MOODY'S ASSIGNS RATINGS TO 2 CLASSES OF ABILENE HIGHER EDUCATION AUTHORITY, INC. STUDENT LOAN REVENUE BONDS
Moody's Investors Service has assigned a long-term rating of Aaa to the Student Loan Revenue Bonds, Series 1998A, and Aa3 to the Student Loan Revenue Bonds, Subordinate Series 1998B issued by Abilene Higher Education Authority, Inc. This series will be 100% prefunded. Bond proceeds not used to acquire loans by November 1, 2001, will be used to redeem bonds.
The bonds are being issued under an existing trust indenture under which five senior series and one subordinate series is outstanding. Moody's confirmed the Aaa rating of the outstanding senior bonds and the Aa3 rating of the outstanding subordinate series. The bonds are all cross-collateralized by (i) the existing loan portfolio that currently backs the outstanding bonds and (ii) any future loan acquisitions.
Credit factors contributing to the ratings include: (1) overcollateralization provided by the subordinate bonds and other assets (such as loans, cash, and cash equivalents) exceeding 9.7% of all outstanding senior bonds; (2) a debt service reserve for liquidity equalling 3.5% all outstanding bonds at closing; and (3) sufficient excess spread relating primarily to revenue from the existing seasoned loan portfolio.
The complete rating action is as follows:
Abilene Higher Education Authority, Inc.
$32 million Student Loan Revenue Bonds, Series 1998A (Senior Lien "Auction Rate" Securities"), rated Aaa
$3 million Student Loan Revenue Bonds, Subordinate Series 1998B, rated Aa3
HIGH QUALITY PORTFOLIO EXPECTED FOR SERIES 1998
Marta G. Ricardo, a senior analyst at Moody's, says the Federal Family Education Loan Program(FFELP) student loan portfolio expected to be acquired with the proceeds of the Series 1998A and Series 1998B bonds will have similar characteristics to the existing portfolio but will have less seasoning, and its default reimbursement rate will be 98%.
Ms. Ricardo says the existing FFELP student loan portfolio is of high quality, primarily based on the 98.49% weighted average U.S. Department of Education guarantee (loan mix consists of 98% and 100% DOE guaranteed loans). The weighted average guarantee is expected to decline as future 98% guaranteed loans are added to the existing pool. The loans in the existing portfolio have a significant amount of seasoning, which lowers the overall expected default rate since most defaults occur within the first 24 months of when a borrower enters active repayment. Other favorable characteristics of the existing portfolio include the following: (1) 90% of the loans underwritten were to students attending four year schools, which have historically demonstrated lower default rates compared to two-year and proprietary school loans and, (2) the high percentage (64%) of loans in the pool which are subsidized Stafford loans, which receive an interest subsidy payment while the student is in school, that should provide the transaction with sufficient liquidity to make timely payments of interest.
The recycling of loan principal payments is permitted through November 1, 2003.
SERIES 1998 SENIOR AUCTION RATE AND SUBORDINATE FIXED RATE BONDS
The Series 1998A interest rate resets every 35 days according to specified auction procedures and interest is paid each January 1 and July 1. The Series 1998B interest rate is fixed at 5.05% per annum and is paid every January 1 and July 1. The series 1998A bonds have a final maturity of July 1, 2028, and the Series 1998B mature on July 1, 2013.
The Abilene Higher Education Loan Authority, Inc., is nonprofit section 150(D) corporation, organized under the Texas Non-Profit Corporation Act in 1972. The activities of the Authority are limited to providing funds for the acquisition of FFELP student loans and to ensure the loans are serviced. The members of the 7-person board include representatives from the Abilene schools participating in the Authority's student loan program and the First National Bank of Abilene that originates the loans.
AFSA Data Corporation (AFSA) currently services the existing loan portfolio and is under contract to service all future acquisitions for the current transaction. AFSA is a wholly owned subsidiary of Fleet Financial Group, Inc. (rated A2/P-1). The servicer's experience and expertise in servicing FFELP student loans provides assurance the loans will be serviced in accordance with specified due diligence procedures under the Higher Education Act to maintain the federal guarantee on the loans.
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