Moody’s Outlook For Student Loan Securities: Expect Negative Credit Trends For Private Loans In 2010
Posted on | January 30, 2010 | No Comments
Here is a summary of their report (available for sale):
"Moody’s outlook for the ratings of both sectors of guaranteed student loans originated under the Federal Family Education Loan Program (FFELP) and private (non-guaranteed) student loans is stable. Even though credit performance trends for the private student loan sector are expected to continue to be negative in 2010, the ratings are expected to be stable. The ratings today reflect higher expected default rates for the 2007 through 2010 repayment vintages relative to previous repayment vintages due to the recessionary environment, particularly the high unemployment rate, slowing salary growth and high consumer debt burdens. For the FFELP sector, significant legislative uncertainties continue to exist; however, we do not expect this uncertainty to have a major credit impact on the vast majority of existing outstanding Moody’s-rated FFELP student loan transactions."
A few of the interesting insights from the report:
- Non-commital on whether the private loan ABS market will draw investor interest after TALF expires on March 31, 2010
- In comments on their conference call, Sallie Mae noted that they expected the market to return later in 2010.
- The cumulative default curves for private loan ABS vintages provided by Moody's for Sallie Mae, National Collegiate (First Marblehead) and KeyCorp. securitizations reflect weak underwriting in 2006-07 period which are now entering repayment (something about "chickens coming home to roost").
Ironically, on the day after Moody's report, Fitch Ratings downgraded all of their ratings for 12 of the National Collegiate Student Loan Trusts:
"The downgrades reflect default rates that
continue to increase in excess of Fitch's initial expectations, as well
as Fitch's ongoing concerns regarding the level of recoveries on
defaulted loans in the absence of guaranty payments from The Education
Resources Institute (TERI), whose bankruptcy remains unresolved. (TERI
is the guarantor of the loans in the NCSLT transactions.)"
continue to increase in excess of Fitch's initial expectations, as well
as Fitch's ongoing concerns regarding the level of recoveries on
defaulted loans in the absence of guaranty payments from The Education
Resources Institute (TERI), whose bankruptcy remains unresolved. (TERI
is the guarantor of the loans in the NCSLT transactions.)"
Fitch also noted their overall negative outlook of the private student loan sector: "It also corresponds with Fitch's negative outlook for the private student loan sector in general."
Fitch did note the potential for a positive upgrade depending on the bankruptcy proceedings for TERI:
"The resolution of the bankruptcy may have a
significant and positive impact on the ratings, depending on the level
of recovery cash flow the trusts end up getting from the bankruptcy
estate. However, given the higher level of uncertainty with respect to
the amount, no recovery payment from the bankruptcy estate is assumed
in the analysis. Fitch is not assigning Recovery Ratings to the
distressed tranches because of this unpredictability. Once the outcome
of the bankruptcy proceeding is known, Fitch anticipates assigning
Recovery Ratings.
significant and positive impact on the ratings, depending on the level
of recovery cash flow the trusts end up getting from the bankruptcy
estate. However, given the higher level of uncertainty with respect to
the amount, no recovery payment from the bankruptcy estate is assumed
in the analysis. Fitch is not assigning Recovery Ratings to the
distressed tranches because of this unpredictability. Once the outcome
of the bankruptcy proceeding is known, Fitch anticipates assigning
Recovery Ratings.
View full post on Student Lending Analytics Blog
Category: Auto Loans
Tags: 2010 > Credit > Expect > Loan > Loans > Moody's > Negative > Outlook > Private > Securities > Student > Trends
Tags: 2010 > Credit > Expect > Loan > Loans > Moody's > Negative > Outlook > Private > Securities > Student > Trends
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