NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to the Nelnet Student Loan Trust 2014-4 student loan asset-backed notes:
--$267,500,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$107,500,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$9,500,000 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 19.9% of rehabilitated (rehab) 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). Fitch affirmed and assigned Outlook Stable to the U.S. Sovereign rating on March 24, 2014.
Sufficient Credit Enhancement: Cash flows scenarios for the class A and B notes were satisfactory under respective Fitch's stresses. At closing, total parity is expected to be 101.07% and senior parity is expected to be 103.63%. Total credit enhancement (CE) is provided by overcollateralization (OC), excess spread and, for the class A notes, 2.47% in subordination provided by the class B notes.
Adequate Liquidity Support: Liquidity support is initially provided by a $7,690,000 reserve account (2.00% of outstanding note balance), funded at closing with note proceeds. On or after the July 2015 distribution date, the specified reserve requirement is reduced to 1.25% of the outstanding note balance with a floor of $384,500.
Target Overcollateralization Level: For the pass-through structure, excess spread must build to the greater of: 1.25% of the adjusted pool balance or $2 million before excess cash may be released from the trust.
Acceptable Servicing Capabilities: Nelnet will be responsible for servicing approximately 59.4% of the NSLT 2014-4 portfolio, PHEAA (33.3%), and Xerox-ES (7.3%) will service the remaining portfolio. In Fitch's opinion, all the servicers listed are acceptable servicers 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. For further discussion of Fitch's sensitivity analysis, please see the presale titled 'NSLT 2014-4', 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 2014-4 (US Student Loans)
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions