Goldman investment in First Marblehead may shrink

NEW YORK (Reuters) - First Marblehead Corp (FMD.N), one of the largest packagers of student loans into securities, on Thursday said it may not raise as much money from Goldman Sachs Group Inc (GS.N), after market turmoil led to the bankruptcy of a large partner.

Shares of First Marblehead fell as much as 32.6 percent, but later recovered. The shares were down 16 cents, or 3.5 percent, to $4.47 in afternoon trading, after earlier falling to a record low of $3.12.

In December, Goldman Sachs Capital Partners, a private equity arm of the investment bank, invested $59.8 million in Boston-based First Marblehead by acquiring preferred shares. It also agreed to invest up to $200.7 million more, and provided a $1 billion credit facility.

But in a Thursday filing with the U.S. Securities and Exchange Commission, First Marblehead said it will likely have to write down some receivables, affecting shareholder equity.

It said this might be necessary following the market turmoil and Monday's Chapter 11 filing by The Education Resources Institute Inc, a guarantor of private student loans.

"As a result," First Marblehead said in the filing, "the aggregate amount of the subsequent investment by (Goldman Sachs Capital Partners) could be less than $200.7 million." The company also said it decided to cancel the credit facility.

TERI, as the guarantor is known, generated 32 percent of First Marblehead revenue in the second half of 2007, according to the latter's most recent quarterly report.

Loan securitizers such as First Marblehead package loans into securities that can be sold to investors. TERI has been the exclusive outside provider of guarantees for private student loans of First Marblehead clients.

Many investors stopped buying various kinds of student loans late last year as credit markets tightened, and instead favored debt they considered safer.

First Marblehead shares closed at $7.70 on Monday, before TERI disclosed its bankruptcy. Their 52-week high is $45.29, set last April 13.

(Reporting by Jonathan Stempel, editing by Gerald E. McCormick)