PHEAA Returns $ 665 Million FFELP Student Loan ABS



The combination of rehabilitated and non-rehabilitated loans is provided by the PHEAA 2021-1 Student Loan Fund, which will issue $ 665 million in asset-backed bonds. The deal marks the first ABS-backed, Federal Family Education Loan Program (FFELP) loan for the Pennsylvania Higher Education Promotion Agency (PHEAA) since 2018.

According to Moody’s Investors Service, while the pool is mixed, non-rehabilitated loans account for the vast majority of the pool at 96%. Certain characteristics of the transaction give confidence in terms of creditworthiness, and not only because the Ministry of Education insures promissory notes for at least 97% of outstanding principal and accrued interest.

There is also a reserve account in the capital structure, which is likely to be funded in the amount of $ 20.1 million after the close of the deal. In addition, the service risk is expected to be low due to PHEAA’s experience and expertise in this area.

However, the deal has several pockets of potential problems. The US economic recovery following the COVID-19 pandemic remains uneven, and Moody’s expects this condition to continue until 2021. There is also an underlying risk issue where the interest rates on ABS bonds and underlying loans do not match.

About 70.6% of the trust notes are indexed at the monthly Libor rate. While 97.5% of the loans have their special payments tied to the same index, the rest of the collateral is tied to a 91-day Treasury bill.

The capital structure consists of fixed and floating rate bonds, all of which are expected to receive an ‘AAA’ rating from Moody’s.


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