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.

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