DBRS Morningstar Confirms Ratings on Three Higher Education Loan Authority of the State of Missouri Transactions

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of securities included in three Higher Education Loan Authority of the State of Missouri transactions:

Higher Education Loan Authority of the State of Missouri Series 2021-1:
-- Class A-1A Notes at AAA (sf)
-- Class A-1B Notes at AAA (sf)
-- Class B Notes at A (sf)

Higher Education Loan Authority of the State of Missouri Series 2021-2:
-- Class A-1A Notes at AAA (sf)
-- Class A-1B Notes at AAA (sf)
-- Class B Notes at A (sf)

Higher Education Loan Authority of the State of Missouri Series 2021-3
-- Class A-1A Notes at AAA (sf)
-- Class A-1B Notes at AAA (sf)
-- Class B Notes at A (sf)

CREDIT RATING RATIONALE
The credit rating actions are based on the following analytical considerations:

-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: June 2023 Update,” published on June 30, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

-- Transaction capital structure, current credit ratings, and sufficient credit enhancement levels.

-- Credit enhancement is sufficient to support the DBRS Morningstar cash flow assumptions under various stress scenarios. Credit enhancement is in the form of overcollateralization, a reserve account, a capitalized interest fund, and excess spread, with senior notes also benefiting from the subordination of junior notes.

-- Parity ratios have increased since their issuances, providing sufficient credit enhancement for the transactions. Credit enhancement levels are expected to increase as overcollateralization levels continues to build up to their specified overcollateralization targets. The reserve account balances have maintained their required levels.

-- Collateral performance in terms of cumulative net losses (CNLs) is within expectations and remains low as Federal Family Education Loan Program (FFELP) student loans benefit from guarantees that are ultimately provided by the U.S. government for at least 97% of principal and accrued interest.

-- However, cumulative gross defaults (CGD) are higher than expected with total lifetime defaults projecting to be greater than initial expectation; FFELP loans are guaranteed against default by third-party guarantors and reinsured for at least 97% of principal and accrued interest by the U.S. Department of Education, resulting in negligible CNL.

-- Under this revised CNL expectation, the Class B Notes currently have a multiple commensurate with a higher rating. However, given the higher-than-expected CGD levels, the Class B Notes were not upgraded. Additionally, Class B payments are not currently receiving any principal payments as the Class B Notes are subordinate to Class A payments. As the transaction continues to amortize, credit enhancement is expected to build and may offset higher CGD levels.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Notes:
The principal methodology applicable to the credit ratings is DBRS Morningstar Master U.S. ABS Surveillance (July 20, 2023), https://www.dbrsmorningstar.com/research/417414.

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com\methodologies.

-- Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023),
https://www.dbrsmorningstar.com/research/417415
-- Operational Risk Assessment for U.S. ABS Originators (July 20, 2023),
https://www.dbrsmorningstar.com/research/417416
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
https://www.dbrsmorningstar.com/research/415687
-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008
-- Rating U.S. Structured Finance Transactions (February 6, 2023),
https://www.dbrsmorningstar.com/research/409449
-- Rating U.S. Federal Family Education Loan Program Securitizations (January 13, 2023),
https://www.dbrsmorningstar.com/research/408396

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].