Fitch Affirms New Mexico Educational Assistance Foundation, Series 2010-2
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral consists of Federal Family Education Loan Program (FFELP) loans, with guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U. S. Department of Education (ED) for at least 97% of principal and accrued interest. Fitch's U. S. sovereign rating is currently 'AAA', Outlook Stable.
Collateral Performance: Fitch assumes a base case default rate of 14.5% and a 43.25% default rate under the 'AAAsf' credit stress scenario. The claim reject rate is assumed to be 0.5% in the base case and 3% in the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The trailing 12 month (TTM) average constant default rate, utilized in the maturity stresses, is 3.3%. TTM average levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 13.6%, 3.7%, 35.1% and 11.1%, respectively, which 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 0.4%, based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this trust as per the agency's criteria.
Payment Structure: Credit Enhancement (CE) is provided by excess spread and overcollateralization. As of the June 2016 servicer report, total parity is 109.2% (8.4% CE). Liquidity support is provided by a reserve account currently sized at $959,200; the specified reserve account requirement is the greater of 1.10% of the current outstanding note balance and $250,950. The trust is structured to redeem (A) the class A-1 and class A-2 notes, sequentially, and (B) the class A-3 note, such that (A) and (B) are redeemed pro-rata based on the par amount of the notes of the immediately prior redemption date. Since the class A-1 note has been paid in full, both the class A-2 and A-3 notes are receiving principal payments due to the pro-rata payment structure of groups (A) and (B).
Maturity Risk: Fitch's student loan ABS 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. Additionally, Fitch's model indicates that the notes, which follow a mandatory sinking fund redemption schedule as per the trust indenture, adhere to the required principal amounts on the stated redemption dates.
Operational Capabilities: Day-to-day servicing is provided by New Mexico Educational Assistance Foundation, the master servicer. Great Lakes Education Loan Services, Inc. is the backup servicer. Fitch believes both to be acceptable servicers of FFELP student loans.
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.
Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated Sept. 1, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of the permitted investments for this deal allows the possibility of using investments that do not meet Fitch's criteria, this represents a criteria variation. Fitch does not believe such variation will have 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 buildup 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
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch has affirmed the following ratings:
New Mexico Educational Assistance Foundation, Series 2010-2:
--Class A-2 note at 'AAAsf'; Outlook Stable;
--Class A-3 note at 'AAAsf'; Outlook Stable.