NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to the Nelnet Student Loan Trust 2013-5, student loan asset-backed notes as follows:
--$399,000,000 class A notes 'AAAsf'; Outlook Negative;
--$9,000,000 class B notes 'Asf'; Outlook Stable.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral comprises 100% rehabilitated (rehab) 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 at least 97% reinsurance of principal and accrued interest provided by the U.S. Department of Education (ED).
Negative Rating Outlooks Assigned: Fitch's Rating Outlook for all existing and new issuances of 'AAA' rated tranches of FFELP securitizations remains Negative, which reflects Fitch's Negative Rating Outlook on the long-term foreign and local currency Issuer Default Ratings (IDRs) of the U.S.
Sufficient Credit Enhancement: Cash flow scenarios for the class A and B notes were satisfactory under Fitch's stresses. At closing, total and senior parity are expected to be 101.34% and 103.63%, respectively. Total credit enhancement is provided by overcollateralization (OC) and excess spread, and for the class A notes, 2.21% subordination is provided by the class B notes.
Adequate Liquidity Support: Liquidity support for the NSLT
2013-5 notes is provided by a $8.0 million capitalized interest account and a $1.02 million (0.25% of outstanding notes) reserve account, both of which are funded at closing with note proceeds.
Targeted OC Level: A target OC amount equal to the greater of 1.50% of the adjusted pool balance and $2 million must be met before excess cash can be released from the trust.
Acceptable Servicing Capabilities: Nelnet Inc. will service 38.2% of the 2013-5 portfolio, while Xerox Education Services, Inc. (Xerox-ES) will service 32.3%, and Pennsylvania Higher Education Assistance Agency (PHEAA) will service 29.5%. Fitch considers all servicers to be acceptable servicers of FFELP 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 buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades. For further discussion of Fitch's sensitivity analysis, please see the presale titled 'NSLT 2013-5', dated Sept. 24, 2013, available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (May 17, 2013);
--'Representations, Warranties and Enforcement Mechanism in Global Structure Finance Transactions' (April 17, 2012).
Applicable Criteria and Related Research: Nelnet Student Loan Trust 2013-5 (US ABS)
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria - Effective Apr. 7, 2011 to Apr. 3, 2012
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions -- Amended