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