NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate PHEAA Student Loan Trust 2014-1 as follows:
--$627,500,000 floating rate class A notes 'AAAsf(exp)'; Rating Watch Negative;
--$12,500,000 floating rate class B notes 'Asf(exp)'; Outlook Stable.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral consists entirely of Federal Family Education Loan Program (FFELP) loans. Although the trust is expected to consist of approximately 21.1% of rehabilitated FFELP loans as of the end of the acquisition period, guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) will cover at least 97% of principal and accrued interest.
Rating Watch Negative: All existing and new issuances of 'AAA' rated tranches of FFELP securitizations are on Rating Watch Negative following the revision of the long-term foreign and local currency Issuer Default Ratings (IDRs) of the U.S.
Sufficient Credit Enhancement: Cash flow scenarios for class A and B notes were satisfactory under Fitch's corresponding stresses. At closing, total parity is expected to be 101.06% and senior parity is expected to be 103.07%. Total credit enhancement (CE) is provided by overcollateralization (OC; about $6.79 million at closing), excess spread and, in the case of class A notes, a 1.93% subordination provided by class B notes. A target OC amount (or specified OC amount) is equal to the greater of 1.54% of the current adjusted pool balance and $6.5 million dollars that must be met before excess cash can be released from the trust.
Adequate Liquidity Support: Liquidity support for PHEAA SLT 2014-1 notes is provided by a $1.61 million reserve account (0.25% of the pool balance) funded at closing with note proceeds.
Satisfactory Servicing Capabilities: Pennsylvania Higher Education Assistance Agency (PHEAA) will service the entire PHEAA SLT 2014-1 portfolio. Fitch believes that PHEAA is an acceptable servicer of FFELP student 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.
Key Rating Drivers and Rating Sensitivities are further described in the pre-sale report titled 'PHEAA Student Loan Trust 2014-1', dated Feb. 24, 2014, available on www.fitchratings.com, or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Rating U.S. ABS Criteria' (May 17, 2013).
Applicable Criteria and Related Research: PHEAA Student Loan Trust 2014-1 (US ABS)
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria -- Amended