MOODY'S RATES IOWA FEDERAL/PRIVATE STUDENT LOAN DEAL Aaa AND A2
New York, 10-02-97 -- Moody's Investors Service has assigned long term ratings of Aaa to the senior bonds, and A2 to the subordinate bonds of Iowa Student Loan Liquidity Corporation's (ISAC) first combination federal and private student loan transaction.
Issuer: Iowa Student Loan Liquidity Corporation
$23,625,000 Student Loan Revenue Bonds (tax-exempt), Senior Series 1997A, rated Aaa
$40,105,000 Student Loan Revenue Bonds (tax-exempt), Senior Series 1997B, rated Aaa
$1,120,000 Student Loan Revenue Bonds (tax-exempt), Senior Series 1997C, rated Aaa
$24,000,000 Student Loan Revenue Bonds (tax-exempt), Subordinate Series 1997D, rated A2
Associate analyst, Aaron Caine, said the ratings are based on (1) high quality, seasoned Federal Family Education Loan Program (FFELP) student loan portfolio, (2) low potential exposure to private student loans at 20% of bonds issued, (3) significant excess spread that is retained until all bonds are overcollateralized at 102%, (4) a declining reserve fund for support equal to 2% of outstanding bonds, (5) a low "premium" structure of 1% (the amount of securities issued exceeds student loans, reserve and prefunding proceeds). In addition, the senior bond's rating is based on 27% subordination of the series 1997D bonds.
Approximately $71 million in Federal Family Education Loan Program (FFELP) loans will be acquired from the refunding of other obligations of ISAC on or before December 1, 1997. The FFELP loans have a low loss severity based on the 100% and 98% federal reinsurance rate on defaulted amount. These loans are considered highly seasoned with an average of two years of repayment history. Sufficient liquidity is provided by a high percentage of loans in current repayment status, at 64%. Liquidity is also enhanced by the minimum 9.5% yield for these older FFELP loans in contrast to current FFELP loan yield's of three month treasury bill plus 3.10%. The transaction will be 82% funded and is expected to be fully funded within the 1.5 year acquisition period.
PROJECTED PORTFOLIO TO INCLUDE PRIVATE LOANS
The trust estate can acquire private student loans originated under ISAC's "Partnership Loan Program" that will not be guaranteed by the federal government. The loans will underwritten to student's attending four year undergraduate schools as a supplement to the federal Stafford loan. Although the loans are underwritten to eliminate students who have adverse credit histories, Moody's believes most student's will qualify for this loan because most would have minimal or no credit history at all. Thus, the expected default frequency may be no better than that of Iowa's Stafford loans to students attending four year schools. Low exposure to the private loans and significant excess spread generated from the 9.5% floor rate FFELP loans versus the 4.10 to 5.10% fixed rate bonds provides sufficient enhancement for the assigned ratings.
Interest for the series 1997A, B, and C bonds will fixed at 4.10%, 4.90% and 5.10%, respectively. Interest for the 1997D bonds will reset every 35 days pursuant to an auction. All bonds pay interest semiannually. Final maturity for the 1997A, B, C and D bonds is December 1, 1999, December 1, 2005, June 1, 2009 and December 1, 2027, respectively. Subordinate bonds cannot be optionally redeemed prior to senior bonds unless overcollateralization for the senior bonds is maintained at 107.5%.
ISSUER AND SERVICER
The Iowa Student Loan Liquidity Corporation (ISAC) will service the FFELP loans and the private "Partnership" loans. ISAC has been servicing its FFELP portfolio since 1979 using software provided by the Pennsylvania Higher Education Assistance Agency (PHEAA). PHEAA at this time is one of the largest national servicers for the federal program. ISAC has also serviced it's private "Partnership" loans since 1992. For the federal loans, servicing risk is reduced by the experience and expertise of ISAC, as servicer, in conjunction with favorable historical servicing performance as evidenced by low historical gross rejection rates.
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