Student loans issued to highly qualified borrowers between April 2019 and January 2022 and during an additional origination period extending through October 2023 will create an $83.6 million student loan income bond secured agreement with Pennsylvania Higher Education Assistance Agency (PHEAA) 2022AB.
All loans are fixed rate, according to a pre-sale report from Moody’s Investors Service. As of January 31, 2022, the loans had a weighted average (WA) FICO score of 767, a cosigner percentage of 88.4%, and 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 loans that would be added to the collateral pool during the pre-funding period should 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 plans to assign “Aa2” to five Series 2022A 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 says will strengthen the credit of the notes. PHEAA is a public corporation and government entity that has serviced more than $423.2 million in student loans, with approximately $7.0 billion in private student loans outstanding as of June 31, 2021. This reinforces Moody’s belief that the risk or disruption of services is low.
PHEAA will issue the Notes through a sound capital structure that reinforces confidence in timely payments of the Notes, including provisions to mitigate negative carry. In addition, the trust has a function that comes into play when the total principal balance of the bond is less than 10% of the original principal balance of the bond.
Excess income after the transfers and scheduled payments in the cascade will be used to repay the bonds if the total parity is below the release level of 138% of the senior parity. Moody’s expects senior parity to be a ratio of total assets to principal balance and accrued interest on senior bonds to be less than 152%.
Despite the superior quality of borrowers, PHEAA 2022AB has a number of characteristics that cause credit problems. The sponsorship had only introduced a private loan program for part-time students in 2019, so the company had limited performance data to help gauge future performance.