MOODY'S RATES NORTHSTAR STUDENT LOAN DEAL Aaa and A2
$1 billion of Asset-Backed Securities Rated.
New York, December 30, 2004 -- Moody's Investors Service has assigned ratings of Aaa to Student Loan
Asset-Backed Notes, Senior Series 2004-2A-1
through 2004-2A-4 , and A2 to Student Loan Asset-Backed
Notes, Subordinate Series 2004-2B, issued by NorthStar
Education Finance, Inc. ("NorthStar").
The complete ratings actions are as follows:
Issuer: NorthStar Education Finance, Inc.
$295,000,000 Floating Rate Student Loan Asset-Backed
Notes, Senior Series 2004-2A-1, rated Aaa
$150,000,000 Floating Rate Student Loan Asset-Backed
Notes, Senior Series 2004-2A-2, rated Aaa
$280,000,000 Floating Rate Student Loan Asset-Backed
Notes, Senior Series 2004-2A-3, rated Aaa
$249,500,000 Floating Rate Student Loan Asset-Backed
Notes, Senior Series 2004-2A-4, rated Aaa
$25,500,000 Auction Rate Student Loan Asset-Backed
Notes, Subordinate Series 2004-2B, rated A2
The ratings of the notes are based on the quality of the collateral underlying
the transaction which consists of Federal Family Education Loan Program
("FFELP") student loans, which are indirectly guaranteed for a minimum
of 98% of defaulted principal and accrued interest by the U.S.
Department of Education ("DOE"); the availability of a debt service
reserve account in the amount of 0.75% of the principal
amount of the notes (with a minimum floor of $1,000,000)
and a Capitalized Interest Fund which at closing will be equal to $35
million - both of which enhance the transaction's liquidity;
available excess spread; the experience and expertise of Great Lakes
Educational Loan Services, Inc. as servicer; and the
transaction structure. In addition the senior notes are supported
by the 4% subordination provided by the subordinated notes.
Subordination is expected to increase over time, as no subordinate
notes may be redeemed so long as there are any Senior Series outstanding
(unless a rating agency confirmation is obtained).
FORTH ISSUANCE UNDER TRUST INDENTURE
The Senior Series 2004-2A-1, Senior Series 2004-2A-2,
Senior Series 2004-2A-3 and Senior Series 2004-2A-4
(collectively, the "Senior Series 2004-2A Notes") and the
Subordinate Series 2004-2B (together with the Senior Series 2004-2A
Notes, the "Series 2004-2 Notes") will be issued under a
seventh supplement dated as of December 1, 2004 to the Trust Indenture
originally dated November 1, 2000. The Series 2004-2
Notes are on parity with previously issued Series 2000, 2002 and
2004-1 senior and subordinate notes, as applicable.
All the notes are supported by pledged assets, which consist of
FFELP student loans and amounts on deposit in trust accounts.
TARGETED AMORTIZATION SCHEDULE FOR LIBOR RATE NOTES
The Series 2004-2A Notes will bear interest based on three-month
LIBOR plus a margin. The Series 2004-2A Notes include a
targeted amortization schedule (starting October, 2008) with quarterly
payments of interest beginning in April 28, 2005. If the
amount available to distribute as principal on any quarterly distribution
date is less than the scheduled principal amortization amount, it
will not be considered an event of default. Any shortfall between
the scheduled principal amortization amount and what is actually paid
will be added to the principal amount scheduled to be paid on the next
quarterly distribution date. If noteholders receive the targeted
amortization amount on each scheduled payment date, the Series 2004-2A-1
notes will be paid in full by April 28, 2014, the Series 2004-2A-2
notes will be paid in full by July 28, 2015, the Series 2004-2A-3
notes will be paid in full by July 28, 2017 and the Series 2004-2A-4
notes will be paid in full by July 28, 2020. The Series 2004-2A
Notes can also be optionally redeemed in full on any quarterly distribution
date on or after the date on which the targeted balance on such series
is expected to be zero, at a price of par plus accrued interest.
AUCTION RATE NOTES CAPPED AT NET LOAN RATE
The Series 2004-2B Notes will bear interest based on auction rates
determined by the auction procedures specified in the transaction documents.
For each auction period, the interest rate for the series 2004-2B
Notes will be the lesser of: (a) the rate determined pursuant to
the auction procedures specified in the transaction documents, (b)
the Maximum Auction Rate, which is based on the 91-day US
Treasury Bill rate for a one-year period plus a margin ranging
from 1.2% to 1.75% (based on a rating grid),
(c) the sum of one month LIBOR plus 1.50%, (d) the
Maximum Interest Rate, which is equal to the lesser of 18%
and the higher rate permitted by law, or (e) the Net Loan Rate,
during the Net Loan Rate Period. The Series 2004-2B may
also be redeemed on any auction rate distribution date, in whole
or in part, at a price of par plus accrued interest. However,
no subordinate notes, including the Series 2004-2B Notes,
may be redeemed so long as there are any senior notes outstanding under
the Trust Indenture unless a rating agency confirmation is obtained.
STRONG UNDERLYING COLLATERAL
At closing, the pool of student loans, in the amount of approximately
$2.3 billion, consisted of FFELP student loans,
which are indirectly guaranteed for a minimum of 98% of defaulted
principal and accrued interest by the DOE. Approximately 63%
of the loans (by principal balance) were identified as loans made to students
at medical schools, approximately 21% were identified as
loans made to students at Law/MBA schools, and the remaining 16%
were identified as loans made to students at other 4-year or graduate
schools. Historically, loans to students at four-year
colleges and graduate schools have had lower default rates than loans
made to students attending two-year and proprietary schools.
ISSUER AND SERVICER
NorthStar is a Delaware non-stock non-profit corporation
incorporated in January 2000. NorthStar is recognized as exempt
from federal income taxation under Section 501(c)(3) of the Internal Revenue
Code. NorthStar was formed to carry on the student loan programs
started by NorthStar Guarantee, Inc., a Minnesota non-profit
corporation recognized as exempt from federal income taxation under Section
501(c)(3) of the Internal Revenue Code. NorthStar Guarantee,
Inc. was established in 1991 as the State of Minnesota's
designated federal loan guarantor. NorthStar Guarantee, Inc.
also provided loan origination services, loan escrow and loan disbursement
services for lenders and educational institutions.
The student loans are serviced on behalf of NorthStar by Great Lakes Educational
Loan Services, Inc. ("Great Lakes") a Wisconsin
corporation. Great Lakes' primary business is to service student
loans. In June 2004, Great Lakes received the "Exceptional
Performer" designation by the DOE. As a result, lenders
serviced by Great Lakes are eligible to receive reimbursement on claims
for defaulted loans based upon 100% of the unpaid principal balance
plus accrued unpaid interest, rather than the statutorily set 98%.
NorthStar have agreed that so long as Great Lakes retains "Exceptional
Performer" status, NorthStar will pay Great Lakes an additional
servicing fee equal to 0.50% of claim payments that the
guarantee agencies make to NorthStar on defaulted student loans.
Nevertheless, Great Lakes could lose its "Exceptional Performer"
designation as a result of a variety of factors, including changes
to the Higher Education Act and/or if future audits indicate that the
DOE standards have not been maintained.
For further information visit www.moodys.com
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service