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Rating Action:

Moody's downgrades Class 2010 A-1-7 issued by New Mexico Educational Assistance Foundation, and continues to keep it on review

19 Jun 2020

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 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social 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. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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