MOODY'S RATES MISSOURI HIGHER EDUCATION LOAN DEAL Aaa and A2
Moody's Investors Service has assigned a rating of Aaa to the Senior Series 1999MM, 1999NN, 1999OO, 1999PP, 1999QQ, and a rating of A2 to the Subordinate Series 1999RR Student Loan Revenue Bonds issued by the Missouri Higher Education Loan Authority (MOHELA). This transaction, which includes both taxable and tax-exempt issues, represents the eleventh issuance under a trust indenture dated 1994.
The complete rating action is as follows:
Missouri Higher Education Loan Authority
$58.00 million Senior Series 1999MM Student Loan Revenue Bonds, rated Aaa
$58.00 million Senior Series 1999NN Student Loan Revenue Bonds, rated Aaa
$57.05 million Senior Series 1999OO Student Loan Revenue Bonds, rated Aaa
$60.00 million Senior Series 1999PP Student Loan Revenue Bonds, rated Aaa
$30.00 million Senior Series 1999QQ Student Loan Revenue Bonds, rated Aaa
$11.98 million Subordinate Series 1999RR Student Loan Revenue Bonds, rated A2
RATING RATIONALE
Moody's said that the Aaa ratings on the Senior Bonds are based on the approximately 11.6% subordination provided by subordinate series, and the A2 ratings on the Subordinate Bonds are based several factors, among which are: (i) the strong quality of the underlying student loan portfolio, which currently consists of Federal Family Education Loan Program (FFELP) loans that carry a federal guarantee of accrued interest and 98% principal on defaulted loans, Health Education Assistance Loan Program (HEAL) loans which are 100% guaranteed by the Department of Health and Human Services and Supplemental loans which can be self-insured or insured under the TUITIONGard Program by Guaranty National Insurance Company; (ii) a debt service reserve account equal to 1.5% of outstanding bond principal; (iii) and the potential for excess spread accumulation within the trust estate over the life of the bonds.
The bonds are being issued at parity with all senior series previously issued under the 1994 indenture. Moody's has confirmed the Aaa ratings on the outstanding senior series and the ratings of A2 on the outstanding subordinate series. The new and outstanding bonds, which total approximately $1,241 million, are special obligations of MOHELA, and are supported primarily by the federally guaranteed student loans pledged to the trust estate.
STRONG PORTFOLIO QUALITY
Christophe Germain, a Moody's Analyst, said that more than 80% of the FFELP loans currently held in the portfolio were made to students attending four-year institutions, who historically default with less frequency than two-year and proprietary or vocational school students. Additionally, more than half of the loans are in repayment, which enhance the liquidity position of the transaction. The portfolio will include about 6% of HEAL loans disbursed to graduate students of health professions, and these loans are guaranteed 100% of principal and accrued interest by the Department of Health and Human Services. The trust will also acquire for the first time supplemental student loans, which do not carry a federal guarantee. These loans can constitute as much as 5% of the outstanding 1996 and 1997 issuances, and up to 10% of the 1998 and 1999 issuances. 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. Thus, while the current stratification is expected to change over time, Moody's rating includes an assessment of the future acquisitions to the student loan pool.
ISSUER AND SERVICER
MOHELA was created in 1981 by the State of Missouri, and also acts as servicer for the loans. The Pennsylvania Higher Education Assistance Agency and USA Group Loan Services, Inc. also act as servicers for a portion of the FFELP loans.
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