Approximately $84.3 billion of asset-backed securities affected
New York, June 14, 2016 -- Moody's Investors Service took rating actions on 403 tranches of asset-backed
securities (ABS) backed by student loans made under the Federal Family
Education Loan Program (FFELP) and ABS backed by mixed pools of loans,
i.e., collateral pools that include both FFELP and
private student loans. The rating actions follow Moody's
initial assessment of the securities under the updated methodology Moody's
Approach to Rating Securities Backed by FFELP Student Loans, published
on June 14, 2016. FFELP student loans backing the securitizations
are guaranteed by the US Department of Education for a minimum of 97%
of defaulted principal and accrued interest. Private student loans
do not benefit from a US government guarantee.
Moody's placed 266 tranches in 141 transactions ($44.9
billion) on review for downgrade, 89 tranches in 59 transactions
($3.1 billion) on review for upgrade and 45 tranches in
34 transactions ($2.8 billion) on review with direction
uncertain. Moody's also confirmed the ratings on three tranches
($1.5 billion).
In addition, 101 tranches ($30.7 billion) previously
placed on review for downgrade will remain on review for downgrade and
four tranches ($1.4 billion) previously placed on review
for upgrade will remain on review for upgrade.
We expect to conclude our reviews of the affected ratings within six months
from the date of publication of the updated FFELP methodology.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF433968
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Moody's conducted cash flow modeling analysis of FFELP transactions
using the assumptions detailed in its updated approach for rating FFELP
securities.
Reviews for downgrade
Reviews for downgrade were prompted by analysis that projects expected
losses that exceed the loss benchmarks set by Moody's idealized
loss tables for the corresponding rating level. For most tranches,
Moody's projects cash inflows to be less than sufficient to repay
the notes by their final maturity. However, only a small
number of tranches will incur any ultimate loss due to the government
guarantee and the fact that payments from underlying loans will continue
to be applied to pay down notes after their final maturity dates.
We project that a small number of tranches will incur a loss because the
amount of available credit enhancement is not sufficient to protect them
against credit and interest-rate basis risk.
The elevated risk of failure to repay a tranche by its maturity date is
a result of low payment rates on the underlying securitized pools of FFELP
student loans, driven by persistently high combined levels of loans
to borrowers in non-standard payment plans, such as deferment,
forbearance, Income-Based Repayment (IBR) and extended repayment,
as well as relatively low rates of voluntary prepayments. FFELP
loans in deferment, forbearance and IBR currently average approximately
26% for consolidation loan pools and approximately 43% for
non-consolidation loan pools. Borrowers in these payment
plans either suspend repayment on their student loans or make substantially
reduced payments. Although the average level of FFELP loans in
deferment and forbearance has declined over the last two years,
the level of loans to borrowers in IBR has increased by approximately
the same amount.
Reviews for upgrade
Reviews for upgrade were prompted by Moody's projections that the
affected tranches will either incur no losses or that their expected losses
will be lower than the expected loss benchmarks from Moody's idealized
loss tables for the corresponding rating level for the current rating.
Most of these tranches are either subordinated Class B notes or Class
A notes. Some of the tranches have sufficiently paid down relative
to their initial balance and some will begin paying down soon.
Most of the tranches are highly seasoned, with a current pool factor
of less than 50%. In addition, many of the tranches
placed on review for upgrade benefit from higher-than-average
levels of credit enhancement.
Other actions
Moody's placed on review with direction uncertain 13 tranches and
on review for downgrade six Aaa-rated tranches from eight transactions
that are backed by mixed collateral pools, i.e.,
pools that contain both FFELP and private student loans. The updated
FFELP methodology may affect our analysis of these transactions because
they are backed by collateral pools that include FFELP loans. Moody's
is currently requesting market feedback on its revised approach to rating
securities that are backed by such mixed pools of loans. The publication
is available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF432388.
29 tranches were placed on review with direction uncertain and 72 Aaa-rated
tranches were placed on review for downgrade from 37 transactions,
pending finalization of new cash flow models for these transactions.
Twelve tranches in six transactions -- Massachusetts Educational
Financing Authority (2008 Indenture), JPMorgan Student Loan Trust
2007-A, Pennsylvania Higher Education Assistance Agency (2005
Indenture), U.S. Education Loan Trust III, LLC
(2004 Indenture), Arkansas Student Loan Authority (2010 Indenture)
and PHEAA Student Loan Trust I (2003 Indenture) -- were
either placed on review with direction uncertain or on review for downgrade
(for Aaa tranches) because Moody's awaits receipt of complete current
data on the underlying loan collateral pools from the transaction sponsors.
Moody's will need complete current data on the underlying loan pools
in order to maintain its ratings on these transactions.
Ratings confirmations
We confirmed the ratings of three tranches in three transactions that
previously were under review for downgrade because Moody's analysis
indicates an expected loss of zero on these tranches. Two of these
tranches currently receive principal amortization payments and their balances
have substantially declined since closing and one tranche's final
maturity date was recently extended.
During the review period, Moody's will conduct detailed cash
flow analysis and examine operational, legal and structural factors
that can affect credit quality of the transactions, while giving
credit to support provided by the sponsors .
The principal methodology used in these ratings was "Moody's Approach
to Rating Securities Backed by FFELP Student Loans," published on
June 14, 2016. Please see the Ratings Methodologies page
on www.moodys.com for a copy of this methodology.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities' ratings were
issued. Even so, a deviation from the expected range will
not necessarily result in a rating action nor does performance within
expectations preclude such actions. The decision to take (or not
take) a rating action is dependent on an assessment of a range of factors
including, but not exclusively, the performance metrics.
Factors that would lead to an upgrade or downgrade of the rating:
Up
Declining borrower usage of deferment, forbearance and IBR,
increasing voluntary prepayment rates, prepayments with proceeds
from sponsor repurchases of student loan collateral.
Down
Continued low levels of voluntary prepayments, growing borrower
usage of deferment, forbearance and IBR, declining credit
quality of the US government.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF433968
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Loss and Cash Flow Analysis
• Stress Scenarios
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vincent Raia
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Irina Faynzilberg
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's announces rating actions on student loan ABS backed by FFELP student loans following the update of its rating methodology