Fitch Affirms GCO II Senior & Subordinate Notes; Upgrades Junior Sub Notes

NEW YORK--()--Fitch Ratings affirms GCO Education Loan Funding Master Trust - II senior and subordinate notes at 'AAAsf' and 'Asf'. In addition, Fitch upgrades the junior subordinate notes to 'BBBsf' from 'Bsf'. The Rating Outlook remains Stable.

KEY RATING DRIVERS

Adequate Collateral Quality: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. The credit quality of the trust collateral is high and based on the guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The current U.S. sovereign rating is 'AAA' with a Stable Outlook.

Sufficient Credit Enhancement: While both the senior, subordinate, and junior subordinate notes will benefit from future excess spread, the senior and subordinate notes also benefit from subordination provided by the subordinate and junior subordinate notes, respectively. As of April 2014, reported senior and subordinate parities are at 104.62% and 103.72%, respectively. Fitch calculated total parity which includes the Jr. subordinate notes is at 100.23%.

Adequate Liquidity Support: Liquidity support is provided by a reserve fund currently sized at approximately S12.08 million. The reserve is sized equal to the greater of 0.75% of the principal balance of all outstanding notes, and $1,500,000.

Acceptable Servicing Capabilities: Nelnet, Inc. and XES are responsible for servicing the portfolio. Fitch has reviewed the servicing operations of Nelnet Inc., and XES and believes it to be acceptable servicer of FFELP student loans.

RATING SENSITIVITIES

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.

Fitch has taken the following rating actions:

GCO Education Loan Funding Master Trust II:

--2006-2 A-1AR affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-1RRN affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-2AR affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-2L affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-3AR affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-3L affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-4AR affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-5AR affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-5L affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-6AR affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-6L affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-7AR affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-7L affirmed at 'AAAsf'; Outlook Stable;

--2006-2 B-2AR affirmed at 'Asf'; Outlook Stable;

--2007-1 C-1L upgraded to 'BBBsf' from 'Bsf'; Outlook Stable.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'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=748821

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708795

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833238

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Contacts

Fitch Ratings
Primary Analyst
Charlene M. Davis
Director
+1-212-908-012
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Steven Stubbs
Senior Director
+1-212-908-0676
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Charlene M. Davis
Director
+1-212-908-012
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Steven Stubbs
Senior Director
+1-212-908-0676
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com