Massachusetts Educational Financing Authority (Issue L Series 2019) Assigned Preliminary Ratings


  • Massachusetts Educational Financing Authority's issuance is an ABS transaction backed by private student loans made under Massachusetts Educational Financing Authority's loan program.
  • We assigned our preliminary ratings to the issue L senior 2019A and 2019B bonds, and subordinate 2019C bonds.
  • The preliminary ratings reflect our view of the transaction's credit support and subordination, and the results of our scenario analyses, among other factors.
NEW YORK (S&P Global Ratings) April 23, 2019--S&P Global Ratings today 
assigned its preliminary ratings to Massachusetts Educational Financing 
Authority's $305.49 million education loan revenue bonds Issue L series 2019 
(see list).

The bonds issuance is an asset-backed securities (ABS) transaction backed by 
private student loans made under Massachusetts Educational Financing 
Authority's loan program.

The preliminary ratings are based on information as of April 23, 2019. 
Subsequent information may result in the assignment of final ratings that 
differ from the preliminary ratings.

The preliminary ratings reflect:
  • The availability of approximately 13.3%-13.9% and 7.7%-8.1% of credit support available (including excess spread) in our 'AA (sf)' and 'BBB (sf)' break-even cash flow scenarios, respectively. The credit support is defined as maximum net loss rates that our 'AA' and 'BBB' break-even cash flow scenarios could absorb while still making interest payments on every payment date and principal payments by the legal maturity. These credit support levels provide coverage of approximately 6.0x and 3.5x our base-case net loss assumptions, respectively.
  • Expected Issue L's total parity of 101.7% upon the issuance of the 2019 bonds, which is expected to grow to the target release level of 106.0% over the transaction's life. Total parity is defined as a ratio of the total assets to the sum of the outstanding bond balance with the accrued interest, unpaid program expenses, and subordinated program expenses. The total assets include the aggregate loan principal balance with the accrued interest (excluding defaulted loans) and the money in Issue L's accounts other than the rebate fund.
  • Expected Issue L's senior parity of 115.4% upon the issuance of the 2019 bonds, which is expected to grow to the target release level of 116.0% over the transaction's life. Senior parity is defined as a ratio of the total assets to the sum of the outstanding senior bond balance with the accrued interest, unpaid program expenses, and subordinated program expenses.
  • Approximately 12% subordination for the Issue L senior bonds provided by the Issue L subordinate bonds. Upon the 2019 bond issuance, the Issue L senior bonds will consist of series 2019A, 2019B, 2018A, and 2018B, while the subordinate bonds will consist of series 2019C and 2018C. In the future, the authority may issue additional senior bonds without issuing additional subordinate bonds, which could reduce the overall subordination supporting all Issue L senior bonds. Subordination is defined as the subordinate bond balance divided by the total bond balance.
  • The fully funded taxable and tax-exempt reserve accounts with target balances of 1.0% of the outstanding taxable and tax-exempt bond balances, respectively. Each reserve account is subject to a floor of approximately 0.6% of the related initial bond balance: $1,589,750 is the taxable reserve account floor and $1,473,700 is the tax-exempt reserve account floor. If available funds held in other accounts (excluding the rebate fund) are insufficient, the reserve accounts will be available to pay bond principal at maturity, sinking fund principal installments, interest on every interest payment date, and program expenses when due.
  • The characteristics of existing Issue L loans (approximately $225.6 million, as of Jan 31, 2019), including seasoned loans transferred from the issue H resolution in 2018 (approximately $39.0 million as of Jan. 31, 2019). Approximately 54% of the existing pool includes obligors with FICO scores of 750 and above; approximately 98.9% of the existing pool consists of cosigned loans; and approximately 98.7% of the existing pool consists of loans made to students at four-year schools at the time of loan origination.
  • The expected quality of the credit based loans to be originated during the loan origination period ending on June 30, 2020, and recycling period ending on Sept. 30, 2020.
  • The interest payments made on every interest payment date and principal payments made by the bond maturity dates in the stressed cash flow modeling scenarios that we believe are consistent with the assigned 'AA (sf)' and 'BBB (sf)' ratings.
  • A scenario analysis indicating that under moderately stressful economic conditions (defined as approximately 2.25x expected defaults), the 'AA (sf)' ratings would not decline more than one rating category in the first year and that the 'BBB (sf)' rating would not decline more than two rating categories in the first year, which are both consistent with our credit stability criteria.
  • Our 'AA-' municipal issuer credit rating, with a stable outlook, on MEFA (general obligation).
  • Pennsylvania Higher Education Assistance Agency's (PHEAA) servicing capabilities. Through its commercial servicing line of business, PHEAA serviced $34.7 billion for lenders as of Dec. 31, 2018, with an approximately $9.3 billion of private student loans, which makes PHEAA one of the nation's largest servicers of private student loans.
  • Our 'AA-' municipal issuer credit rating, with a negative outlook, on PHEAA (general obligation).
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