Fitch Affirms Nelnet 2013-5
--Class A at 'AAAsf'; Outlook Stable;
--Class B at 'A+sf'; Outlook Stable.
Although cash flow indicated a higher rating, Fitch is maintaining the rating at 'A+sf' for the class B notes due to concerns regarding the class's relatively low level of credit enhancement and the high concentration of rehab loans in the portfolio.
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans, 99% 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'/Stable Outlook.
Collateral Performance: Fitch assumes a base case default rate of 38.75% and a 97.25% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.25% for the base case and 2.0% for the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing twelve month average constant default rate, utilized in the maturity stresses, is 11.2%. Trailing twelve month levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 9.9%, 13.1%, 8.2% and 14.1%, respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. The borrower benefit is assumed to be approximately 0.002% 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, excess spread and, for the class A notes, subordination. As of July 2016, total and senior effective parity ratios (which include the reserve account), respectively, are 101.52% (1.50% CE) and 105.49% (5.20% CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the principal balance of the notes outstanding, and 0.10% of the initial note balance. Excess cash is currently being released as the Specified Overcollateralization amount of the greater of 1.50% of the adjusted pool balance and
$2 million is being maintained.
Maturity Risk: Fitch's SLABS 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.
Operational Capabilities: Day-to-day servicing is provided by Nelnet, Inc, Pennsylvania Higher Education Assistance Agency (PHEAA), and Xerox Education Services LLC. Fitch believes all three to be acceptable servicers of FFELP student loans.
For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria is silent on the treatment of such assets, this treatment is considered a criteria variation. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
Since the FFELP student loan ABS relies 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, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a build-up of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third party due diligence was provided or reviewed in relation to this rating action.