Fitch Ratings was the beneficiary of a recent dispute between student lender Alaska Student Loan Corp. and Moody's Investors Service, in which the issuer claims it was dissatisfied with the customer service it received from the ABS market's leading rating agency. For its part, Moody's claims that it was asked to remove its rating from the 2002 and 2003 series of tax-free student loan ABS after expressing concern over potentially eroding credit protection as the trust issues additional transactions.
On May 17, Moody's announced that it was confirming and simultaneously withdrawing its ratings on the series 2002 indenture bonds of tax-free student loan ABS issued by the Alaska Student Loan Corp. This followed Moody's placing the same issue on review for a possible downgrade the previous Friday.
"It is rare for Moody's to withdraw a rating and as a firm, we seek to maintain outstanding ratings," said Moody's managing director Michael Kanef. "We cannot maintain our rating without specific information, which the issuer refused to provide."
As for the review, confirmation and withdrawal of Alaska Student Loan's ratings, "it is our policy to review and, if necessary, take rating action to insure the rating is accurate prior to withdrawal," Kanef added.
In its announcements, Moody's cited failure on the issuer's behalf to provide the necessary information to insure Moody's previously assigned ratings were accurate. Moody's also sought, it claims, to propose further changes within the trust's structure.
"The Corporation has informed Moody's that it will amend the 2002 indenture with the issuance of the Series 2004 bonds such that the recycling period will be shortened to end in July 1, 2006 instead of July 2009. This will allow the issuer to start repaying principal on the bonds earlier than would otherwise be the case," Moody's said in its withdrawal statement.
The issuer, meanwhile, cited dissatisfaction with Moody's service and added that it will continue to make available information for the two trusts Moody's will continue to rate. "We had service concerns with Moody's [and] communication issues over the years," said Alaska Student Loan Financial Officer Sheila King.
King cited "last-minute requests for information - even after it had given a verbal shadow rating - asking for new cashflow analysis days prior to closing previously issued bonds" and added, "We decided to obtain a Fitch rating and requested that Moody's withdraw their rating from our 2002 indenture bonds. We didn't feel as though we needed three ratings on the bonds in that trust," King said.
"Additionally, Moody's is the most expensive of the rating agencies," added King.
Moody's Kanef admits that Alaska Student Loan "did not ask us to rate its new deal," but claims that its placement of the series 2002 indenture was due to Moody's concerns over shared credit enhancement among all transactions, on a pro-rata basis, in the trust.
"Market participants had asked what the impact would be on outstanding deals, as the trust issued [new offerings] going forward," said Moody's Kanef. ASLC's King retorted that while she "can't speak to Moody's comfort level with our credit enhancement" now that it no longer rates ASLC's transactions, "there is a 143% parity level in the 2002 indenture trust, which we feel is fairly high."
As a result of the ratings withdrawal, Moody's added in its press release that, "it does not expect to be evaluating the impact of any subsequent changes to the documentation (including changes to the expiration of the recycling period) or future issuances."
Neither Fitch nor Standard & Poor's - which also rates ASLC's student loan ABS - wanted to comment on a competitor's actions. Some $109.5 million of bonds saw ratings withdrawn by Moody's, and Moody's will maintain its ratings on $398 million of series 1988 and 2004 indenture bonds.
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