Fitch Maintains Negative Watch on Nelnet Student Loan Trust 2006-3 Senior Notes; Affirms Sub Notes

NEW YORK--()--Fitch Ratings maintains the Rating Watch Negative on the senior notes and affirms the subordinate notes issued by Nelnet Student Loan Trust 2006-3. The Rating Outlook is Stable for the subordinate notes.

KEY RATING DRIVERS

High Collateral Quality:

The trust collateral is comprised of 100% of Federal Family Education Loan Program (FFELP) loans with guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued.

Rating Watch Negative:

On Oct. 16, Fitch placed 776 ABS FFELP student loans transactions that are rated at 'AAAsf' on Rating Watch Negative. This rating action is tied to the sovereign rating of the U.S. being placed on Rating Watch Negative Oct. 15, 2013 by Fitch in relation to the U.S. debt ceiling agreement and to the creditworthiness of the United States.

Credit Enhancement

Credit Enhancement is provided by overcollateralization, excess spread, and for the class A notes, subordination provided by the class B notes. As of the November 2013 report, the total parity is 100.37% and senior parity is at 105.11%. Excess cash is currently released from the trust however the current overcollateralization is expected to be maintained due to the way Principal Distribution Amount is determined.

Adequate Liquidity Support

Liquidity support is provided by a reserve account which is determined as the greater of 0.25% of the pool balance and $3,294,279.

Acceptable Servicing Capabilities

Nelnet Inc. as the servicer is responsible for the day-to-day servicing of this trust. In Fitch's opinion, Nelnet is an acceptable servicer of FFELP student loans.

RATING SENSITIVITIES

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 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.

Fitch has taken the following rating actions:

Nelnet Student Loan Trust 2006-3:

--Class A-4 note 'AAAsf'; Rating Watch Negative Maintained;

--Class A-5 note 'AAAsf'; Rating Watch Negative Maintained;

--Class A-6 note 'AAAsf'; Rating Watch Negative Maintained;

--Class B note affirmed at 'A+sf'; Outlook Stable.

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).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria - Effective Apr. 7, 2011 to Apr. 3, 2012

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821155

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Contacts

Fitch Ratings
Primary Analyst
Lisette Figueroa
Analyst
+1-212-908-0836
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Lisette Figueroa
Analyst
+1-212-908-0836
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com