Fitch Upgrades National Collegiate Trust 2006-A
--Class A-2 upgraded to 'AAsf' from 'Asf'; Outlook revised to Positive from Stable;
--Class B upgraded to 'Bsf' from 'CCsf'; assigned Outlook Stable.
The upgrade on the senior and subordinate notes is due to improved performance, revised default projection and higher loss coverage multiples. Although Fitch's analysis indicated a higher rating for class A-2 notes, Fitch decided to upgrade the notes only to 'AAsf' due to lack of granular data and concerns for future performance volatility.
KEY RATING DRIVERS
Adequate Collateral Quality: The trust is collateralized by approximately $56.2 million of private student loans of which approximately 80.8% of the loans were originated by the Bank of America under the GATE program and the remainder of the loans were originated by CHELA Funding II, LLC. The projected remaining defaults are expected to range between 8%-12% as a percentage of current principal balance. A recovery rate of approximately 30% was applied in the analysis commensurate with 'Asf' and lower rating stress scenarios based on data provided by the issuer and included credit to the guarantee provided by Bank of America on loans originated pursuant to the GATE Program. A 0% recovery rate was assumed in 'AAsf' or higher rating stress scenarios. Although a portion of the CHELA portfolio is guaranteed by The Education Resources Institute (TERI), no credit was given to the TERI guaranty since TERI filed for bankruptcy on April 7, 2008.
Sufficient Credit Enhancement: Credit enhancement is provided by overcollateralization and excess spread. The class A notes also benefit from subordination from the class B notes. As of the August 2015 distribution senior and total parity is 207.2% and 104.2% respectively. Cash may be released from the trust at the greater of (i) 104% total parity, and (ii) the percentage equivalent of (outstanding notes +$5,300,000)/ (outstanding notes), currently 109%. No cash is currently being released from the trust.
Adequate Liquidity Support: Liquidity support for the notes is provided by a reserve account, which is currently at $1 million.
Acceptable Servicing Capabilities: The portfolio is serviced by American Education Services (AES), Great Lakes Educational Loan Services Inc., ACS Education Services (ACS), First Mark Services LLC and Nelnet Servicing, LLC. Fitch believes all servicers are acceptable servicers of private 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 doesn't believe such variation has a measurable impact upon the ratings assigned.
As Fitch's base case default proxy is derived primarily from historical collateral performance, actual performance may differ from the expected performance, resulting in higher loss levels than the base case. This will result in a decline in CE and remaining loss coverage levels available to the bonds and may make certain bond ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage. Fitch will continue to monitor the performance of the trust
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G