Fitch Affirms Brazos Education Loan Authority, Inc. Indenture 2012-1; Outlook Stable
KEY RATING DRIVERS
High Collateral Quality: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. The credit quality of the trust collateral 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. Fitch currently rates the U. S. 'AAA'/Outlook Stable.
Sufficient Credit Enhancement: CE is provided by excess spread and overcollateralization. Additionally the class A notes benefit from subordination provided by the class B notes. Parity levels continue to increase as cash cannot be released until all the bonds are paid-in-full. As of April 2016, the total and senior parity levels were at 108.63% and 113.66%, respectively.
Adequate Liquidity Support: Liquidity support is provided by a reserve account. The reserve is sized equal to the greater of 0.25% of the current pool balance and 0.15% of the initial pool balance. The balance of the reserve account as of April 2016 was $182,461.
Acceptable Servicing Capabilities: Xerox Education Services, Inc., American Education Services, Navient Solutions, Inc. (fka Sallie Mae, Inc.), and Nelnet are responsible for the day to day servicing of the student loans. Fitch believes these servicers to be acceptable servicers of FFELP student loans.
In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to 1-month LIBOR at a negative rate level in accordance with Fitch's "Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds" dated May 2016. Since the updated interest rate stresses are not addressed yet in existing FFELP criteria, this represents a criteria variation. Use of the criteria variation did not have a measurable impact upon the ratings assigned.
Since FFELP student loan ABS rely on the U. S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U. S. sovereign rating. Aside from the U. S. sovereign rating, defaults and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a build-up of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.