Fitch Affirms Nelnet 2013-1; Outlook Stable
--Class A at 'AAAsf'; Outlook Stable.
--Class B at 'AAsf'; Outlook Stable.
Although cash flow results indicated a higher rating for the class B, Fitch affirmed the current rating at 'AAsf' based on the low level of hard credit enhancement (CE) leading to a dependency on excess spread.
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral comprises 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'/Stable Outlook.
Collateral Performance: Fitch assumes a base case default rate of 16.75% and a 50.25% 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. The trailing 12-month (TTM) average constant default rate used in the maturity stresses is 3.7%. TTM levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 9.7%, 8.4%, 12.9% and 10.1%, respectively, and 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 0.24% 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: CE 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) are 102.04% (2.00% CE) and 105.73% (5.42% CE), respectively. Liquidity support is provided by a reserve account sized at the greater of 0.50% 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 2.0% 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 Xerox Education Services Inc, Nelnet Inc., Tru Student Inc., Great Lakes Educational Loan Services Inc, and Pennsylvania Higher Education Assistance Agency. Fitch believes all four 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.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated May 31, 2016.