MOODY'S RATES IOWA STUDENT LOAN LIQUIDITY CORPORATION STUDENT LOAN DEAL Aaa
Moody's Investors Service has assigned ratings of Aaa to the 1998 Series I, J, K, and L student loan revenue bonds issued by the Iowa Student Loan Liquidity Corporation (ISLLC). In addition, Moody's has confirmed the Aaa ratings for the outstanding 1995 Series A, B, C, D and 1996 Series E, F, G, and H bonds. All series are insured by Ambac Assurance Corporation (AMBAC) and total $275.5 million. Proceeds will primarily be used to redeem a portion of ISLLC's outstanding obligations and to acquire and originate both federally-insured and alternative student loans.
The complete rating action is as follows:
Iowa Student Loan Liquidity Corporation
$23.65 million 1998 Series I and J Student Loan Refunding Revenue Bonds, rated Aaa
$66.35 million 1998 Series K and L Student Loan Revenue Bonds, rated Aaa
RATING RATIONALE
Moody's said the ratings are based on the Aaa insurance financial strength rating of AMBAC. The risk to AMBAC from insuring all series of securities under the indenture is investment grade based on: 1) the high quality of the federally-insured student loans backing the transaction, 2)overcollateralization of the trust estate at closing, and 3) the potential for additional excess spread accumulation within the trust estate over the life of the bonds.
PORTFOLIO IS DIVERSIFIED AND CREDIT QUALITY IS STRONG
Steven Fernald, associate analyst at Moody's, said that, "The trust estate may include federally-insured loans originated under the Federal Family Education Loan Program (FFELP) and the Federal Health Education Assistance Loan Program (HEAL), as well as alternative loans originated under the Iowa Student Loan Program." FFELP loans are ultimately insured by the Department of Education as to at least 98% principal and accrued interest, and constitute the largest portion of the pool (approximately two-thirds). The remainder are split between HEAL loans, which are guaranteed by the Secretary of Health and Human Services as to 100% of accrued interest and principal, and alternative loans, which are financed at a discount and offered to students based on their eligibility and credit history. Mr. Fernald noted that, "the discounted portion is set aside and is available to pay for defaulted alternative loans. The alternative loan portion of the pool is currently restricted to no more than 35% of outstanding bond principal."
AUCTION RATE CERTIFICATES
Interest rates for the 1998 Series K and L bonds are determined by auctions held every 35 and 28 days, respectively. Interest is paid semi-annually on the Series K, while Series L investors receive interest payments every 28 days. Both series may be optionally redeemed at any time, without premium, in whole or in part, from any source of funds available to ISLLC. Additionally, while carry-over amounts may accrue on the Series L bonds should the auction rate exceed the maximum rate of 17% under the indenture for any given auction period, Moody's rating does not address the availability of funds to pay carry-over interest.
ISSUER AND SERVICER
ISLLC is a 501(c)(3) private nonprofit corporation, established in 1979 for the purpose of providing a statewide student loan program. State legislation enacted in 1992 gave ISLLC the ability to finance alternative loans in addition to FFELP loans. Servicing of the underlying loan portfolios will be shared by ISLLC and the Pennsylvania Higher Education Assistance Agency (PHEAA). Moody's believes that both entities are capable of servicing the federal loans in accordance with due diligence procedures required under the Higher Education Act in order to maintain the federal guarantees.
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