A portfolio of mostly consolidated, federally guaranteed student loans is securing the Higher Education Loan Authority of the State of Missouri Series 2021-3, a trust that is expected to issue about $197.5 million in asset-backed securities (ABS).
Known as MOHELA 2021-3, the trust will issue a mix of fixed- and floating-rate notes from a capital structure with three tranches, or note classes. The Pennsylvania Higher Education Assistance Agency will act as backup servicer, according to DBRS Morningstar.
Class A-1A notes will pay on the fixed-rate notes, while classes A-1B and B will pay a floating interest rate based on one-month LIBOR, plus a margin that will be determined at the time of pricing.
The trust will pay principal on a sequential and pro rata basis, DBRS said, with classes A-1A, A-B and class B receiving payment in that order until the respective classes are paid in full. As for interest, payments will be subordinate to interest payments on the class A notes. The notes have a final maturity date of August 25, 2061, DBRS said.
Aside from subordination provided to the class A notes by the class B notes, MOHELA 2021-3 has credit enhancement including note subordination and overcollateralization (OC) excess spread. Also, the deal has a capitalized interest fund and a reserve fund.
As of June 30, 2021, the statistical cutoff date for assembling the underlying loans into the collateral pool, consolidated loans consisted 53.7% of the pool, of which 35.6% are unsubsidized and 18.1% are subsidized. Stafford Loans comprise 43.3% of the pool and PLUS loans represent another 3.1% of the loans. Rehabilitated FFELP loans account for about 4.7% of the pool, DBRS said.
Students living in Missouri account for about 44.9% of the borrowers, and the trust has an average balance per borrower of $13,097, so any economic condition that adversely affects the state could expose the transaction to risks of higher defaults or forbearances.
A large majority of the borrowers, 73.9%, were attending four-year schools, but other types of schools were well represented in the portfolio. Two-year and proprietary schools accounted for 11.3% and 10.5% of school types, respectively.
DBRS expects to assign ‘AAA’ ratings to the class A-1A and A-1B notes, each amounting to about $193 million. The class B notes are expected to receive an rating of ‘A’.
