Fitch Affirms State Board of Regents of the State of Utah Series 2012-1; Outlook Stable
-- Series 2012-1 at 'AAAsf'; Outlook Stable.
The affirmation of the series 2012-1 notes at 'AAAsf' is due to the notes passing cash flow stresses at their respective rating level. The Stable Outlook has been maintained as the notes are performing within expectations.
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. Guarantees are provided by the transaction's eligible guarantors and reinsurance is 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 a base case default rate of 9.3% and a 28.0% default rate under the AAA credit stress scenario. The claim reject rate is assumed to be 0.5% in the base case and 3.0% in the 'AAA' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The trailing 12-month (TTM) constant default rate, used in the maturity stress is 4.4%. The TTM levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 12.2%, 7.8%, 17.7%, and 13.5%, respectively, and are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.6% 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 and excess spread. As of the June 2016 distribution report, parity is 109.3% (8.5% 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 $778,050. The trust is in turbo, and cash cannot be released from the trust until the notes have been paid in full.
Maturity Risk: Fitch's SLABS cash flow model indicates that the 2012-1 notes are paid in full on or prior to their respective legal final maturity in Fitch's 'AAA' credit and maturity stresses.
Operational Capabilities: Day-to-day servicing is provided by the State Board of Regents of the State of Utah (the board). Pennsylvania Higher Education Assistance Agency (PHEAA) is the backup servicers for loans serviced by the board. Fitch believes all entities to be acceptable servicers of FFELP student loans.
Under Fitch's 'Counterparty Criteria for Structured Finance and Covered Bonds', dated June 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Fitch does not believe such variation has a measurable impact on the ratings assigned.
Under Fitch's criteria 'Rating U. S. Federal Family Education Loan Program Student Loan ABS Criteria', dated July 26, 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 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.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to Fitch, or reviewed by Fitch in relation to this rating action.