Fitch Upgrades Nelnet Student Loan Trust 2015-2
--Class A-2 affirmed at 'AAAsf'; removed from Rating Watch Negative and assigned a Stable Outlook;
--Class B upgraded to 'AAsf' from 'A+sf'; Outlook Stable.
Although cash flow indicated a higher rating, the recommendation is to upgrade its current rating to 'AAsf' for the class B notes due to low hard credit enhancement leading to strong dependency on excess spread.
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans including approximately 25% of rehabilitated 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 is currently rated 'AAA', Outlook Stable by Fitch.
Collateral Performance: Fitch assumes a base case of 10.75% for the non-rehab loans and 50.00% for the rehab loans, resulting in a weighted average base case default rate of approximately 20.50% and 49.27% under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.25% in the base case and 2.0% in the 'AAA' case. Fitch applies the standard default timing curve, in its credit cash flow analysis. Trailing 12 month (TTM) average constant default rate, utilized in the maturity stresses, is 5.1%. The TTM average of deferment, forbearance, Income based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 12.9%, 14.2%, 13.0% and 14.5%, 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 0.08%, 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 (OC) and excess spread and the class A notes benefit from subordination provided by the class B note. As of the August 2016 distribution report, senior and total parity is 105.28% and 102.56%. Liquidity support for the 2015-2 notes is provided by a Reserve Account which is at $11,791,877.08 with a floor of $722,000. The trust is releasing cash as the specified OC amount of the greater of 2.50% of the adjusted pool balance and $2 million is maintained.
Maturity Risk: Fitch's SLABS cash flow model indicates that all notes are paid in full on or prior to their legal final maturity of Sept. 25, 2042 for the class A-2 note, and May 25, 2049 for the class B note.
Acceptable Servicing Capabilities: Day to day servicing is provided by Nelnet Pennsylvania Higher Education Assistance Agency and Xerox Education Services, LLC. Fitch believes all servicers are acceptable at this time due to its long servicing history.
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
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.