Big US student loan guarantor files for bankruptcy

NEW YORK, April 7 (Reuters) - The Education Resources Institute Inc, which calls itself the largest not-for-profit guarantor of U.S. private education loans, on Monday filed for Chapter 11 bankruptcy protection, saying rising defaults and credit market problems have damaged liquidity.

The company, known as TERI, filed for protection from creditors with the U.S. bankruptcy court in Boston, where it is based. It has more than $1 billion of assets, and between $500,000,001 and $1 billion of liabilities, court papers show.

TERI said it has more than $17 billion of outstanding loan guarantees, and has since its founding in 1985 guaranteed more than 2 million loans totaling in excess of $20 billion, without ever defaulting.

But a March 26 downgrade by Moody's Investors Service to "junk" status caused a bank to demand that TERI set up a reserve to support its guarantees, a move that would hurt TERI's cash position and liquidity, Chief Executive Willis Hulings said in a court papers.

He also said a slowing economy caused defaults to increase, while the disappearance of investor demand for bonds backed by student loans caused a "significant" decline in revenue.

First Marblehead Corp (FMD.N), TERI's exclusive loan processing agent, has been unable to arrange securitizations, Hulings wrote.

"TERI believes that the filing of the Chapter 11 case will enable it to avoid a near-term liquidity crunch that, without the protections afforded by Chapter 11, would threaten its viability," Hulings wrote.

First Marblehead, also based in Boston, was not immediately available for comment.

TERI said it will seek court approval to retain Grant Thornton LLP as its bankruptcy restructuring adviser.

First Marblehead shares closed Monday up 29 cents at $7.70. TERI announced the bankruptcy after U.S. markets closed. (Reporting by Jonathan Stempel; editing by Gunna Dickson )