Fitch Affirms Brazos Higher Education Authority Inc., Series 2011-1; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following Brazos Higher Education Authority, Inc. Series 2011-1 notes (BHEA 2011-1):

--Class A-2 at 'AAAsf'; Outlook Stable;

--Class A-3 at 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust is collateral consists of a 100% Federal Family Education Loan Program (FFELP) loan. The credit quality of the trust is high, in Fitch's opinion, based on the guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The Stable Outlook on the notes is consistent with Fitch's current U.S. sovereign rating of 'AAA'/Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of approximately 21.7% and a 65.2% default rate under the 'AAAsf' credit stress scenario. The weighted average claim reject rate is assumed to be 0.26% for the base case and 2.05% for the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing 12 month average constant default rate, utilized in the maturity stresses, is 4.98%. Trailing 12 month levels of deferment, forbearance, Income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are approximately 8%, 10.7%, 14.2% and 12.1% respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. The weighted average borrower benefit is assumed to be approximately 0.19% based on information provided by the sponsor.

Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.

Payment Structure: Credit enhancement is provided by overcollateralization and excess spread. In addition, the class A notes benefits from subordination from the class B notes. As of July 2016 distribution, senior parity is approximately 115.6%. Liquidity support for note is provided by a reserve account currently sized the floor of $2,427,000.

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.

Servicing Capabilities: Day-to-day servicing is provided by Xerox Education Services LLC, Great Lakes Educational Loan Services, Inc., Nelnet Servicing LLC., Pennsylvania Higher Education Assistance Agency and Navient Solutions Inc. Fitch believes all servicers are acceptable servicers of FFELP student loans.

Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated July 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of eligible investments for this deal does not include Fitch's rating for Commercial Paper that matures in more than 30 days. This represents a criteria variation. Fitch doesn't believe such variation has a measurable impact upon the ratings assigned.

Further, transaction documents provide for deposits of collections into trust accounts in two to three business days on average. Since Fitch considers commingling exposure of two business days or less to be immaterial; there is the possibility of commingling exposure that is longer than Fitch's counterparty criteria. Fitch conducted sensitivity to size the impact of the commingling exposure and there is no measurable impact upon the ratings assigned.

RATING SENSITIVITIES

'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.

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 'AAAsf'.

--Default increase 50%: class A 'AAAsf'.

--Basis Spread increase 0.25%: class A 'AAAsf'.

--Basis Spread increase 0.50%: class A 'AAAsf'.

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'AAAsf'.

--CPR increase 100%: class A 'AAAsf'.

--IBR Usage increase 100%: class A 'AAAsf'.

--IBR Usage decrease 50%: class A 'AAAsf'.

The 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.

DUE DILIGENCE USAGE

Fitch was not provided due diligence information from any third parties.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)

https://www.fitchratings.com/site/re/888492

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 10 Nov 2016)

https://www.fitchratings.com/site/re/889777

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014864

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014864

Endorsement Policy

https://www.fitchratings.com/regulatory

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