Securities Act with respect to the notes offered hereby. This prospectus and the
accompanying prospectus supplement, which forms part of the registration
statement, does not contain all the information contained therein. For further
information, reference is made to the registration statement which may be
inspected and copied 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, Suite 1300, New York, New York 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any
part thereof may be obtained from the Public Reference Branch of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549 upon the payment of fees prescribed
by the SEC. In addition, the registration statement may be accessed
electronically through the SEC's Electronic Data Gathering, Analysis and
Retrieval system at the SEC's site on the World Wide Web located at http:/
/www.sec.gov.
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REPORTS TO NOTEHOLDERS
Unless definitive notes are issued for any series of notes, monthly
unaudited reports and annual unaudited reports containing information concerning
the financed Eligible Loans will be prepared by the servicer and sent on behalf
of EdLinc only to Cede, as nominee of DTC and registered holder of the notes but
will not be sent to any Beneficial Owner of the notes. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. See "Description of the Notes--Book-Entry Registration"
and "Description of the Indenture--Reports to Noteholders." EdLinc will file
with the SEC such periodic reports as are required under the Exchange Act and
the rules and regulations of the SEC thereunder. EdLinc intends to suspend the
filing of such reports under the Exchange Act when and if the filing of such
reports is no longer statutorily required.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the EdLinc pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of the offering of any series of notes
will be deemed to be incorporated by reference into this prospectus and the
accompanying prospectus supplement and to be a part hereof. After the initial
distribution of the notes by the underwriters, this prospectus will be
distributed together with, and should be read in conjunction with, an
accompanying supplement to the prospectus. Such supplement will contain the
reports described above and generally will include the information contained in
the monthly statements furnished to noteholders. See "Description of the Notes--
Book-Entry Registration" and "Description of the Indenture--Reports to
Noteholders." Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this prospectus and the accompanying prospectus
supplement to the extent that a statement contained herein or therein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein or therein modifies or supersedes such statement. Any such
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus and the accompanying
prospectus supplement.
SLFC, as administrator under the SLFC Servicing and Administration
Agreement, will provide without charge to each person to whom a copy of this
prospectus and the accompanying prospectus supplement are delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. Written requests for such copies should be directed to Mr. Larry
Buckmeier, Student Loan Finance Corporation, 105 First Avenue Southwest,
Aberdeen, South Dakota 57401, or "[email protected]" on the Internet. Telephone
requests for such copies should be directed to (605) 622-4400.
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PLAN OF DISTRIBUTION
The notes will be offered in one or more series and one or more classes
through one or more underwriters or underwriting syndicates. The prospectus
supplement for each series of notes will set forth the terms of the offering of
such series and of each class within such series, including the name or names of
the underwriters, the proceeds to EdLinc, and either the initial public offering
price, the discounts and commissions to the underwriters and any discounts or
concessions allowed or reallowed to some dealers, or the method by which the
price at which the underwriters will sell the notes will be determined.
The notes may be acquired by underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of any underwriters will be subject to
conditions precedent, and such underwriters will be jointly and severally
obligated to purchase all of a series of notes described in the related
prospectus supplement, if any are purchased. If notes of a series are offered
other than through underwriters, the related prospectus supplement will contain
information regarding the nature of such offering and any agreements to be
entered into between the seller and purchasers of notes of such series.
The time of delivery for the notes of a series in respect of which this
prospectus is delivered will be set forth in the related prospectus supplement.
FINANCIAL INFORMATION
EdLinc has determined that its financial statements are not material to
the offering made hereby. EdLinc will, in each prospectus supplement, include a
description of the financed student loans and other assets at the time
comprising the Trust Estate, as well as a description of all Outstanding notes
and Other Obligations, if any.
RATING
It is a condition to the issuance and sale of each series and class of
notes that they each be rated by at least one nationally recognized statistical
rating organization in one its four highest applicable rating categories. A
securities rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning Rating
Agency. See "Rating" in the accompanying prospectus supplement.
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GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in
this prospectus.
"Acting Beneficiaries Upon Default" means:
(a) at any time that any Senior Obligations are Outstanding: (1) with
respect to directing the trustee to accelerate the Outstanding notes upon an
event of default under the indenture (other than an event of default described
in paragraph (L) under "Description of the Indenture--Events of Default"): (x)
the holders of a majority in aggregate principal amount of Senior Notes
Outstanding; or (y) (unless the trustee determines that acceleration of the
Outstanding notes is not in the overall interest of the Senior Beneficiaries)
any Other Senior Beneficiary; (2) with respect to directing the trustee to
accelerate the Outstanding notes upon an event of default described in paragraph
(L) under "Description of the Indenture--Events of Default:" (x) the holders of
all Senior Notes Outstanding; or (y) (unless the trustee determines that
acceleration of the Outstanding notes is not in the overall interest of the
Senior Beneficiaries) all Other Senior Beneficiaries; (3) with respect to
requesting the trustee to exercise rights and powers under the indenture,
directing the conduct of proceedings in connection with the enforcement of the
indenture and requiring the trustee to waive events of default: (x) the holders
of a majority in aggregate principal amount of the Senior Notes Outstanding,
unless the trustee shall receive conflicting requests or directions from another
Other Senior Beneficiary; or (y) any Other Senior Beneficiary, unless the
trustee determines that the requested action is not in the overall interest of
the Senior Beneficiaries or receives conflicting requests or directions from
another Other Senior Beneficiary or the holders of a majority in aggregate
principal amount of the Senior Notes Outstanding; and (4) with respect to all
other matters under the indenture, the holders of a majority in aggregate
principal amount of Senior Notes Outstanding or any Other Senior Beneficiary;
(b) at any time that no Senior Obligations are Outstanding but Subordinate
Obligations are Outstanding: (1) with respect to directing the trustee to
accelerate the Outstanding notes upon an event of default under the indenture
(other than an event of default described in paragraph (L) under "Description of
the Indenture--Events of Default"): (x) the holders of a majority in aggregate
principal amount of Subordinate Notes Outstanding; or (y) (unless the trustee
determines that acceleration of the Outstanding notes is not in the overall
interest of the Subordinate Beneficiaries) any Other Subordinate Beneficiary;
(2) with respect to directing the trustee to accelerate the Outstanding notes
upon an event of default described in paragraph (L) under "Description of the
Indenture--Events of Default:" (x) the holders of all Subordinate Notes
Outstanding; or (y) (unless the trustee determines that acceleration of the
Outstanding notes is not in the overall interest of the Subordinate
Beneficiaries) all Other Subordinate Beneficiaries; (3) with respect to
requesting the trustee to exercise rights and powers under the indenture,
directing the conduct of proceedings in connection with the enforcement of the
indenture and requiring the trustee to waive events of default: (x) the holders
of a majority in aggregate principal amount of the Subordinate Notes
Outstanding, unless the trustee receives conflicting requests or directions from
another Other Subordinate Beneficiary; or
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(y) any Other Subordinate Beneficiary, unless the trustee determines that
the requested action is not in the overall interest of the Subordinate
Beneficiaries or receives conflicting requests or directions from another
Other Subordinate Beneficiary or the holders of a majority in aggregate
principal amount of the Subordinate Notes Outstanding; and (4) with respect
to all other matters under the indenture, the holders of a majority in
aggregate principal amount of Subordinate Notes Outstanding or any Other
Subordinate Beneficiary; and
(c) at any time that no Senior Obligations are Outstanding and no
Subordinate Obligations are Outstanding, the holders of a majority in
aggregate principal amount of Class C Notes Outstanding.
"Administrative Cost and Note Fee Rate" means a rate per annum specified
for a series of notes relating to administrative expenses and Note Fees to be
covered by the return on student loans financed with the proceeds of such
series.
"Alternative Loan Programs" mean one or more of the Alternative Loan
Programs that are identified in the related prospectus supplement.
"Alternative Loans" means loans that are originated under Alternative Loan
Programs.
"Beneficial Owner" means, with respect to a note held in book-entry form,
the actual purchaser of such note.
"Beneficiaries" means, collectively, all Senior Beneficiaries, all
Subordinate Beneficiaries and all holders of any outstanding Class C Notes.
"Carry-Over Amount" means, if and to the extent specifically provided for
as such in a supplemental indenture with respect any series of variable rate
notes, the amount, if any, by which (a) the interest payable on such series with
respect to a given interest period is exceeded by (b) the interest that
otherwise would have been payable with respect to such interest period but for a
limitation on the interest rate for such interest period based upon the
anticipated return on financed student loans, together with the unpaid portion
of any such excess from prior interest periods. To the extent required by a
supplemental indenture providing for any Carry-Over Amount, interest will accrue
on such Carry-Over Amount until paid. Any reference to "principal" or "interest"
in the indenture and in the related notes will not include, within the meanings
of such words, any Carry-Over Amount or any interest accrued on any Carry-Over
Amount.
"Clearstream" means a professional depository incorporated under the laws
of Luxembourg which holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Clearstream Participants through electronic book-entry.
"Clearstream Participants" means recognized financial institutions around
the world that utilize the services of Clearstream, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations and may include the underwriters of
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any series of notes.
"Claims Rates" means those rates determined by dividing total default
claims since the previous September 30 by the total original principal amount of
the guarantee agency's guaranteed loans in repayment on such September 30.
"Class C Notes" means any notes designated in a supplemental indenture as
Class C Notes, which are secured under the indenture on a basis subordinate to
any Senior Obligations and any Subordinate Obligations.
"Consolidation Loan" means a student loan made pursuant to Section 428C of
the Higher Education Act.
"Depositories" means DTC, Clearstream and Euroclear, collectively.
"DTC Participants" means the participating organizations that utilize the
services of DTC, including securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations.
"EdLinc" means Education Loans Incorporated, a Delaware corporation.
"Effective Interest Rate" means, with respect to any financed student loan,
the interest rate per annum borne by such financed student loan, after giving
effect to all applicable Interest Subsidy Payments, Special Allowance Payments,
rebate fees on Consolidation Loans and reductions pursuant to borrower
incentives. For this purpose, the Special Allowance Payment rate shall be
computed based upon the average of the bond equivalent rates of 91-day United
States Treasury Bills, or other appropriate rates, auctioned or otherwise
determined during that portion of the then current calendar quarter which ends
on the date as of which the Effective Interest Rate is determined.
"Eligible Loan" means: (A) a FFELP Loan which: (1) has been or will be made
to a borrower for post-secondary education; (2) is Guaranteed by a guarantee
agency to the extent of not less than ninety-eight percent (98%) of the
principal thereof and all accrued interest thereon; (3) is an "eligible loan" as
defined in Section 438 of the Higher Education Act for purposes of receiving
Special Allowance Payments; and (4) bears interest at a rate per annum not less
than or in excess of the applicable rate of interest provided by the Higher
Education Act, or such lesser rates as may be approved by each Rating Agency; or
(B) any other student loan (including Alternative Loans) if EdLinc shall have
caused to be provided to the trustee written advice from each Rating Agency that
treating such type of loan as an Eligible Loan will not adversely affect any
rating or ratings then applicable to any of the Unenhanced Senior or Subordinate
Notes or, if no Unenhanced Senior or Subordinate Notes are then Outstanding but
Other Indenture Obligations are Outstanding, the Other Beneficiaries consent to
the treatment of such type of loan as an Eligible Loan.
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
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"Euroclear Participants" means the participating organizations that utilize
the services of Euroclear, including banks, securities brokers and dealers and
other professional financial intermediaries and may include the underwriters of
any series of notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Direct Student Loan Program" means the Federal Direct Student Loan
Program established by the Higher Education Act pursuant to which loans are made
by the Secretary of Education, and any predecessor or successor program
"Federal Fund" means the federal student loan reserve fund established by
each guarantee agency as required by the 1998 Reauthorization Amendments.
"FFEL Program" means the Federal Family Education Loan Program established
by the Higher Education Act pursuant to which loans are made to borrowers
pursuant to specified guidelines, and the repayment of such loans is guaranteed
by a guarantee agency, and any predecessor or successor program.
"FFELP Loans" means student loans made under the FFEL Program.
"Government Obligations" means direct obligations of, or obligations the
full and timely payment of the principal of and interest on which are
unconditionally guaranteed by, the United States of America.
"Guarantee Agreement" means any agreement between a guarantee agency and
the trustee providing for the insurance or guarantee by such guarantee agency,
to the extent provided in the Higher Education Act, of the principal of and
accrued interest on financed FFELP Loans acquired by the trustee from time to
time.
"Indenture Obligations" means the Senior Obligations, the Subordinate
Obligations and any Class C Notes.
"Indirect Participants" means organizations which have indirect access to
the Securities Depository, such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
"Interest Subsidy Payments" means interest payments on student loans
authorized to be made by the Secretary of Education by Section 428(a) of the
Higher Education Act.
"Liquidated Alternative Loan" means a financed Alternative Loan as to which
any payment has been delinquent for 180 days or more. Any financed Alternative
Loan which becomes a Liquidated Alternative Loan shall cease to be treated as a
financed student loan for purposes of valuing the Trust Estate under the
indenture.
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"Monthly Payment Date" means the 12th day of each calendar month (or, if
such 12th day is not a business day, the next preceding business day); provided
that any transfers to be made from the Revenue Fund on a Monthly Payment Date
shall, as to amounts therein constituting payments in respect of financed
student loans, include only such payments as have been deposited in the Revenue
Fund as of the last day of the preceding calendar month.
"Net Loan Rate" means, with respect to any interest period for a series of
notes commencing during a given month, the highest rate of interest per annum,
rounded to the next highest .01%, which would not cause the weighted average of
the auction rates or LIBOR rates for such interest period and (except in the
case of a series of notes having interest periods longer than 45 days) the two
preceding interest periods to exceed (1) the average of the weighted average
Effective Interest Rate of the financed student loans under the indenture,
determined as of the last day of the second, third and fourth preceding months,
less (2) the Administrative Cost and Note Fee Rate specified in the supplemental
indenture providing for the issuance of such series.
"1998 Reauthorization Amendments" means the Higher Education Amendments of
1998.
"Note Fees" means the fees, costs and expenses, excluding costs of
issuance, of the trustee and any paying agents, authenticating agent,
remarketing agents, depositaries, auction agents, broker-dealers, deposit
agents, note registrar or independent accountants incurred by EdLinc in carrying
out and administering its powers, duties and functions under (1) its articles of
incorporation, its bylaws, the student loan purchase agreements, any servicing
agreement, the Guarantee Agreements, the Higher Education Act, any Alternative
Loan Program or any requirement of the laws of the United States, as such
powers, duties and functions relate to financed student loans, (2) any swap
agreements and any credit enhancement facilities (other than any amounts payable
thereunder which constitute Other Indenture Obligations), (3) any remarketing
agreement, depositary agreement, auction agent agreement or broker-dealer
agreement and (4) the indenture.
"Operating Fund" means the agency operating fund established by each
guarantee agency as required by the 1998 Reauthorization Amendments.
"Other Beneficiary" means an Other Senior Beneficiary or an Other
Subordinate Beneficiary.
"Other Indenture Obligations" means, collectively, the Other Senior
Obligations and Other Subordinate Obligations.
"Other Senior Beneficiary" means a person or entity who is a Senior
Beneficiary other than as a result of ownership of Senior Notes.
"Other Senior Obligations" means EdLinc's obligations to pay any amounts
under any senior swap agreements and any senior credit enhancement facilities.
"Other Subordinate Beneficiary" means a person or entity who is a
Subordinate Beneficiary other than as a result of ownership of Subordinate
Notes.
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"Other Subordinate Obligations" means EdLinc's obligations to pay any
amounts under any subordinate swap agreements and any subordinate credit
enhancement facilities.
"Outstanding" means, with respect to a note or Other Indenture Obligation,
that such note or Other Indenture Obligation has not been paid in full or
otherwise deemed not to be outstanding under the Indenture as described under
"Description of the Indenture--Discharge of Notes and Indenture."
"Participants" means the participating organizations that utilize the
services of the Securities Depository.
"Plus Loan" means a student loan made pursuant to Section 428B of the
Higher Education Act.
"Purchase Date" means, with respect to a note required to be purchased by
or on behalf of EdLinc, at the option of the holder thereof, upon receipt of a
purchase demand, the date specified in a purchase demand as the date on which
the holder of such note is demanding purchase of such note in accordance with
the applicable provisions of the related supplemental indenture, or the next
preceding or succeeding business day if such date is not a business day.
"Rating Agency" means any rating agency that shall have an outstanding
rating on any of the notes pursuant to request by EdLinc.
"Relief Act" means the Taxpayer Relief Act of 1997, as amended.
"Reserve Fund Requirement" means, at any time, an amount equal to the
greater of (1) 2.00% of the aggregate principal amount of Senior Notes and
Subordinate Notes then Outstanding, and (2) $500,000; or, as determined upon the
issuance of any Senior Notes or any Subordinate Notes, such lesser or greater
amount as will not cause any Rating Agency to lower or withdraw any rating on
any Outstanding Unenhanced Senior or Subordinate Notes, or, if no Unenhanced
Senior or Subordinate Notes are then Outstanding but Other Indenture Obligations
are Outstanding and the Reserve Fund Requirement is to be reduced, such lesser
amount as is acceptable to the Other Beneficiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Asset Requirement" means that: (a) the Senior Percentage is at
least equal to 110% (or such lower percentage specified in a certificate
delivered to the trustee which, if Unenhanced Senior Notes are Outstanding,
shall not result in the lowering or withdrawal of the outstanding rating
assigned by any Rating Agency to any of the Unenhanced Senior Notes Outstanding,
or, if no Unenhanced Senior Notes are Outstanding but Other Senior Obligations
are Outstanding, is acceptable to the Other Senior Beneficiaries), and (b) the
Subordinate Percentage is at least equal to 100% (or such lower percentage
which, if Unenhanced Subordinate Notes are Outstanding, shall not result in the
lowering or withdrawal of the outstanding rating assigned by any Rating Agency
to any of the Unenhanced Subordinate Notes Outstanding, or, if no Unenhanced
Subordinate Notes are Outstanding but Other Subordinate Obligations are
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Outstanding, is acceptable to the Other Subordinate Beneficiaries).
"Senior Beneficiaries" means (1) the holders of any Outstanding Senior
Notes, and (2) any senior credit facility provider and any senior swap
counterparty entitled to Other Senior Obligations then Outstanding.
"Senior Notes" means any notes designated in a supplemental indenture as
Senior Notes, which are secured under the indenture on a basis senior to any
Subordinate Obligations and any Class C Notes, and on a parity with other Senior
Obligations.
"Senior Obligations" means, collectively, the Senior Notes and the Other
Senior Obligations.
"Senior Percentage" means the percentage resulting by dividing the value of
the Trust Estate by the sum of (1) the aggregate principal amount of Outstanding
Senior Notes plus accrued interest thereon, (2) accrued EdLinc swap payments
under senior swap agreements and (3) other payments accrued and owing by EdLinc
on Other Senior Obligations.
"SLFC" means Student Loan Finance Corporation, a South Dakota corporation.
"SLS Loan" means a student loan made pursuant to former Section 428A of
the Higher Education Act.
"Special Allowance Payments" means special allowance payments authorized to
be made by the Secretary of Education by Section 438 of the Higher Education
Act, or similar allowances authorized from time to time by federal law or
regulation.
"Special Redemption and Prepayment Account Requirement" means, with respect
to any series of notes, the amount described in the supplemental indenture
providing for the issuance thereof.
"Stafford Loan" means a student loan made pursuant to Section 428 of the
Higher Education Act.
"Subordinate Beneficiaries" means (1) the holders of any Outstanding
Subordinate Notes, and (2) any subordinate credit facility provider and any
subordinate swap counterparty entitled to any Other Subordinate Obligations then
Outstanding.
"Subordinate Notes" means any notes designated in a supplemental indenture
as Subordinate Notes, which are secured under the indenture on a basis
subordinate to any Senior Obligations, on a parity with other Subordinate
Obligations and on a basis senior to any Class C Notes.
"Subordinate Obligations" means, collectively, the Subordinate Notes and
the Other Subordinate Obligations.
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"Subordinate Percentage" means the percentage resulting by dividing the
value of the Trust Estate by the sum of (1) the aggregate principal amount of
Outstanding Senior Notes and Subordinate Notes plus accrued interest thereon,
(2) accrued EdLinc swap payments and (3) other payments accrued and owing by
EdLinc on Other Indenture Obligations.
"Trust Estate" means (1) financed student loans and moneys due or paid
thereunder after the applicable date of acquisition; (2) funds on deposit in the
funds and accounts held under the indenture (including investment earnings
thereon); and (3) rights of EdLinc in and to some agreements, including any
servicing agreement, the student loan purchase agreements, the transfer
agreements and the Guarantee Agreements, as the same relate to financed student
loans.
"Unenhanced" means, with respect to a Senior Note or a Subordinate Note,
that the payment of the principal of and interest on such note is not secured by
a credit enhancement facility.
"Unsubsidized Stafford Loan" means a student loan made pursuant to
Section 428H of the Higher Education Act.
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$130,200,000
EDUCATION LOANS INCORPORATED
Issuer
Student Loan Asset-Backed Notes
Series 2000-1
-----------------------
Prospectus Supplement
-----------------------
Salomon Smith Barney
Underwriter
November 28, 2000
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the notes in any state where the offer is not permitted
We represent the accuracy of the information in this prospectus supplement
and prospectus only as of the dates of their covers.
Until February 27, 2001, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus supplement and prospectus. This is in addition to the
dealers' obligation to deliver a prospectus supplement and prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
