Fitch Expects to Rate ECMC Group Student Loan Trust 2016-1
--$373,700,000 2016-1 'AAAsf'(exp.); Outlook Stable.
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans, 100% of which are rehab loans, with guaranties provided by eligible guarantors and reinsurance provided by the U. S. Department of Education (ED) for at least 97% of principal and accrued interest. The U. S. sovereign rating is currently 'AAA'/Outlook Stable by Fitch.
Collateral Performance: Fitch assumes 60% base case default rate under the 'AAAsf' scenario. The claim reject rate is assumed to be 0.50% for the base case and 3.0% for the 'AAAsf' case. Fitch applies the standard default timing curve, constant default rate (CDR) and prepayment assumptions for rehab FFELP loans in its cash flow analysis. Current levels of forbearance and income-based repayment (IBR) are 18.6% and 5.3%, respectively, and 5.0% deferment levels are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. There are no borrower benefits.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.
Payment Structure: Using Fitch's Student Loans ABS cash flow model (SLABS), cash flows for the 2016-1 notes were satisfactory under the 'AAAsf' stress. Total credit enhancement (CE) is provided by overcollateralization and excess spread, and at closing, total parity is expected to be 105.91%. Liquidity support is provided by a reserve account funded at closing with $17.04 million of note proceeds, with a specified reserve requirement that steps down until after the June 2019 distribution date. Excess spread must build to the greater of 7.0% of the adjusted pool balance and $8 million before excess cash can be released from the trust until the June 2039 distribution date, when excess will be used to turbo the notes.
Maturity Risk: Fitch's SLABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity of July 26, 2066 in the 'AAAsf' maturity stress scenario.
Operational Capabilities: ECMC Group is the master servicer of the 2016-1 portfolio and Navient Solutions, Inc. (Navient) and Tru Student Inc. (Tru Student) are the subservicers, servicing approximately 85.2% and 14.8% of the 2016-1 portfolio, respectively. Navient is also the administrator. It is expected that the loans serviced by Tru Student will be transferred to Navient after closing. Fitch deems both Navient and Tru Student as acceptable servicers of FFELP loans.
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 buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
Fitch's stress analysis is discussed in the presale titled 'ECMC Group Student Loan Trust 2016-1', dated Aug. 18, 2016.
DUE DILIGENCE USAGE
Fitch was provided with Form ABS Due Diligence - 15E as prepared by KPMG LLP. The third-party due diligence described in Form 15E focused on comparing the sample characteristics provided in the data file of 47,942 student loans to the corresponding information in the respective loan files. Fitch considered this information in its analysis, and it did not have an effect on Fitch's analysis or conclusions.
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 May 2016.