Firm Secures Watershed Chancery Ruling in Student Loan Trust Case
On August 27, 2020, the Firm secured a significant victory for our client, a financial guaranty insurer of student-loan trusts, when the Delaware Chancery Court ruled that the residual equity interest owners (the “Owners”) of certain student-loan trusts could not exercise control over the trusts’ property to benefit themselves at the expense of the financial guaranty insurer and the holders of the trusts’ notes. The trusts had assigned all right, title, and interest in the student loans to an indenture trustee for the benefit of the financial guaranty insurer and the holders of the trusts’ notes, and the court held that the Owners were required to respect that beneficial ownership. This follows another victory in which a Delaware federal court sided with our client and rejected a proposed consent judgment the Owners negotiated with the Consumer Financial Protection Bureau, which would have imposed significant penalties on the trusts while expanding the Owners’ control of them.
The court’s decision recognizes that the stakeholders with the most substantial economic interests have corresponding legal rights in the securitizations, helping to ensure that these structured finance transactions continue to perform their vital liquidity function.
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