Fitch Rates PHEAA Student Loan Trust 2016-1
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Although cash flow indicated a higher rating for the class B notes, the recommendation is to assign 'Asf' due to low hard credit enhancement leading to strong dependency on excess spread. Additionally, the class B notes have an interest cap. Fitch rates to the class B Interest cap and does not rate to the class B carryover interest.
KEY RATING DRIVERS
Collateral Performance: Fitch assumes a 23% base case default rate and 56.5% under the 'AAAsf' scenario. The claim reject rate is assumed to be 0.25% for the base case and 2% for the 'AAAsf' case. Fitch applies the standard default timing curve, CDR and prepayment assumptions for FFELP loans in its cash flow analysis. Current levels of deferment, forbearance and IBR are 7.6%, 12.2%, 13.4%, respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. Fitch assumes 0.4% borrower benefits in the cash flows analysis based on information provided by PHEAA.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.
Payment Structure: Cash flows for the 2016-1 notes were satisfactory under 'AAAsf' and 'Asf' stress for class A notes and class B notes, respectively. Total credit enhancement (CE) is provided by overcollateralization (OC), excess spread and subordination provided by the class B notes for the class A notes. At closing, senior and total parity are expected to be 103.7% and 101.5%. The trust has a specified OC amount equal to the greater of 1.8% of the current adjusted pool balance and
Maturity Risk: Fitch's student loan ABS cash flow model indicates that both the senior and subordinate notes are paid in full on or prior to their legal final maturity of
Operational Capabilities: PHEAA will service the portfolio and Fitch considers PHEAA to be an acceptable servicer since they have a long history servicing FFELP student loans.
RATING SENSITIVITIES
Since FFELP student loan ABS rely on the
Key Rating Drivers and Rating Sensitivities are further described in the updated presale report titled 'PHEAA Student Loan Trust 2016-1', dated
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with Form ABS Due Diligence - 15E (Form 15E) as prepared by
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' on the presale report. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01
https://www.fitchratings.com/site/re/886006
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub.
https://www.fitchratings.com/site/re/879815
Global Structured Finance Rating Criteria (pub.
https://www.fitchratings.com/site/re/883130
Rating
https://www.fitchratings.com/site/re/881705
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011658
ABS Due Diligence Form 15E 1
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011658
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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