Approximately $568.1 million of asset-backed securities affected
New York, May 10, 2012 -- Moody's Investors Service downgraded 20 classes of senior bonds issued
by Mississippi Higher Education Assistance Corporation ("the Corporation")
under a master indenture established as of July 1, 1999.
The underlying collateral consists of a pool of Federal Family Education
Loan Program (FFELP) student loans that are guaranteed by the Department
of Education for a minimum of 97% of defaulted principal and accrued
interest.
RATINGS:
The complete actions are as follows:
Issuer: Mississippi Higher Education Assistance Corporation (1999
Indenture)
Senior 99A-1, Downgraded to Ba1 (sf); previously on
Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Senior 99A-3, Downgraded to Ba1 (sf); previously on
Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Senior 2000-A-1, Downgraded to Ba1 (sf); previously
on Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Senior 2000A-2, Downgraded to Ba1 (sf); previously on
Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Senior 2000A-3, Downgraded to Ba1 (sf); previously on
Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Senior 2000A-4, Downgraded to Ba1 (sf); previously on
Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Senior 2001-A-1, Downgraded to Ba1 (sf); previously
on Oct 17, 2011 Aaa (sf) Placed Under Review for Possible Downgrade
Sr. 2003-A-1, Downgraded to Ba1 (sf);
previously on Oct 17, 2011 Aaa (sf) Placed Under Review for Possible
Downgrade
Sr. 2003-A-2, Downgraded to Ba1 (sf);
previously on Oct 17, 2011 Aaa (sf) Placed Under Review for Possible
Downgrade
2003A-3, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2004A-2, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2004A-3, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2004A-4, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2005A-1, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2005A-2, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2005A-3, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2005A-4, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2005A-5, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2006A-1, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
2006A-2, Downgraded to Ba1 (sf); previously on Oct 17,
2011 Aaa (sf) Placed Under Review for Possible Downgrade
RATINGS RATIONALE
Moody's downgraded the bonds because of insufficient credit enhancement
including overcollateralization, cash in the trust accounts and
excess spread necessary to protect the investors against losses due to
the negative excess spread generated in high interest rate cash flow scenarios.
The application of high interest rate and higher default rates in various
cash flow scenarios under the "Moody's Approach to Rating Securities Backed
by FFELP Student Loans" methodology, published on April 2,
also contributed to the downgrade of the senior bonds.
Negative excess spread erodes the collateral base by using principal collections
to cover interest shortfalls, thus causing further reduction in
excess spread. Although both total parity, i.e.
the ratio of total assets to total liabilities, and senior parity,
i.e. the ratio of total assets to total senior liabilities,
were high at 110.50% and 125.42%, respectively,
as of the March 31, 2012, reporting date, the higher
parity levels are not sufficient to cover the significant parity erosion
due to the negative excess spread, which was approximately -1.4%
and -2.4% per annum in our expected and Baa stress
cash flow scenarios, respectively. In addition, the
excess spread is very sensitive to the level of interest rate tested in
the cash flow scenarios. As of the March 31, 2012 reporting
date, 43% of the transaction liability was funded by tax-exempt
auction rate securities. Because the coupon payments for tax-exempt
auction rate securities are a multiple of an interest rate index while
the asset yield is equal to an index plus a spread, the transaction
will have a disproportionate increase in the coupon payments as compared
to the asset yield in a higher interest rate scenario, leading to
lower excess spread in high interest rate scenario.
The downgrades of some senior bonds are also prompted by the lack of the
mandatory redemption provisions in the transaction's documents.
The Corporation can choose when to pay down the bonds and which bonds
to pay down, subject to the maintenance of the total and senior
parity requirements for the redemption of the subordinate bonds.
In the absence of mandatory redemption, the Corporation can choose
to keep the cash collections without paying down bonds. Because
the interest earnings on the cash are much lower than the coupon payments
on the bonds, thus accumulated cash will reduce the transaction's
excess spread, which will lead to a decline in parity and the eventual
principal default on the legal maturity dates. To address such
risk, we assumed in our cash flow scenarios that the Corporation
will hold cash collections for a few years before using them to pay down
the bonds.
The principal methodology used in these rating actions was "Moody's
Approach to Rating Securities Backed by FFELP Student Loans",
published on April 2, 2012, and is available at www.moodys.com
in the Rating methodologies subdirectory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating this issue can also be found in the Rating Methodologies
sub-directory on Moody's website.
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. Primary sources
of uncertainty with regard to excess spread are increased basis risk.
Ratings on Class A would not be upgraded if spread between LIBOR index
on the liability side and the 1 month LIBOR index on the asset side is
10 bps lower, or downgraded if the spread is 10 bps higher.
To assess rating implications of the higher expected losses, each
individual transaction was run through a variety of stress scenarios using
the Structured Finance Workstation® (SFW), a cash flow model
developed by Moody's Wall Street Analytics.
REGULATORY DISCLOSURE:
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still be used by
financial institutions for regulatory purposes until 31 January 2012.
ESMA may extend the use of credit ratings for regulatory purposes in the
European Community for three additional months, until 30 April 2012,
if ESMA decides that exceptional circumstances arise that may imply potential
market disruption or financial instability. Further information
on the EU endorsement status and on the Moody's office that has issued
a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, 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 maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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 disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
JingJing Dang
Asst Vice President - 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 - Senior Credit Officer
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 downgrades 20 student loan revenue bonds issued by Mississippi Higher Education Assistance Corporation
