A multidisciplinary team of Goodwin Procter attorneys led the successful Chapter 11 restructuring of The Education Resources Institute, the second-largest nonprofit in Massachusetts by assets. TERI guaranteed private student loans issued by most of the country’s leading banks. During the course of the bankruptcy case, Goodwin attorneys obtained approval of a Plan of Reorganization that resolved creditor claims filed against TERI in excess of $23 billion and distributed cash to creditors in excess of $300 million.
A significant portion of TERI’s business had involved the guaranty of private student loans that were securitized, and it used the funds generated by this business to support its nonprofit mission of supporting college access programs for the underserved.
By late 2007, the collapsing market for student loan securitizations and increasing student loan defaults threatened the company’s liquidity situation and forced TERI to file for bankruptcy with only five days of preparation.
In the period immediately following the filing, TERI faced serious cash flow and operational challenges due to high contractual operating costs and related to its loan guaranty process. TERI and the Goodwin team were able to resolve these issues within the first two months of the commencement of the case, dramatically reducing TERI’s operating costs and giving it the time it needed to negotiate a plan of reorganization.
In plan negotiations, the primary issue was how to value over $18 billion in contingent guaranty claims filed on the basis of anticipated future loan defaults and how to develop a method that could reasonably estimate future defaults despite the unprecedented economic uncertainty. Following months of contentious negotiations, the Goodwin team was able to negotiate a successful resolution to the valuation of the entire $18 billion in guaranty claims. While these negotiations were ongoing, TERI was also able to separately settle with creditors representing over $5 billion in filed claims.
While TERI’s initial Plan of Reorganization was accepted by 42 of the 44 classes of creditors, months of court hearings and negotiations were required to obtain approval of all creditor classes. The organization’s emergence from bankruptcy will involve the assignment of 35,000 loans owned by TERI to a liquidating trust and distribution of more than $300 million in cash. Today, TERI is focused on its collection and risk management services , as well as its college access services, which it was able to preserve.
The cross-disciplinary Goodwin team was led by Dan Glosband, financial restructuring; and Lynne Barr, Michael Whalen and Margaret Crockett, financial services. Other firm attorneys involved represented practice areas including litigation; labor and employment; nonprofit corporate governance issues; ERISA and executive compensation; and IP.