Not-for-profit state education finance companies are slowly but surely turning away from the auction rate bond market and migrating to the floating-rate ABS market for financing. Rating analysts attribute the shift to a troubled year in the auction rate market and increasing investor comfort with state issuers that have previously flown below the radar.
Floating-rate student loan ABS made up 72% of the market last year, up from 63% in 2003, and it appears as if that number could be even higher in 2005. The most recent examples of this trend are first-time issuers Montana Higher Education Student Assistance Corporation, which priced a $252 million floating rate deal in May, and the Iowa Student Loan Liquidity Corporation that priced a $700 million floating rate deal earlier this month. Both deals priced about three basis points outside of average student loan spreads at the time.