Fitch Takes Various Actions on Academic Loan Funding Trust 2012-1
OREANDA-NEWS. Fitch Ratings has taken the following rating actions on Academic Loan Funding Trust 2012-1:
--Class A-1 affirmed at 'AAAsf'; Rating Outlook Stable;
--Class A-2 'AAAsf' maintained on Rating Watch Negative.
KEY RATING DRIVERS
Maturity Risk: The Rating Watch Negative action is based on heightened risk of the ALFT 2012-1 class A-2 notes missing their legal final maturity dates of Dec. 27, 2044, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final. Fitch expects to resolve the Rating Watch Negative status once its revised FFELP criteria is published.
High Collateral Quality: The trust collateral is comprised of 100% 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 (CE): CE is provided by overcollateralization (OC), and excess spread. As of February 2016, total parity is at the cash release level of 104% (3.85% CE).
Adequate Liquidity Support: Liquidity support is provided by a reserve account sized at its floor of $1,250,000.
Acceptable Servicing Capabilities: Day-to-day servicing is provided by Pennsylvania Higher Education Assistance Agency, Great Lakes Educational Loan Services, Inc. and Xerox Education Services Inc. In Fitch's opinion, all servicers are acceptable servicers of FFELP student loans.
On November 18, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed this transaction under both the existing and proposed criteria, which has resulted in this Rating Watch Negative action.
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.