Fitch Affirms KHESLC 2013-2 Sr. Notes; Outlook Stable
KEY RATING DRIVERS
High Collateral Quality: The trust collateral consists of 100% (90.90% Non-Rehab; 9.10% Rehab) of Federal Family Education Loan Program (FFELP) loans. The credit quality of the trust collateral is high, in Fitch's opinion, based on the 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.
Sufficient Credit Enhancement: Cash flow scenarios for the class A notes were satisfactory under Fitch's stresses. Parity for class A notes is at 106.02% as of July 2015. CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. This trust is in turbo therefore no cash can be released until the Class A notes are paid in full.
Adequate Liquidity Support: Liquidity support for note is provided by a reserve account currently (0.25% of outstanding notes or \\$534,547).
Acceptable Servicing Capabilities: KHESLC is responsible for day-to-day servicing of the trust as Nelnet Servicing LLC provides backup servicing. Fitch believes both are acceptable servicers of FFELP student loans.
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.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
Kentucky Higher Education Student Loan Corp. series 2013-2
Senior notes at 'AAAsf; Outlook Stable.