Student loans extended to highly qualified borrowers originated between April 2019 and January 2022 and through additional origination period extending through October 2023 will create secure the Pennsylvania Higher Education Assistance Agency (PHEAA) 2022AB $83.6 million student loan revenue bonds deal.
All of the loans are fixed rate, according to a presale report from Moody’s Investors Service. As of Jan. 31, 2022, the loans had a weighted average (WA) FICO score of 767, a co-signer percentage of 88.4%, and a low exposure—8.4%—to for-profit schools.
The collateral pool has some 8,038 borrowers, with an average outstanding balance of $19,006.
The rating agency added that at least 60% of the loans that would be added to the collateral pool during the prefunding period are expected to have a FICO score of at least 740. No more than 15% will have a FICO score of 700, according to Moody’s.
Moody’s expects to assign ‘Aa2’ to five 2022A series tranches—which have different principal amounts and final maturity dates. The $7.6 million 2022B notes, with a final maturity of June 2049, are expected to receive an ‘A3’ rating.
PHEAA will service the loans in the 2020 master trust indenture, which Moody’s feels will strengthen the credit of the notes. PHEAA is a public corporation and government entity that has serviced mote than $423.2 million in student loans, with about $7.0 billion in private student loans outstanding as of June 31, 2021. This boosts Moody’s belief that the risk or servicing disruption is low.
PHEAA will issue the notes through a strong capital structure that boost confidence in the timely payments of the notes, including provisions to mitigate negative carry. Also, the trust has a feature that kicks in when the total bond principal balance is lower than 10% of the original bond principal balance.
Excess revenues after the transfers and payments set forth in the waterfall will be used to redeem bonds if the total parity is lower than the release level of 138% of the senior parity. Moody’s expects the senior parity to be a ratio of total assets over the principal balance and accrued interest of the senior bonds is lower than 152%.
The prime quality of the borrowers notwithstanding, PHEAA 2022AB has a number of characteristics that cause credit challenges. The sponsoring had only introduced private loan program for half-time students in 2019, so the company had limited performance data to help assess future performance.
