Fitch Affs 3 Sr & Downgrs 1 Sub Class from Brazos Student Finance Corp., 2003-1 Indenture

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 3 senior classes and has downgraded 1 subordinate class from the student loan revenue bonds issued by Brazos Student Finance Corp. (BSFC), 2003-1 Indenture of Trust.

Fitch affirms the following Education Loan Revenue Bonds:

-- 2003 A-2 at 'AAA';

-- 2003 A-3 at 'AAA';

-- 2003 A-4 at 'AAA'.

Fitch downgrades the following Education Loan Revenue Bond:

-- 2003 B-1 to 'BB' from 'A'.

The downgrade reflects the effect of increased funding costs on the transaction due to failed auctions. The actions follow a review of all auction-rate transactions to determine the ability of each to withstand increased funding costs going forward and pay timely interest and full principal by legal maturity. Classes downgraded to 'BB' could experience principal losses but are expected to receive timely interest payments for a number of years depending on the transaction structure and interest rate environment.

The collateral supporting the bonds consists of approximately 81.88% Federal Family Education Loan Program (FFELP), 1.33% Health Education Assistance Loans (HEAL), and 16.79% private student loans. FFELP loans are guaranteed by an eligible guarantor to at least 97% of principal and accrued interest, depending on loan origination date. The FFELP loans are also reinsured by the U.S. Department of Education up to the same amounts. The HEAL loans are guaranteed at 100% by the Secretary of the United States of Health and Human Services. The private student loans are self insured and do not benefit from any third party insurance.

The notes are 100% taxable auction-rate securities which are currently earning interest at the maximum rate. The trust documents define the taxable maximum rate as the lesser of the auction rate for that period, the maximum auction rate, and 15%. The maximum auction rate is equal to the lesser of one-month LIBOR plus a spread, and the net loan rate, equal to the weighted average of the student loan rate less program operating expenses.

Although the trust continues to experience failed auctions causing the bonds to pay interest at the maximum rate, the senior and total parity ratio, or the ratio of assets to liabilities, are at 120.46% and 100.05%, respectively, as of Sept. 30, 2008.

Credit enhancement consists of a debt service reserve fund for the trust. Additionally, the senior notes benefit from subordination provided by the lower priority notes. As the trust's net loan rate is structured as a student loan rate cap, the trust is unable to generate credit enhancement in the form of excess spread.

The master servicer for the student loan portfolio is Brazos Higher Education Service Corporation, Inc. (BHESC) which is not rated by Fitch.

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