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Rating Action:

Moody's upgrades three tranches in two CommonBond student loan securitizations

29 Aug 2019

Approximately $39 million of asset backed securities affected

New York, August 29, 2019 -- Moody's Investors Service ("Moody's") has upgraded the ratings of three tranches issued by CommonBond Student Loan Trust 2015-A and 2017-B-GS. The underlying collateral consists of private credit student loans solely originated under the CommonBond student loan programs. These loans are not guaranteed or reinsured under the Federal Family Education Loan Program (FFELP) or any other federal student loan program.

The complete rating actions are as follows:

Issuer: Commonbond Student Loan Trust 2015-A

Class A Notes, Upgraded to A1 (sf); previously on Aug 16, 2017 Upgraded to A2 (sf)

Issuer: Commonbond Student Loan Trust 2017-B-GS

Private Credit Student Loan Backed Class B Notes, Upgraded to Aa2 (sf); previously on Oct 26, 2017 Definitive Rating Assigned A3 (sf)

Private Credit Student Loan Backed Class C Notes, Upgraded to Aa3 (sf); previously on Oct 26, 2017 Definitive Rating Assigned Baa1 (sf)

RATINGS RATIONALE

The upgrades of the notes are driven by our revised assumptions on expected and stressed losses of the underlying refi loans due to their strong collateral quality and continued strong performance. Pursuant to a comparable default analysis with other high quality consumer asset classes that have experienced a full credit cycle, we have revised our base case remaining cumulative net loss expectations as a percentage of the current pool balance to 0.90% for Commonbond 2015-A and to 1.35% for Commonbond 2017-B-GS. The net loss rate assumptions were revised downward to recognize the collateral pools' low defaults and high prepayments, leading to a shorter remaining life. As of 07/31/2019, the cumulative default rate to date is 0.55% for Commonbond 2015-A with a pool factor of 15%, and 0.25% for Commonbond 2017-B-GS with a pool factor of 65%.

In addition to the lower expected net loss rates, we also downwardly revised the volatility around our stressed loss rates given the strong credit quality of refi loans. A large share of refi loans are to obligors with advanced college degrees that provide employment stability even during a recession, decreasing the likelihood of default due to financial hardship. Compared with other loan types to borrowers with high credit quality, particularly high FICO auto loans and non-refi private student loans (PSL) that have experienced a full credit cycle, refi loans have higher credit quality with strong borrower characteristics and underwriting criteria. To date, transactions backed by refi loans have had a lower exposure to borrowers with credit scores lower than 700. The weighted average credit score for these deals is around 750. Further, refi lenders typically require income verification for all the pooled loans and use affordability metrics such as free cash flow or debt-to-income to evaluate a borrower's ability to repay the loan. Income verification combined with consideration given to affordability metrics reduces the likelihood of default by mitigating the risk that borrowers will overborrow and will be unable to afford their loan.

In today's action of Class A Notes issued by Commonbond 2015-A, we also considered regulatory and legal risks stemming from the third-party loan origination model. All the private student loans backing this transaction are originated by Bank of Lake Mills (BLM), a Wisconsin state-chartered and FDIC-insured bank, and subsequently sold to Commonbond.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was "Moody's Approach to Rating U.S. Private Student Loan-Backed Securities" published in January 2010. 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

Among the factors that could drive the ratings up are a decrease in interest rate risk and lower net losses on the underlying assets than Moody's expects. Favorable regulatory policies and legal actions could also move the ratings up for Class A Notes of Commonbond 2015-A.

Down

Among the factors that could drive the ratings down are an increase in interest rate risk and higher net losses on the underlying assets than Moody's expects. Adverse regulatory and legal risks stemming from the origination model could also move the ratings down for Class A Notes of Commonbond 2015-A.

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.

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.

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.

Jiaoren Wang
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.
© 2020 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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