MOODY'S ASSIGNS Aaa AND A2 TO MISSOURI HIGHER EDUCATION LOAN AUTHORITY DEAL
New York, 02-05-98 -- Moody's Investors Service assigned a long-term rating of Aaa to the senior Series 1998T, 1998U, 1998V, and 1998W, and a long-term rating of A2 to the subordinate Series 1998X, which consists of a total of $91.565 million of asset backed bonds issued by the Missouri Higher Education Loan Authority (MOHELA). The five series, which include both taxable and tax-exempt issues, are being used to retire older issues of the Authority and to purchase new student loans into the trust.
A Moody's senior analyst, Everett Rutan, said that the Aaa senior rating was based primarily on the 16% of subordination in the structure. The Aaa rating and the A2 subordinate rating were also based on the quality of the underlying student loan portfolio, which currently consists entirely of FFELP loans that carry a federal guarantee of accrued interest and 98% of principal on defaulted loans Approximately 60% of the loans are in repayment, and 80% are to students who attended four-year colleges. The trust also has a debt service reserve of 2% to provide liquidity and substantial excess spread due to interest rate subsidies on the student loans.
The bonds are being issued at parity with previously issued series, both senior and subordinate. Moody's has confirmed the Aaa rating on the outstanding senior series and the rating of A2 on the outstanding subordinate series. The 1998 series are the seventh issuance out of a trust created by the original 1994 General Resolution. The new and outstanding bonds, which total $576 million, are special obligations of MOHELA, and are supported primarily by federally guaranteed student loans pledged to the trust estate.
The trust provides also for the acquisition of supplemental student loans, which do not carry a federal guarantee. These loans could constitute as much as 5% of the outstanding securities. The supplemental loans are written to specific underwriting criteria, and MOHELA has an agreement with TUITIONGard, a program of Guaranty National Insurance Company, to reinsure the loans. The agreement covers accrued interest and 95% of defaulted principal. Moody's believes that underwritten student loans have had default experience that is no worse and is often better than federally guaranteed loans, which are not underwritten. Moody's believes also that the potential default rate, the guarantee agreement, and the limited exposure of the trust to the supplemental loans present risks consistent with the assigned rating.
The Issuer: Missouri Higher Education Loan Authority was created in 1981 by the State of Missouri, and also acts as servicer for the loans. The Pennsylvania Higher Education Assistance Agency also acts as servicer for a portion of the FFELP loans. The underwriters are PaineWebber, Inc., A.G. Edwards & Sons, Inc., and Stifel, Nicolaus & Company, Inc.
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