| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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The U.S. Student Loan Industry Contemplates The Future, Standard & Poor's |
WASHINGTON, D.C. May 23, 2007--The U.S. government is currently debating three different proposals on the future of the Federal Family Education Loan Program (FFELP) that could bring about extensive changes to the multibillion-dollar student loan industry, which, in turn, could have a lasting impact on student loan asset-backed securities (ABS), said attendees at the Strategic Research Institute's recent Eighth Annual Student Loans in the Capital Markets conference in Washington, D.C.
Proposals in the U.S. House of Representatives, in the Senate, and from President Bush all stand to reduce the federal reinsurance of defaulted loans, which is of particular importance to securitization. Federal reinsurance currently covers 97% of the defaults on FFELP student loans, provided certain servicing standards are met, and 99% of the defaults if the Department of Education deems the servicer an "exceptional servicer."
The House of Representatives' proposal, known as the College Student Relief Act, or "H.R. 5," would lower interest rates for students, but would also reduce federal reinsurance to 95% and eliminate the "exceptional performer" designation (and the 2% insurance increase) for those servicers. President Bush's fiscal 2008 budget proposal includes $19 billion in cuts to the FFELP over the next five years, as well as a drop in reinsurance to 95%. Senator Kennedy's Student Debt Relief Act Of 2007 includes a series of proposals aimed at promoting the Direct Loan Program, along with a notable reduction in reinsurance to 85%.
Conference participants seemed to agree that the industry is hoping the proposed changes will be tempered so that federally guaranteed student loans remain economical for lenders to make.
Other hot topics included the effects of the subprime mortgage market performance on student loan ABS performance, which have been negligible to date. At a panel on the state of the market, Standard & Poor's credit analyst Jerry Kalmus, a director in the Structured Finance Ratings group, said, "We have observed no 'subprime spillover' in student loan ABS, and performance has been within our expectations."
The student loan industry also saw an innovative new securitization financing structure come to market in the past year: the Nelnet Inc.-sponsored, single-seller, FFELP student loan asset-backed commercial paper (ABCP) conduit, which can also issue extendible notes. Of particular note is the lack of a traditional rated liquidity provider, with liquidity instead coming in the form of a rating determination that the warehoused FFELP collateral could be liquidated in time to cover maturing commercial paper or extendible notes. Standard & Poor's credit analyst Mark O'Neil, a director in the Structured Finance Ratings group, described Standard & Poor's unique approach to rating this new transaction type, which combines a term securitization analysis with the methodology for rating traditional ABCP structures. He also highlighted the inherent strengths of FFELP student loans as an asset type, saying, "If I had to pick any asset type to put into a structure supported by a market value conclusion of liquidity, it would be FFELP student loans."
During a panel on student loan ABS growth, Standard & Poor's credit analyst Shane Franciscovich, an associate director in the Structured Finance Ratings group, said a recent rated deal included a junior subordinate piece in which funds that would typically release to the issuer are instead used to pay the junior subordinate piece. Also, more deals have been tranching to the 'BBB' rating level, a trend that began in 2006.
A discussion of "headline risk" in the student loan industry provided attendees with the opportunity to hear about how political headlines and rumors can affect the market. One panelist presented a chart illustrating the trading of Sallie Mae stock along with a timeline of news about its sale. This highlighted the real effects that headlines can have on market price. Standard & Poor's credit analyst Ernest Napier, a managing director in the Financial Institutions Ratings group, then explained the rating implications of the proposed Sallie Mae acquisition. "Headline risk is not new to Standard & Poor's," he said. "We really have to wait and see before we make any critical assumptions."
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