Fitch Downgrades Subordinate Notes of Arizona Higher Education Loan Authority - 2005 Trust Indenture

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the senior student loan notes and downgraded the subordinate notes issued by Arizona Higher Education Loan Authority (AHELA) under a master trust indenture, dated Aug. 1, 2005. The Rating Outlook is Stable.

Fitch used its 'Global Structured Finance Rating Criteria' and 'U.S. FFELP Student Loan ABS Rating Criteria', as well as the refined basis risk criteria outlined in Fitch's Sept. 22, 2010 press release 'Fitch to Gauge Basis Risk in Auction-Rate U.S. FFELP SLABS Review' to review the ratings.

The ratings on the senior notes are affirmed based on the sufficient level of credit enhancement (consisting of subordination and the projected minimum excess spread) to cover the applicable risk factor stresses. The ratings on the subordinate notes are downgraded to 'BB/LS3' due to an insufficient level of credit enhancement to maintain the current rating; current total parity is under-collateralized at 99.37%. Fitch recently became aware of the insufficient parity when a reporting error was discovered. Since the inception of the trust, the reported parity has been overstated due to the inclusion of AHELA's operating funds in the total asset balance. These funds are not trust assets and therefore should not have been included in the parity calculation. While the error raises concerns with the level of reporting not meeting Fitch's expectations, AHELA has addressed it. However, since June 2009, the trust's total parity has been steadily rising and the parity calculation excluded the operating funds mentioned previously. The trust continues to generate positive excess spread. Nonetheless, Fitch is downgrading the subordinate notes as total parity is currently below par.

Fitch has taken the following rating actions:

Arizona Higher Education Loan Authority (AHELA) student loan revenue bonds, issued under the 2005 master trust indenture:

--2005 class A-1 affirmed at 'AAAsf/LS1'; Outlook Stable;

--2005 class A-2 affirmed at 'AAAsf/LS1'; Outlook Stable;

--2006 class A-1 affirmed at 'AAAsf/LS1'; Outlook Stable;

--2006 class A-2 affirmed at 'AAAsf/LS1'; Outlook Stable;

--2007 class A-1 affirmed at 'AAAsf/LS1'; Outlook Stable;

--2005 class B downgraded to 'BBsf/LS3' from 'BBBsf/LS3'; Outlook Stable;

--2006 class B downgraded to 'BBsf/LS3' from 'BBBsf/LS3'; Outlook Stable;

--2007 class B downgraded to 'BBsf/LS3' from 'BBBsf/LS3'; Outlook Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria', dated Aug. 13, 2010;

--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated April 7, 2011;

--'Fitch to Gauge Basis Risk in Auction-Rate U.S. FFELP SLABS Review', dated Sept. 22, 2010.

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=616766

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