The Pennsylvania Higher Education Assistance Agency plans to issue $878 million securitization of Federal Family Education Loan Program (FFELP) loans.
FFELP loans are indirectly guaranteed by the U.S. Department of Education for a minimum of 97% of defaulted principal and accrued interest.
However the underlying collateral for the deal called Education Loan Asset-Backed Trust I , Series 2013-1 notes will consist of up to 10% of rehabilitated FFELP loans; these are loans to borrowers who have previously defaulted but have since made at least nine timely payments in a 10-month period.
Moody’s Investor Service assigned preliminary ratings to the deal. According to the presale report rehabilitated loans are expected to experience a higher net loss rate compared with non-rehabilitated FFELP loan pools because “although the rehabilitated loans benefit from the same degree of federal guarantee, they are expected to default at a significantly higher rate than non-rehabilitated loans.”
The expected net loss for the ELAB 2013-1 transaction is approximately 0.23%. The deal will offer investors Aaa’- rated senior notes and Aa1’ rated subordinate notes.
