NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the ratings to the Nelnet Student Loan Trust 2014-3 student loan asset-backed notes as follows:
--$700,700,000 class A notes 'AAAsf'; Outlook Stable;
--$19,100,000 class B notes 'A+sf'; Outlook Stable.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral consists of 100% Federal Family Education Loan Program (FFELP) loans, including approximately 21.3% of rehabilitated (rehab) loans. In Fitch's opinion, the credit quality of the trust collateral is high 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). Fitch affirmed at 'AAA' and assigned a Stable Outlook to the U.S. Sovereign rating on March 24, 2014.
Sufficient Credit Enhancement: Cash flow scenarios for class A and B notes were satisfactory under Fitch's stresses. At closing, total and senior parity are expected to be 101.00% and 103.75%, respectively. Total credit enhancement (CE) is provided by overcollateralization (OC) and excess spread, and, for class A notes, 3.61% subordination is provided by class B notes. A target OC amount equal to the greater of 1.00% of the adjusted pool balance and $2 million must be met before excess cash can be released from the trust.
Adequate Liquidity support for NSLT 2014-3 notes is provided by a $6.4782 million (0.90% of outstanding notes) reserve account funded at closing with note proceeds. The reserve account has a step down date of May 25, 2019 in which the specified reserve requirement is reduced to 0.25% of the outstanding note balance with a floor of $718,800. Any amounts remaining in this account in excess of the requirement will be transferred to the collection account.
Acceptable Servicing Capabilities: PHEAA will service 82% of the 2014-3 portfolio, while Nelnet Inc. and Great Lakes Educational Loan Services Inc. (GLELSI) will service the remaining 16% and 2%, respectively. 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 2014-3', dated April 14, 2014, 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 2014-3
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria -- Amended
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions -- Amended