Approximately $5 billion of asset-backed securities affected
New York, February 19, 2009 -- Moody's Investors Service has downgraded ratings of 77 classes of
senior bonds, 1 senior subordinate bond and 32 classes of subordinate
bonds issued from 15 Brazos student loan trusts. Most of the trusts
primarily consist of FFELP (i.e. government-guaranteed)
student loans and are funded mostly by auction rate securities.
The rating actions are prompted by the increase of funding costs due to
the continuing and prolonged dislocation of the auction rate securities
market. As most student loan collateral is indexed to the Financial
Commercial Paper rate ("CP" rate), trusts that are funded
primarily by auction rate securities have suffered significant excess
spread compression as the yield on the assets has not increased in tandem
with the cost of the liabilities.
In order to evaluate the ratings of the bonds, Moody's compared
the deals with similar transactions for which Moody's has cash flow
analysis. The criteria applied to the selection of the comparable
transactions included current level of collateralization at each rating
levels, which is typically measured by total parity (i.e.
the ratio of total trust assets to liabilities) and senior parity (i.e.
the ratio of total trust assets to senior liabilities); gross excess
spread expected to be generated at the failed auction rate; net losses
on the private loans if any; and structural protections built into
each transaction, such as the floor level for the reserve fund,
cash release levels, and the requirement for redemption of subordinate
bonds.
Except for Brazos Student Finance Corporation (April 1, 2003 Indenture)
and Brazos Student Finance Corporation AB Notes 1998 (new trust indenture),
the subordinate bonds from the remaining thirteen trusts were undercollateralized
as of September 30, 2008. The undercollateralization ranged
from 3.5% to 45% of the outstanding balance of the
subordinate bonds. At the failed auction rate, most of the
trusts are expected to generate slightly negative to zero gross excess
spread per annum. Due to the trusts' inability to build overcollateralization
through excess spread, and absent a restructuring of the trust liabilities,
it is unlikely that the subordinate bonds from the undercollateralized
trusts will be paid off in full by the legal maturity.
The ratings of the senior bonds from two of the trusts were downgraded
from Aaa to A3, and the senior bonds ratings of another four trusts
were downgraded from Aaa to Baa2, Baa3, Ba1 and Ba3 respectively
given that the current level of credit enhancement available including
subordination, overcollateralization, reserve and other cash
balances, and excess spread, is not able to sustain the "Aaa"
cash flow stress.
In addition, the ratings of eight classes of senior bonds from Brazos
Higher Education Authority, Inc. (1999 Indenture) were downgraded
to Ba3. The eight bonds are guaranteed by MBIA Insurance Corporation
whose insurance financial strength rating is B3 with a developing outlook.
According to Moody's policy, securities insured by financial guarantors
are rated at the higher of the guarantor's insurance financial strength
rating and the underlying rating, which reflects the intrinsic credit
quality of the bonds in the absence of the guarantee.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found at www.moodys.com
in the Credit Policy & Methodologies directory.
The complete rating actions are as follows:
Issuer: Academic Finance Corp. 2005 Indenture
Series 2005B-1, Downgraded to Caa2; previously on 10/24/2008
A2 Placed Under Review for Possible Downgrade;
Issuer: Brazos Higher Education Authority, Inc. (1992
Indenture C)
Senior Ser. 2002A-1(b), Downgraded to A3; previously
on 3/15/2002 Assigned Aaa
Senior Ser. 2002A-2, Downgraded to A3; previously
on 3/15/2002 Assigned Aaa
Senior Ser. 2002A-3, Downgraded to A3; previously
on 3/15/2002 Assigned Aaa
Sr. Ser. 2003A-1, Downgraded to A3; previously
on 3/6/2003 Assigned Aaa
Sr. Ser. 2003A-2(c), Downgraded to A3;
previously on 3/6/2003 Assigned Aaa
Sr. 2007A-1, Downgraded to A3; previously on
2/21/2007 Assigned Aaa
Sr. 2007A-2, Downgraded to A3; previously on
2/21/2007 Assigned Aaa
Sr. 2007A-3, Downgraded to A3; previously on
2/21/2007 Assigned Aaa
Sr. 2007A-4, Downgraded to A3; previously on
2/21/2007 Assigned Aaa
Sub. 2001B-1, Downgraded to Caa3; previously
on 10/24/2008 A2 Placed Under Review for Possible
Issuer: Brazos Higher Ed. Authority, Inc. (1993B
Indenture)
Ser. 1999A-11, Downgraded to Baa3; previously
on 12/15/1999 Assigned Aaa
Ser. 1999A-12, Downgraded to Baa3; previously
on 12/15/1999 Assigned Aaa
Senior Ser. 2001A-6, Downgraded to Baa3; previously
on 6/14/2001 Assigned Aaa
Sr Ser. 2003A-3, Downgraded to Baa3; previously
on 6/17/2003 Assigned Aaa
Sr Ser. 2003A-5, Downgraded to Baa3; previously
on 6/17/2003 Assigned Aaa
2003A-10, Downgraded to Baa3; previously on 10/1/2003
Assigned Aaa
2003A-13, Downgraded to Baa3; previously on 1/9/2004
Assigned Aaa
2003A-15, Downgraded to Baa3; previously on 1/9/2004
Assigned Aaa
2004A-5, Downgraded to Baa3; previously on 3/25/2004
Assigned Aaa
2005A-1, Downgraded to Baa3; previously on 2/7/2005
Assigned Aaa
2005A-2, Downgraded to Baa3; previously on 12/16/2005
Assigned Aaa
2005A-3, Downgraded to Baa3; previously on 12/16/2005
Assigned Aaa
2005A-4, Downgraded to Baa3; previously on 12/16/2005
Assigned Aaa
2005A-5, Downgraded to Baa3; previously on 12/16/2005
Assigned Aaa
2006A-11, Downgraded to Baa3; previously on 12/8/2006
Assigned Aaa
2006A-12, Downgraded to Baa3; previously on 12/8/2006
Assigned Aaa
2006A-13, Downgraded to Baa3; previously on 12/8/2006
Assigned Aaa
2006A-14, Downgraded to Baa3; previously on 12/8/2006
Assigned Aaa
2006A-15, Downgraded to Baa3; previously on 12/8/2006
Assigned Aaa
Class 2007A-5, Downgraded to Baa3/S.G.;
previously on 1/7/2008 Assigned Aaa/VMIG 1
Class 2007A-6, Downgraded to Baa3/S.G.;
previously on 1/7/2008 Assigned Aaa/VMIG 1
Ser. 1999B-1, Downgraded to Caa3; previously
on 10/24/2008 A2 Placed Under Review for Possible Downgrade
Sub. Series 2001B-2, Downgraded to Caa3; previously
on 10/24/2008 A2 Placed Under Review for Possible Downgrade
2003B-1, Downgraded to Caa3; previously on 10/24/2008
A2 Placed Under Review for Possible Downgrade
2003B-2, Downgraded to Caa3; previously on 10/24/2008
A2 Placed Under Review for Possible Downgrade
2004B-1, Downgraded to Caa3; previously on 10/24/2008
A2 Placed Under Review for Possible Downgrade
Issuer: Brazos Higher Education Authority, Inc. (1993
Indenture AC)
1994A-1, Downgraded to A3; previously on 11/21/1996
Assigned Aaa
1997A-1, Downgraded to A3; previously on 3/27/1997 Assigned
Aaa
1998A-2, Downgraded to A3; previously on 1/16/1998 Assigned
Aaa
1998A-3 due 02/01/2038, Downgraded to A3; previously
on 3/4/1998 Assigned Aaa
1998A-4(c) due 05/01/2009, Downgraded to A3; previously
on 3/4/1998 Assigned Aaa
Senior Ser. 2002A-4(c), Downgraded to A3; previously
on 6/21/2002 Assigned Aaa
Senior Ser. 2002A-4(d), Downgraded to A3; previously
on 6/21/2002 Assigned Aaa
Senior 2002A-10, Downgraded to A3; previously on 12/27/2002
Assigned Aaa
Senior Ser. 2002A-11, Downgraded to A3; previously
on 12/27/2002 Assigned Aaa
Senior Ser. 2002A-12, Downgraded to A3; previously
on 12/27/2002 Assigned Aaa
2004A-6(c), Downgraded to A3; previously on 4/15/2004
Assigned Aaa
2004A-7, Downgraded to A3; previously on 4/15/2004 Assigned
Aaa
2004A-8, Downgraded to A3; previously on 4/15/2004 Assigned
Aaa
2004A-9, Downgraded to A3; previously on 4/15/2004 Assigned
Aaa
2004A-11, Downgraded to A3; previously on 4/15/2004
Assigned Aaa
2004A-12, Downgraded to A3; previously on 12/31/2004
Assigned Aaa
2004A-13, Downgraded to A3; previously on 12/31/2004
Assigned Aaa
2004A-14, Downgraded to A3; previously on 12/31/2004
Assigned Aaa
2006A-2, Downgraded to A3; previously on 2/21/2006 Assigned
Aaa
2006A-7, Downgraded to A3; previously on 12/8/2006 Assigned
Aaa
2006A-8, Downgraded to A3; previously on 12/8/2006 Assigned
Aaa
2006A-9, Downgraded to A3; previously on 12/8/2006 Assigned
Aaa
2006A-10, Downgraded to A3; previously on 12/8/2006
Assigned Aaa
2000B-1, Downgraded to Baa1; previously on 10/20/2000
Upgraded to Aa2
Jr. Sub. 2000C-1, Downgraded to Caa3;
previously on 10/24/2008 A2 Placed Under Review for Possible
Jr. Sub. 2001C-1, Downgraded to Caa3;
previously on 10/24/2008 A2 Placed Under Review for Possible
Sub. Ser. 2002C-1, Downgraded to Caa3;
previously on 10/24/2008 A2 Placed Under Review for Possible
Sub. Ser. 2002C-2, Downgraded to Caa3;
previously on 10/24/2008 A2 Placed Under Review for Possible
2004C-1, Downgraded to Caa3; previously on 10/24/2008
A2 Placed Under Review for Possible
Issuer: Brazos Higher Education Authority, Inc. (1999
Indenture)
1999 A-1(a), Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-1(b), Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-1(c), Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-1(d), Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-3, Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-4, Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-5, Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
1999 A-6, Downgraded to Ba3; previously on 3/15/1999
Assigned Aaa
Financial Guarantor: MBIA Insurance Corporation (B3)
2006A-3, Downgraded to Ba3; previously on 6/26/2006
Assigned Aaa
2006A-4, Downgraded to Ba3; previously on 6/26/2006
Assigned Aaa
2006A-5, Downgraded to Ba3; previously on 6/26/2006
Assigned Aaa
2006A-6, Downgraded to Ba3; previously on 6/26/2006
Assigned Aaa
2006B-1, Downgraded to Ca; previously on 3/31/2008 A2
Placed Under Review for Possible Downgrade
Issuer: Brazos Student Finance Corp AB Certs 1995 Indenture
2006A-1, Downgraded to Baa1; previously on 12/7/2006
Assigned Aaa
2006A-2, Downgraded to Baa1; previously on 12/7/2006
Assigned Aaa
2006A-3, Downgraded to Baa1; previously on 12/7/2006
Assigned Aaa
2006A-4, Downgraded to Baa1; previously on 12/7/2006
Assigned Aaa
2006A-5, Downgraded to Baa1; previously on 12/7/2006
Assigned Aaa
2006B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
Issuer: Brazos Student Finance Corporation AB Notes 1998 (new trust
indenture)
1998B-1, Downgraded to Baa3; previously on 4/15/1998
Assigned A2
Sub. Ser. 2001B-1, Downgraded to Baa3;
previously on 6/14/2001 Assigned A2
Issuer: Brazos Student Finance Corporation (April 1, 2003
Indenture)
Sub. Ser. 2003B-1, Downgraded to Caa1;
previously on 5/9/2003 Assigned A2
Issuer: Brazos Student Finance Corporation (August 1, 2003
Indenture)
2003B-2, Downgraded to Caa2; previously on 10/24/2008
A2 Placed Under Review for Possible
2003B-3, Downgraded to Caa2; previously on 10/24/2008
A2 Placed Under Review for Possible
Issuer: Brazos Student Finance Corporation, Amended and restated
2004 Indenture
2004B-1, Downgraded to Caa2; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2004B-2, Downgraded to Caa2; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
Issuer: Edinvest Company (2003 Indenture)
2003B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2004B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2005B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
Issuer: EFSI (2003 Indenture)
2003B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2004B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2005B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
Issuer: EFSI-CA - 2005 Indenture
2005A-1, Downgraded to Ba1; previously on 9/12/2005
Assigned Aaa
2005A-2, Downgraded to Ba1; previously on 9/12/2005
Assigned Aaa
2005A-3, Downgraded to Ba1; previously on 9/12/2005
Assigned Aaa
2006A-1, Downgraded to Ba1; previously on 8/17/2006
Assigned Aaa
2006A-2, Downgraded to Ba1; previously on 8/17/2006
Assigned Aaa
2006A-3, Downgraded to Ba1; previously on 8/17/2006
Assigned Aaa
2007A-1, Downgraded to Ba1; previously on 11/19/2007
Assigned Aaa
2007B-1, Downgraded to Ca; previously on 10/24/2008
A2 Placed Under Review for Possible Downgrade
Issuer: Federated Student Finance Corporation (2003 Indenture)
2003B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2004B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
2005B-1, Downgraded to Caa3; previously on 3/31/2008
A2 Placed Under Review for Possible Downgrade
Issuer: Trinity Higher Education Authority, Inc.
2004B-1, Downgraded to Caa1; previously on 5/21/2004
Assigned A2
For more information please see www. Moodys.com
New York
Irina Faynzilberg
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
JingJing Dang
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades ratings of 110 classes of Brazos student loan revenue bonds