DBRS Unveils Private Student Loan ABS Methodology

Dominion Bond Rating Service (“DBRS”) has published a methodology outlining the framework it will use to assess private student loan (PSL) asset-backed securities (ABS). The criteria piece is available at www.dbrs.com under “Methodologies”.

In the methodology issued today, DBRS discusses the unique aspects of PSLs, how PSL programs are financed in the capital markets, and the specialized approach DBRS has created to provide accurate and consistent ratings on ABS backed by PSLs.

“Unlike federal loans, which are offered under the Federal Family Education Loan Program, or FFELP, and are effectively guaranteed,” says DBRS Senior Vice President David Hartung, “PSLs are unsecured credit risk instruments that are subjected to credit underwriting guidelines, priced using lenders’ risk-based pricing matrices, and contain characteristics that vary from program to program.”

Consistent with the DBRS rating methodology applied to other ABS transactions, DBRS reviews the bond issuer’s origination guidelines, the quality of the collateral, as well as the loan servicer’s operational capabilities.

DBRS notes that in terms of collateral evaluation, its methodology considers many factors, including the issuer’s historical portfolio performance; the underlying credit risk associated with the borrower; the impact of loan guarantees, if applicable, on expected transaction performance; the unique characteristics of the loans; and the capabilities of the loan servicer.

Strategic highlights of the PSL methodology include default assumptions derived from standard deviations of an issuer’s base case, issuer-specific deferment and forbearance assumptions, delinquency assumptions sensitive to borrower benefit programs, and servicer evaluations integrated into the ratings process.

“DBRS’s decision to rate PSLs is a further example of our commitment to the ABS market,” says DBRS Managing Director Michael Nelson. “Investors can expect to receive timely, insightful comment on PSLs from us so that they can make informed decisions.”