Projo Biz Blog

First Marblehead Corp., the Boston-based student lender that acquired Union Federal Savings Bank in North Providence, lost a third of its value in early trading this morning after its guarantor of private student loans filed for bankruptcy protection.

First Marblehead (FMD:NYSE) sank to $5.60 as of 9:30 a.m. The company had already fallen 50 percent this year and 82 percent in 12 months.

Yesterday, The Education Resources Institute Inc., the U.S. lender that says it's the largest nonprofit, private guarantor of student loans, filed in Boston for protection from creditors. TERI, as the group is known, claimed debt of as much as $1 billion, citing “recent turmoil in the financial markets.”

The filing “now shifts credit risk back” to First Marblehead, said analyst Matt Snowling at Friedman Billings Ramsey in Arlington, Virginia. He said “the risk to the company's capital likely restricts the company's access to funding even further.”

TERI helps students fill the funding gap between government-backed loans and the costs of college. TERI guarantees the loans held by the National Collegiate Student Loan Trusts, the series of trusts that First Marblehead uses in its securitization program, First Marblehead said today.

First Marblehead “is working diligently on securing an alternative guarantor as well as structural solutions for loan default guarantees for future originations,” the company said. "In addition, we have adjusted our collection and underwriting strategies to adapt to the challenges presented by the turmoil in the capital markets and the current consumer credit cycle.”

First Marblehead is the third-largest arranger of securities backed by student loans. Reston, Virginia-based SLM, known as Sallie Mae, is the biggest arranger of securities backed by student loans, followed by New York-based Citigroup Inc.
--

---