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 25.8% base case default rate and 60.3% under the 'AAAsf' credit 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, constant default rate (CDR) and prepayment assumptions for FFELP loans in its cash flow analysis. Current level of deferment, forbearance and income-based repayment (IBR) (before adjustment) are 7.3%, 11.6% and 11.7%, 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 2016-2 notes were satisfactory under 'AAAsf' 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.
'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the
Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.
Credit Stress Rating Sensitivity
--Default increase 25%: class A '
--Default increase 50%: class A 'Asf'; class B 'Asf'
--Basis Spread increase 0.25%: class A 'AAAsf'; class B '
--Basis Spread increase 0.50%: class A 'AAAsf'; class B '
Maturity Stress Rating Sensitivity
--CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf'
--CPR increase 100%: class A 'AAAsf'; class B 'AAAsf'
--IBR Usage increase 100%: class A 'AAAsf'; class B '
--IBR Usage decrease 50%: class A 'AAAsf'; class B 'AAAsf'
Stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.
Key Rating Drivers and Rating Sensitivities are further described in the updated presale report titled 'PHEAA Student Loan Trust 2016-2', 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.
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
ABS Due Diligence Form 15E 1
Copyright © 2016 by Fitch Ratings, Inc.,
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Source: Fitch Ratings