NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Higher Education Loan Authority of the State of Missouri Series 2012-1 notes to 'Asf' from 'AAAsf'; removed from Rating Watch Negative and assigned Outlook Stable.
The notes pay in full before their maturity in scenarios up to the 'BBBsf' maturity stresses. Because their maturity date of January 2026 is greater than seven years away, and the notes are currently rated 'AAAsf', they are eligible for the downgrade tolerance of one rating category. This results in the downgrade to 'Asf'.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans, including 8.7% rehabilitation loans. Guarantees are provided by the transaction's eligible guarantors and reinsurance is provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The U.S. sovereign rating is currently 'AAA', Outlook Stable by Fitch.
Collateral Performance: For MOHELA 2012-1, Fitch assumes a 14% base case default rate and a 42.00% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.50% in the base case and 3% in the 'AAA' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The trailing 12-month (TTM) constant default rate, utilized in the maturity stress is 3.8%. The TTM average levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 10.0%, 7.2%, 10.6%, and 13.2%, respectively, which are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.11% based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.
Payment Structure: Credit Enhancement (CE) is provided by overcollateralization and excess spread. As of the November 2016 distribution report, total parity is 107.87%. Liquidity support is provided by a reserve account currently sized at the greater of 0.25% of the pool balance, and 0.15% of the initial pool balance. As of November 2016, the debt service reserve fund balance is $383,468. The transaction is in turbo and no cash is being released from the trust.
Maturity Risk: The class A notes pay in full before their maturity in scenarios up to the 'BBBsf' maturity stresses. This transaction is sensitive to expense assumptions. Fitch modelled this deal assuming the transaction will continue to turbo payment with no payment of carryover servicing fee. If carryover servicing fee would be paid, the transaction might not be able to pass cash flows at investment grade.
Operational Capabilities: Day-to-day servicing will be provided by MOHELA. Pennsylvania Higher Education Assistance Agency (PHEAA) acts as backup servicer for the entire pool. MOHELA and PHEAA have demonstrated adequate servicing capabilities for FFELP student loans. Fitch believes all to be acceptable servicers of FFELP student loans at this time.
RATING SENSITIVITIES
'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.
Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.
Credit Stress Rating Sensitivity
--Default increase 25%: class A 'AAAsf';
--Default increase 50%: class A 'AAAsf';
--Basis Spread increase 0.25%: class A 'AAAsf';
--Basis Spread increase 0.50%: class A 'AAAsf'.
Maturity Stress Rating Sensitivity
--CPR decrease 50%: class A 'CCCsf';
--CPR increase 100%: class A 'AAAsf';
--IBR Usage increase 100%: class A 'Bsf';
--IBR Usage decrease 50%: class A 'Asf'.
It is important to note that the stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)
https://www.fitchratings.com/site/re/888492
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 10 Nov 2016)
https://www.fitchratings.com/site/re/889777
Related Research
Higher Education Loan Authority of the State of Missouri, Series 2012-1 -- Appendix
https://www.fitchratings.com/site/re/678251
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016268
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016268
Endorsement Policy
https://www.fitchratings.com/regulatory
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