$198.7 million of Asset-Backed Securities rated
New York, September 23, 2010 -- Moody's Investors Service has assigned a definitive long-term rating
of Aaa(sf) to New Mexico Educational Assistance Foundation Education Loan
Bonds Series 2010-1. The underlying collateral consists
of FFELP student loans.
The complete rating action is as follows:
Issuer: New Mexico Educational Assistance Foundation Education Loan
Bonds Series 2010-1
$86 million Series 2010-1 A-1 Bonds (including bonds
with the following scheduled maturities), rated Aaa (sf)
Maturity Date (December 1 of) Principal Amount
2014 $8 million
2015 $15.5 million
2016 $15 million
2017 $13 million
2018 $10.2 million
2019 $8 million
2020 $5.61 million
2021 $4.19 million
2022 $3.1 million
2023 $1.7 million
2024 $1.2 million
2025 $0.5 million
$73 million Series 2010-1 A-2 Bonds, rated
$39.7 million Series 2010-1 A-3 Bonds,
rated Aaa (sf)
The assigned Aaa (sf) rating is based on a) the quality of the underlying
FFELP student loans, which are guaranteed for at least 97%
of defaulted principal and accrued interest by guarantee agencies and
reinsured by the U.S. Department of Education (DOE) under
the Higher Education Act; b)available credit enhancement provided
by the overcollateralization of the trust, which has a starting
parity level of approximately 105.6%, gross excess
spread expected to average approximately 0 to 20 basis points per year;
c) a debt service reserve fund funded at 0.75% of the bond
outstanding; and d) an interest rate swap to hedge the risk of issuing
fixed rate bonds to finance variable rate student loans. The expected
net loss for the transaction is 0.27%.
The New Mexico Educational Assistance Foundation is a New Mexico nonprofit
corporation established pursuant to the State's Educational Assistance
Act to improve educational opportunities for residents of New Mexico by
providing financial assistance to qualified post-secondary students.
The servicer of the trust student loans is New Mexico Educational Assistance
Foundation and the back-up servicer is Great Lakes Educational
Loan Services, Inc.
Basis risk is the main credit risk in FFELP student-loan backed
transactions. We expect that over the life of the transaction,
the spread between three-month LIBOR and 90-day CP will
be 10 basis points with a one-time spike of 75 basis points.
We expect that over the life of the transaction, the spread between
one-month LIBOR and 90-day CP will on average be 0 basis
points with a one-time spike of 50 basis points.
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
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
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.
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, 15 or 25 basis points, the initial model-indicated
results for the Series 2010-1 notes are Aa1, Aa1, and
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
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.
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.
Barbara A. Lambotte
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Wen V. Zhang
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Rates New Mexico Educational Assistance Foundation Series 2010-1 Aaa (sf)
250 Greenwich Street
New York, NY 10007