Fitch Affirms Northstar Student Loan Trust I, Series 2012-1
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral is comprised of 100% Federal Family Education Loan Program (FFELP) 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.
Collateral Performance: Fitch assumes a base case default rate of 7.75% and a 23.00% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.5% for the base case and 3.0% for the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing 12-month (TTM) average constant default rate, used in the maturity stresses, is 2.9%. TTM levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 6.6%, 10.6%, 20.5% and 24.0%, respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per Fitch criteria. There is no borrower benefit offered 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 (CE) is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of June 2016, the senior parity ratio was 112.12% (10.81% CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the outstanding class A note principal balance, and 0.15% of the initial class A note balance. Excess cash cannot be released until all the notes are paid-in-full.
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 administration is provided by Northstar Capital Market Services, Inc. as the master servicer and Northstar Education Services, Inc. as the sub-servicer. Loan servicing is provided by Great Lakes Educational Loan Services, Inc. Fitch believes they are 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.
Under Fitch's criteria 'Rating U. S. Federal Family Education Loan Program Student Loan ABS Criteria', dated Sept. 1, 2016, Fitch does not address the process by which it gives certain credit to short-term assets in its cash flow analysis, and it is therefore considered a criteria variation. Since the only available funds to invest are those held in the Collection Account, and the funds can only be invested for a short duration given the payment frequency of the notes, 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.
Fitch affirms the following ratings:
NorthStar Student Loan Trust I, Student Loan Asset-Backed Notes, Series 2012-1:
--Class A at 'AAAsf'; Outlook Stable