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