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Rating Action:

Moody's takes rating actions on 4 FFELP student loan securitizations

22 Nov 2016

Approximately $309 million of asset-backed securities affected

New York, November 22, 2016 -- Moody's Investors Service, ("Moody's") has confirmed the rating of four tranches, upgraded the rating of nine tranches, and downgraded the rating of one tranche in four securitizations backed by student loans originated under the Federal Family Education Loan Program (FFELP). The loans are guaranteed by the US government for a minimum of 97% of defaulted principal and accrued interest.

Complete rating actions are as follows:

Issuer: North Texas Higher Education Authority, Inc. (1993 Indenture)

Sub. 2002B (Class IV), Upgraded to Aaa; previously on Jun 14, 2016 Aa1 Placed Under Review for Possible Upgrade

Series 2003-2B-IV, Upgraded to Aaa; previously on Jun 14, 2016 Aa1 Placed Under Review for Possible Upgrade

Issuer: NorthStar Education Finance, Inc. (formerly NorthStar Guarantee Inc., Division B 2000 Indenture)

Series 2000B, Upgraded to Aa3; previously on Jun 14, 2016 A2 Placed Under Review for Possible Upgrade

Series 2004-1B-1, Upgraded to Aa3; previously on Jun 14, 2016 A2 Placed Under Review for Possible Upgrade

Series 2004-2B, Upgraded to Aa3; previously on Jun 14, 2016 A2 Placed Under Review for Possible Upgrade

Sub. Ser. 2002B-1, Upgraded to Aa3; previously on Jun 14, 2016 A2 Placed Under Review for Possible Upgrade

Series 2005-1B, Upgraded to Aa3; previously on Jun 14, 2016 A2 Placed Under Review for Possible Upgrade

Series 2007-1B, Upgraded to Aa3; previously on Jun 14, 2016 A2 Placed Under Review for Possible Downgrade

Issuer: Education Funding Capital Trust - IV (2004 Indenture)

Series 2004B-1, Downgraded to Baa2 (sf); previously on Jun 14, 2016 A2 (sf) Placed Under Review for Possible Downgrade

Issuer: New Mexico Educational Assistance Foundation - Education Loan Bonds (2010 Indenture)

Series 2010-1 A-1-3, Confirmed at Aaa; previously on Jun 14, 2016 Aaa Placed Under Review for Possible Downgrade

Series 2010-1 A-1-4, Confirmed at Aaa; previously on Jun 14, 2016 Aaa Placed Under Review for Possible Downgrade

Series 2010-1 A-1-5, Confirmed at Aaa; previously on Jun 14, 2016 Aaa Placed Under Review for Possible Downgrade

Series 2010-1 A-1-6, Confirmed at Aaa; previously on Jun 14, 2016 Aaa Placed Under Review for Possible Downgrade

Series 2010-1 A-3, Upgraded to Aaa; previously on Jun 14, 2016 Aa3 Placed Under Review for Possible Upgrade

RATINGS RATIONALE

These tranches were placed on watch in June 2016 in connection with the application of the updated FFELP methodology. Under the new methodology, Moody's derives the expected loss of each tranche by running its standard 28 cash flow scenarios and using the weights associated with each scenario.

The upgrades and confirmations are primarily a result of Moody's analysis of the tranches indicating either that they are likely to successfully pay off by their final maturity dates, or that their expected losses across Moody's cash flow scenarios are respectively either lower than or consistent with the expected loss benchmarks in Moody's Idealized Cumulative Expected Loss Rates table for the prior ratings.

The upgrade of Class 2007-1B in Northstar Education Finance (2000) also reflects the correction of an error in modeling the paydown of subordinate auction rate securities. In our June 2016 watch action, we incorrectly modeled the paydown of the subordinate auction rate securities under a sequential structure, which led to the subordinate Class 2007-1B tranche being placed on review for downgrade. Given trustee discretion in paydown sequence, the current action reflects a pro-rata paydown sequence for the subordinate auction rate securities. As a result of the correction, the expected loss for the 2007-1B tranche has decreased to a level lower than the expected loss benchmark levels set in Moody's Idealized Cumulative Expected Loss Rates table for the June 2016 action.

The downgrade is primarily a result of Moody's analysis indicating that the tranche will not pay off by its final maturity date in either some or all of Moody's 28 cash flow scenarios, thus causing the tranche to incur expected loss that is higher than the expected loss benchmarks set in Moody's idealized loss tables for the prior rating. The low payment rates on the underlying securitized pools of FFELP student loans are driven primarily by persistently high levels of loans to borrowers in non-standard payment plans, including deferment, forbearance and Income-Based Repayment (IBR), as well as by the relatively low rates of voluntary prepayments.

The principal methodology used in these ratings was "Moody's Approach to Rating Securities Backed by FFELP Student Loans" published in August 2016. 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 ratings:

Up

Moody's could upgrade the ratings if the paydown speed of the loan pool increases as a result of lower than expected borrower usage of deferment, forbearance and IBR, higher than expected 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 ratings 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 classes by their final maturity dates. 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 ratings 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 of the disclosure form.

In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

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 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.

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.

Donald Lee
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

Dev Chatterjee
MD - Structured Finance
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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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