CORRECTED - UPDATE 3-First Marblehead sinks, guarantor is bankrupt

(Corrects Galvin's first name in paragraph 11)

By Jonathan Stempel

NEW YORK, April 8 (Reuters) - Shares of First Marblehead Corp (FMD.N: Quote, Profile, Research), one of the largest securitizers of student loans, sank 37 percent on Tuesday after a company that guarantees bonds it helps to sell filed for bankruptcy protection.

The decline came after The Education Resources Institute Inc, which is known as TERI and calls itself the largest not-for-profit guarantor of U.S. private education loans, filed on Monday for Chapter 11 bankruptcy protection.

According to First Marblehead's latest quarterly report, processing fees from TERI represented about 32 percent of total revenue in the six months that ended Dec. 31.

"The underlying value of its assets are in question now," said Michael Taiano, an analyst at Sandler O'Neill & Partners LP, who has a "sell" rating on First Marblehead. "If it can't get reimbursed for defaults from TERI, presumably it's on the hook to cover losses."

First Marblehead shares closed down $2.84 at $4.86 on the New York Stock Exchange. They have fallen 89 percent in the last year.

Turmoil in credit markets has reduced investor demand for student loans, prompting lenders such as CIT Group Inc (CIT.N: Quote, Profile, Research) to quit offering them.

Loan securitizers package loans into securities that can be sold to investors. Other large securitizers include SLM Corp (SLM.N: Quote, Profile, Research), known as Sallie Mae, and Citigroup Inc (C.N: Quote, Profile, Research).