Approximately $5.6 million of asset-backed securities affected
New York, June 19, 2020 -- Moody's Investors Service ("Moody's") has downgraded the rating of the
2010 A-1-7 bond issued by New Mexico Educational Assistance
Foundation ("NMEAF") and continued to keep the bond on review
for possible further downgrade. The securitization is backed by
student loans originated under the Federal Family Education Loan Program
("FFELP") that are guaranteed by the US government for a minimum
of 97% of defaulted principal and accrued interest.
The complete rating action is as follows:
Issuer: New Mexico Educational Assistance Foundation - Education
Loan Bonds (2010 Indenture)
Series 2010-1 A-1-7, Downgraded to Baa3 and
Remains On Review for Possible Downgrade; previously on Jun 3,
2020 Aaa Placed Under Review for Possible Downgrade
RATINGS RATIONALE
Today's action is prompted by the increased likelihood of Cl.
2010 A-1-7 not being fully paid off by its final maturity
date of December 1st, 2020, due to a significant decline in
cash collections from the collateral pool resulting from the economic
impact of, and the servicer's actions in response to the coronavirus
outbreak.
Cl. 2010 A-1-7 was issued as a non-amortizing
"bullet" bond, which is expected to receive its entire principal
payment only on its final maturity date. Although, starting
in February 2020, 30% of the $5.6 million principal
due on the bond is being set aside each quarter from the available collections,
the non-amortizing structure and the short time to final maturity
subjects the bond to higher payoff risk if cash collections were to materially
reduce over the coming months. While, the issuer has set
aside the required 60% ($3.4 million) at the end
of May, there is increased uncertainty around the ability of the
issuer to set aside the subsequent 30% by August 2020, and
making the full maturity principal payment on the bond's maturity
date. Furthermore, the transaction has an available reserve
account balance of $750,000 that can be used to pay the bond
on its final maturity date.
Effective in mid-March, the servicer, NMEAF,
placed all loans more than 30 days past due in a 90-day natural
disaster forbearance status. By placing delinquent borrowers in
forbearance status, the servicer effectively reset the number of
days past due of these loans to zero, pushing back default claims
for federal payments by over a year if these loans were to default.
Consequently default claim payments have reduced materially and are expected
to stay low for the next several months. In addition, due
to the high forbearance use as a result of slowdown in economic activity
and increase in unemployment, borrower principal and interest payments
have also been adversely affected.
Today's rating action also considered updated performance of the transaction
and updated expected loss on the tranches across Moody's cash flow scenarios.
Moody's quantitative analysis derives the expected loss of the tranche
using 28 cash flow scenarios with weights accorded to each scenario.
During the review period, we will consider the cash collections
on the pool and the amounts set side towards payment of the Cl.
2010-1 A-1-7 bond to assess the likelihood of the
bond pay-off on its final maturity date. We will further
evaluate the effects of ongoing and projected macroeconomic conditions,
as well as the impact of various parties including the government,
servicers and issuers on the performance of underlying pools to update
our assumptions. Unemployment is a key indicator of performance
for student loan ABS. High unemployment is likely to have a material
negative impact on the amortization speed of student loans.
Our analysis has considered the effect of the coronavirus outbreak on
the US economy as well as the effects that the announced government measures
put in place to contain the virus, will have on the performance
of consumer assets. Specifically, for FFELP student loan
ABS, loan performance could weaken due to a continued increase in
the unemployment rate, which may limit borrowers' income and their
ability to service debt. Furthermore, borrower assistance
programs to affected borrowers, such as forbearance, deferment
and income-based repayment, may adversely impact scheduled
cash flows to bondholders.
The contraction in economic activity in the second quarter will be severe
and the overall recovery in the second half of the year will be gradual.
However, there are significant downside risks to our forecasts in
the event that the pandemic is not contained and lockdowns have to be
reinstated. As a result, the degree of uncertainty around
our forecasts is unusually high. We regard the coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was "Moody's Approach
to Rating Securities Backed by FFELP Student Loans" published in May 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1226065.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the rating:
Up
Moody's could upgrade the rating if the paydown speed of the loan pool
increases as a result of declining borrower usage of deferment,
forbearance and IBR, increasing voluntary prepayment rates,
or prepayments with proceeds from sponsor repurchases of student loan
collateral. Moody's could also upgrade the rating owing to a build-up
in credit enhancement.
Down
Moody's could downgrade the rating if the paydown speed of the loan pool
declines as a result of lower than expected voluntary prepayments,
and higher than expected deferment, forbearance and IBR rates,
which would threaten full repayment of the class by its final maturity
date. In addition, because the US Department of Education
guarantees at least 97% of principal and accrued interest on defaulted
loans, Moody's could downgrade the rating of the notes if it were
to downgrade the rating on the United States government.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
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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.
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rating and, if applicable, the related rating outlook or rating
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and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Prachi Talathi
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Jinwen Chen
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 1 212 553 0376
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