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Moody's: Student loan ABS analysis would be improved with SEC's proposed revisions to Reg AB

Global Credit Research - 03 May 2010

New York, May 03, 2010 -- Moody's Investors Service believes that a recent SEC proposal to require disclosure of loan-level data and a computer program that can be used to model securitization cash flows would be helpful in the analysis of student loan asset-backed securities.

Under the proposal, issuers would provide loan-level data at the time of offering and periodic updates of loan-level performance. "The loan-level information would be required to be presented in a standardized format," says Tracy Rice, an Assistant Vice President at Moody's, author of a new report on the topic. "In addition, issuers would be required to provide a model of the contractual cash flow provisions of the securitization. The extent of the benefit to investors would depend on whether they would have the resources to effectively analyze and interpret the loan-level information and model the cash flows of the securitizations to make investment decisions in a timely manner."

Moody's expects that the proposed new disclosures will be particularly useful in the credit analysis of private student loan ABS. "The main risk in private student loan ABS is related to net losses on the underlying loans," says Rice. Since FFELP student loans are government guaranteed, net losses are minimal.

According to Moody's, for private student loan ABS, the proposed loan-level credit characteristics at the time of offering would likely improve an investor's ability to assess the credit quality of the borrowers in the pool, better understand the quality of the loan origination process, and track changes in issuers' underwriting policies by comparing the credit characteristics of loan pools over time. The proposed ongoing loan-level private student loan performance information would enhance an investor's ability to assess how credit characteristics impact loan performance individually and in combination, and monitor ongoing securitization performance by revising the analysis to reflect updated loan performance.

The standardization of data as included in the proposal would enable investors to compare and analyze student loan pools. "Currently, there is no market standard for student loan data as there is for other asset classes," says Rice. " At the pool level, the many differences in the calculation and reporting of performance metrics make surveillance as well as comparisons of student loan pools difficult."

Moody's sees a likely benefit to the SEC's proposed cash flow model. Currently investors receive only a written description of the transaction structure, including the cash flow waterfall in the prospectus. "However, the extent of the benefit would depend on the specific form, complexity, and ease of use of the model", says Rice. "In addition to the proposed cash flow model, investors would have the ability to use the detailed loan-level data in combination with third-party models, such as Intex, Moody's Wall Street Analytics, or DBC."

The Moody's special comment, SEC's Proposed Revisions to Reg AB Would Aid Credit Analysis of Student Loan ABS can be found at www.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 ratings address the expected loss posed to investors by the legal final maturity of the notes. Other risks have not been addressed, but may have a significant effect on yield to investors.

* * *

NOTE TO JOURNALISTS ONLY: For more information please contact New York Press Information +1-212-553-0376; EMEA Press Information in London +44-20-7772-5456; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +331-5330-1076; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7-495-228-60-60; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Hector Lim in Sydney +612 9270 8102; Luiz Tess in São Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel Rúas in Buenos Aires +54 11-4816-2332 ext. 105; Craig Jamieson in Johannesburg +27-11-217-5470; Jehad el-Nakla in Dubai +971 4 401 9536; or visit our web site at www.moodys.com

New York
Tracy Rice
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Mark DiRienz
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Student loan ABS analysis would be improved with SEC's proposed revisions to Reg AB
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