MOODY'S RATES EDUCATION LENDING GROUP'S STUDENT CONSOLIDATION LOAN DEAL
$1.0 Billion of Education Loan Backed Notes Rated.
New York, May 05, 2003 -- Moody's Investors Service assigned long-term ratings of Aaa to
the Series A-1 through Series A-8 notes and A2 to the Series
B-1 notes issued by Education Funding Capital Trust-II.
The ratings are based on the strong credit quality of the underlying consolidation
student loans, the credit enhancement in the transaction,
and the servicing capabilities of the subservicers.
The complete rating action is as follows:
$80,000,000 Education Loan Backed Notes, Series
A-1, rated Aaa
$144,000,000 Education Loan Backed Notes, Series
A-2, rated Aaa
$276,000,000 Education Loan Backed Notes, Series
A-3, rated Aaa
$75,000,000 Education Loan Backed Notes, Series
A-4, rated Aaa
$75,000,000 Education Loan Backed Notes, Series
A-5, rated Aaa
$100,000,000 Education Loan Backed Notes, Series
A-6, rated Aaa
$100,000,000 Education Loan Backed Notes, Series
A-7, rated Aaa
$100,000,000 Education Loan Backed Notes, Series
A-8, rated Aaa
$50,000,000 Education Loan Backed Notes, Series
B-1, rated A2
RATING RATIONALE
The Federal Family Education Loan Program (FFELP) guaranteed student consolidation
loans underlying the transaction have the benefit of a 98% guarantee
from the Department of Education. In addition to the guarantee,
the transaction benefits from (i) a capitalized interest account of $10,000,000
(which represents 1.00%of the pool) that can be used to
cover shortfalls in the payment of interest on the notes until February
28, 2005, after which the remainder will be deposited into
the collection account to be used to build towards the total target parity
percentage if the deal is below the target; (ii) a reserve fund equal
to 1.00% of the outstanding note balance which may be drawn
upon to cover shortfalls in the payment of interest and maturing principal;
(iii) the buildup of additional equity over the life of the transaction
from the accumulation of excess spread that cannot be released from the
trust unless certain parity levels are maintained; and (iv) the 5%
subordination provided by the subordinate Class B-1 notes.
An interest rate swap provided by Citibank, N.A. (rated
Aa1 for its long term deposits) will provide additional excess spread
should interest rates rise significantly while the swap is outstanding.
The swap expires on September 15, 2004.
UNDERLYING POOL OF STUDENT LOANS
Approximately $829 million in FFELP consolidation loans were originated
by ELG. ELG sold the loans to the depositor, Education Funding
Capital I, LLC. The depositor conveyed the loans to the issuer
of the notes, Education Funding Capital Trust-II, which
pledged the loans to the investors. Approximately $122 million
of consolidation loans are prefunded. There will be no recycling
of principal payments from the existing loans into additional loans.
The student loans have an ultimate guarantee by the Department of Education
(DOE) for the payment of defaulted loans in an amount equal to at least
98% of principal and interest. The weighted average coupon
of the loans is 4.63%. The average outstanding balance
per account is $24,679 and the weighted average remaining
term is 260 months.
Despite the fixed-rate nature of consolidation loans, holders
of consolidation loans benefit from the DOE's special allowance payments
(SAP) when interest rates rise. The federal government guarantees,
via SAP payments, that the holder of a FFELP consolidation will
earn an interest rate based on an adjustable-rate index plus a
spread. The loans in this transaction will have the benefit of
SAP payments based on a 3-month commercial paper rate index plus
a margin of 2.64%.
Approximately 90% of the loans are in repayment. The remaining
10% of the loans are either in deferment or forbearance.
Existing deferments and forbearances as well as deferments and forbearances
in the future will reduce cash flows into the trust estate because the
borrowers in deferment or forbearance status do not have to make their
periodic payments during their stay in those statuses. This reduction
in liquidity is mitigated by the reserve fund, capitalized interest
account, and the excess spread on loans in repayment.
NOTES
Series A-1 through A-3 are 3-month LIBOR based notes
and Series A-4 through A-8 and B-1 are auction rate
notes. After the initial auction period, interest rates on
the auction rate notes will be determined by auctions generally held every
28 days.
THE SERVICER
Although Education Lending Services, Inc. is the master servicer,
the actual servicing of most of the loans will be currently done by Great
Lakes Educational Loan Services, Inc. (Great Lakes).
Great Lakes is an experienced servicer of FFELP student loans.
As of December 31, 2002, Great Lakes serviced 1,243,905
student and parental accounts with an outstanding balance of $12.4
billion for over 1,200 lenders nationwide. ACS Education
Services, Inc., another experienced servicer of FFELP
student loans, will be servicing approximately 4.5%
of the loans.
For further information please visit http://www.moodys.com
New York
Edward Bankole
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Andrew Lipton
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653