The New Mexico Educational Assistance Foundation, Education Loan Bonds, is preparing to issue $208 million in student loan asset-backed securities (ABS), in the latest bond issuance following the 1998 indenture.
Moody’s Investors Service is expected to assign ‘Aaa’ ratings to the all of the notes on the deal, known as NMEAF Series 2021. The bonds are secured by a pool consisting of non-rehabilitated loans (83.6%) and rehabilitated loans (16.4%). The latter is considered a challenge for the transaction, according to Moody’s.
The loans in the pool have a 5.4% weighted average borrower statutory interest rate, and an average outstanding principal balance per borrower of $19,211.
The rating agency notes that the vast majority of the collateral pool consists of FFELP loans, which carry an indirect federal guarantee. In another credit strength, according to Moody’s, the transaction has a debt service reserve fund, which will be funded at $2.4 million on the deal’s closing date. Also, the bonds benefit from a supplemental reserve account that provides additional liquidity.
NMEAF also sets yearly limits on releases, beginning at $4.6 million in March 2023 and ending at $5.0 million December 2027, according to Moody’s. Further, releases are prohibited from September 2030 through March 2034, a feature that increases the likelihood that the notes will be paid off by their final legal maturity. It also ensures that the trust maintains a minimum level of credit enhancement to the bonds before any releases happen.
Basis risk is another consideration on the deal, since all of the bonds are fixed rate, but on 97% of the loans the special allowance payments are indexed to the one-month Libor. Just 2.4% of the collateral is indexed to Treasurys, in this case the 91-day.
The servicing presents another concern to Moody’s. The New Mexico Educational Assistance Foundation is the sponsor and servicer of the transaction, and is considered a financially weak entity. Further, the transaction has no backup servicer. However, if the current servicer is terminated or resigns, the trustee will either name another party to serve as successor servicer, or petition a court to name one.
