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Rating Action:

Moody's Assigns Aaa (sf) Rating to KnowledgeWorks Foundation Series 2010

Global Credit Research - 20 Sep 2010

Approximately $84 million of asset-backed securities rated

New York, September 20, 2010 -- Moody's Investors Service has assigned a definitive rating of Aaa (sf) to the notes issued by KnowledgeWorks Foundation Student Loan Backed Bonds, Series 2010 ("KWF 2010"). This transaction has a coupon cap that significantly reduces the basis risk in situations when LIBOR spikes against the Commercial Paper rate. The rating of the notes addresses the timely payment of interest at the prevailing rate as limited by the coupon cap and does not address the likelihood of payment of any carryover interest.

Issuer: KnowledgeWorks Foundation

$83,622,000 LIBOR Floating Rate Notes, rated Aaa (sf)

RATINGS RATIONALE

The ratings are based on the underlying collateral which consists of Federal Family Education Loan Program (FFELP) student loans, which are indirectly guaranteed by the U.S. Department of Education for a minimum of 97% of defaulted principal and accrued interest, available credit enhancement provided by the overcollateralization of the trust, which has a starting parity level of approximately 106.71%, and liquidity support provided by a debt service reserve account equal to 0.25% of the initial loan balance and a capitalized interest account funded at $881,466 at closing. The average gross excess spread of this transaction is expected to be negative at approximately -10 to -15 basis points per annum. The expected net loss for the FFELP loan pool underlying the KWF 2010 transaction is 0.17%.

In rating securitizations backed by student loans originated under FFELP, Moody's assesses both the liquidity and credit risk of the transaction. The drivers that affect the performance of a transaction include defaults, servicer guarantee rejection rates, voluntary prepayments, basis risk, borrower benefit utilization, and the number of borrowers in non-repayment status, such as deferment and forbearance.

As part of our analysis to understand the risk of the underlying collateral, we examine historical FFELP static pool performance data. To the extent that performance data is available from a specific issuer, that information is used to arrive at our cash flow assumptions for that particular issuer. If an issuer's data are either limited or unavailable, our assumptions are based on FFELP performance data received from other participants. Although FFELP loans are a standardized asset, we will assume additional volatility in certain assumptions for those issuers that have limited or no data.

In addition, historical interest rates and spreads are analyzed to evaluate the basis risk between the interest rate to which the bonds are indexed and the interest rate to which the FFELP loans are indexed.

This historical data is used to derive an expected, or most likely, outcome for each variable. These expected defaults, prepayments, interest rates, and other assumptions are then stressed in accordance with the rating categories requested by the issuer. Factors that influence the stress levels include the availability of relevant issuer-specific performance data, the seasoning of the loans, collateral concentrations (school types, loan programs), the financial strength and stability of the servicer, and the general economic environment. Other Methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

These stressed assumptions are then incorporated into a cash flow model that takes into account the FFELP loan characteristics as well as structural (e.g., starting parity, cash flow waterfall, bond tranching, etc.) and pricing features of the transaction. The cash flow model outputs are analyzed to determine whether the transaction as structured by the issuer has sufficient credit protection to pay off the bonds by their legal final maturity dates. We also analyze the liquidity risk of the transaction given that borrowers can be in non-repayment status while in school, grace, deferment or forbearance status, and the transaction can experience delays in default reimbursement and other payments.

The most common form of basis risk in FFELP-backed student loan transactions is CP-based assets paired with LIBOR-based liabilities. The basis risk exists because all FFELP loans disbursed after 2000 generate a CP-based yield, while the bond interest rates are generally indexed to LIBOR. This CP-LIBOR risk is accounted for and stressed through Moody's interest rate cash flow assumptions which were updated on November 19, 2008.

The V Score for this transaction is Medium, which is in line with the Medium V Score assigned for the U.S. FFELP-Backed LIBOR-Indexed ABS sector. In the subcategory of "Experience of, Arrangements Among and Oversight of Transaction Parties" we assess this transaction's score to be Medium, one notch higher than the sector's Low/Medium score. KWSL, LLC ("KWSL"), a subsidiary of KWF, is the administrator while contracting Kohne O'Neill, LLC("Kohne O'Neill") to perform the actual administrative functions. The Medium score for this subcategory reflects the fact that both KWSL and Kohne O'Neill are relatively small entities, yet the risk is mitigated by the fact that KWF will perform as the administrator if KWSL does not perform, and that the trustee, which is U.S. Bank National Association, is responsible for finding a replacement or taking over the duties if KWF does not perform. In addition, due to the reduced basis risk in this transaction, Moody's has assigned a Medium score in the "Transaction Complexity" subcategory, one notch lower than the sector's score of Medium/High for this subcategory.

Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings. V Scores apply to the entire transaction (rather than individual tranches).

If the basis risk in our Aaa stressed assumptions were to increase by 5, 10 or 25 basis points, the initial model outputs for the Class A notes are Aaa, Aa1, and Aa3, respectively.

Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time; rather they are designed to provide a quantitative calculation of how the initial model output might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the rating process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments in this transaction.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Additional research, including a pre-sale report for this transaction is available at www.moodys.com. The special report "V Scores and Parameter Sensitivities in the U.S. Student Loan ABS Sector," is also available on moodys.com.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Barbara A. Lambotte
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Wen V. Zhang
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Assigns Aaa (sf) Rating to KnowledgeWorks Foundation Series 2010
No Related Data.
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