Although the class B note passes Fitch's 'AA' cash flow stress scenarios, the recommendation is to affirm at 'Asf' because the implied ratings from Fitch's cash flow model are sensitive to modest increases in defaults. Despite the observation of recent high defaults in the trust, Fitch expects defaults to decrease in the coming years as the collateral seasons. If the default decline does not materialize, ratings may be affected.
KEY RATING DRIVERS
Collateral Performance: Due to observations of recent high defaults for this trust, a proxy was used to account for the actual trust performance. Fitch assumes a base case default rate of 29.25% and a 64.00% default rate under the 'AAAsf' credit stress scenario. The base case default assumption of 29.25% implies a constant default rate of 9.0% (assuming a weighted average life of 3.3 years); equal to the trailing-12-month (TTM) constant default rate (CDR) utilized in the maturity stresses. Fitch believes defaults will likely decline as the trust's collateral becomes more seasoned. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The claim reject rate is assumed to be 0.50% in the base case and 3.0% in the 'AAAsf' case.
The TTM average levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 11.9%, 18.2%, 12.8% and 14.7%, respectively, which are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.07%, based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this trust as per the agency's criteria.
Payment Structure: Credit Enhancement (CE) is provided by excess spread, overcollateralization, and, for the senior class A notes, the subordination of the class B note. Liquidity support is provided by a reserve account currently sized at
Maturity Risk: Fitch's student loan ABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.
Under Fitch's criteria 'Rating
Under Fitch's criteria 'Rating
Since the FFELP student loan ABS relies on the
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch has affirmed the following:
--Class A-1 note at 'AAAsf'; Outlook Stable.
--Class A-2 note at 'AAAsf'; Outlook Stable.
--Class A-3 note at 'AAAsf'; removed from Negative Watch, assigned Stable Outlook.
--Class B note at 'Asf'; Outlook Stable.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub.
Global Structured Finance Rating Criteria (pub.
Dodd-Frank Rating Information Disclosure Form
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Source: Fitch Ratings