Approximately $389.45 million asset-backed securities rated
New York, December 16, 2010 -- Moody's Investors Service has assigned provisional ratings of (P)Aaa (sf)
to the series 2010EE bonds issued by State Board of Regents of the State
of Utah out of the 1993 indenture. The underlying collateral consists
of Federal Family Education Loan Program (FFELP) student loans.
The complete rating action is as follows:
Issuer: State Board of Regents of the State of Utah (1993 indenture)
$24,450,000 Series 2010EE-1 Bonds (including
bonds with the following scheduled maturities), rated (P)Aaa (sf)
11/1/2011 $9,800,000
11/1/2012 $14,650,000
$365,000,000 Series 2010EE-2 Notes, rated
(P)Aaa (sf)
11/1/2013 $20,300,000
11/1/2014 $21,100,000
11/1/2015 $31,100,000
11/1/2016 $42,500,000
11/1/2017 $40,100,000
11/1/2018 $33,700,000
11/1/2019 $29,900,000
11/1/2020 $26,800,000
11/1/2021 $22,600,000
11/1/2022 $17,800,000
11/1/2023 $14,200,000
11/1/2024 $10,700,000
11/1/2025 $3,700,000
11/1/2026 $13,200,000
RATING RATIONALE
The ratings are based on a) the quality of the underlying collateral which
consists of 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; b) the overcollateralization
of the trust which has a total parity level of 116.3% at
closing, and a senior parity of 120.4%; c) a
debt service reserve account of 0.75% of the pool balance
which is available to cover shortfalls in payments of the servicing and
administration expenses, interest on the notes, and principal
at maturity; d) an interest rate swap to hedge the risk of issuing
fixed rate bonds to finance variable rate student loans, and e)
a high proportion (79%) of floor income loans generating additional
interest in low interest rate environment and providing a natural to hedge
risk of issuing fixed rate bonds. The expected net loss for the
transaction is 0.13%.
The State Board of Regents of the State of Utah is a state agency vested
with the power to govern the State's higher education system. The
servicers of the trust student loans is State Board of Regents of the
State of Utah and Nelnet Servicing, LLC.
V Score
The V Score for this transaction is Medium, which is lower that
the Medium/High V Score assigned for the U.S. FFELP-Backed
ABS (Issued out of Master Trusts) sector. The lower V Score is
driven by the better securitization disclosure compared to the 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).
Moody's Parameter Sensitivities
For the transaction, if the basis risk in our Aaa stressed assumptions
were to increase by 5, 15 or 25 basis points, the initial
model-indicated output for the Class 2010-EE bonds would
remain Aaa, 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.
The methodology that was used in rating this transaction is described
below.
Basis Risk
Basis risk is the primary credit risk in FFELP student loan ABS.
While a typical FFELP transaction is only subject to basis risk between
three-month LIBOR and 90-day CP rate, this transaction
is partially financed by auction rate securities that accrue index based
on the one-year average of 91Day T-bill and on the SIFMA
index. Because of these risks, our basis risk cashflow assumptions
are adjusted as described below.
RATING METHODOLOGY
In rating securitizations backed by student loans originated under the
Federal Family Educational Loan Program (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.
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.
On November 18, 2009, Moody's updated its methodology to incorporate
an additional assessment of the risk posed by slow loan repayment rates
when analyzing bonds that are backed by FFELP student loans. We
have recently observed a considerable decline in actual repayment rates
of securitized FFELP student loan pools across issuers. The risk
posed by slow loan repayment rates is most pronounced for transactions
with negative excess spread, which have become more common in the
past two years. Under the updated methodology, the cash flows
of the transaction must be sufficient to make full and timely payments
to investors in a new repayment stress scenario in which the combination
of voluntary prepayments, defaults, forbearance rates,
and deferment rates results in a total repayment rate that is considerably
lower than our existing stress scenarios.
One-year average of 91Day T-Bill-CP Basis Risk in
FFELP Student Loan-Backed Securitizations
At closing approximately 50.7% of the bonds in the State
Board of Regents of the State of Utah (1993 Indenture) trust are tied
to a one-year average of 91Day T-Bill index yielding a liability
to asset mismatch of the one-year average T-Bill and 90Day
CP based return of the assets. Due to the high percentage of one-year
average T-Bill to 90Day CP basis risk exposure, We analyzed
the historical relationship between one-year average T-Bill
and 90Day CP to determine the interest rate assumptions to use for this
transaction. Our published assumptions for T-Bill were intended
to be used as a proxy for the return on cash invested by the trust and
are not meant to address basis risk.
Based on our analysis of the interest rate spread between the one-year
average of 91Day T-Bill and CP, Moody's has provided the
following updated assumptions for a Aaa rating:
90Day CP LIBOR Minus One Year Average of 91Day T-Bill
Spread Assumptions: Base -- 20 bps, A -- 5 bps,
Aaa -- 0 bps; Maturity -- (5 bps;)
Spike Assumptions: Base -- (60 bps), A -- (80 bps),
Aaa -- (100 bps); Maturity -- (80 bps;)
The interest rate spikes occur in the first six months of the first year
for all rating categories.
SIFMA -- 90Day CP- or 91-day T-Bill Basis Risk
in FFELP Student Loan-Backed Securitizations
At closing, approximately 8.8% of the bonds in the
State Board of Regents of the State of Utah (1993 Indenture) trust are
tied to a SIFMA rate index yielding a liability to asset mismatch of SIFMA
and 90-day CP based return of the assets. Due to the considerable
level of SIFMA to 90-day CP basis risk exposure, Moody's
analyzed the historical relationship between SIFMA and 90-day CP
to determine the interest rate assumptions to use for this transaction.
Moody's presents the interest rate assumptions for the SIFMA index
as a percentage of three-month LIBOR, and assumes that the
SIFMA index is equal to the value shown in the table below.
SIFMA Interest Rate Assumption
Spread Assumptions: Base --70% of three-month
LIBOR, A -- 75% of three-month LIBOR, Aaa
-- 85% of three-month LIBOR; Maturity
-- 75% of three-month LIBOR
Spike Assumptions: none
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, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and 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.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
A pre-sale report 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
Pedro Sancholuz Ruda
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Barbara A. Lambotte
VP - Senior Credit Officer
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
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Rates State Board of Regents of the State of Utah, Series 2010EE bonds (1993 Indenture)
