NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate PHEAA Student Loan Trust 2014-3 as follows:
--$631,100,000 floating rate class A notes 'AAAsf(EXP)'; Outlook Stable;
--$15,600,000 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 18% of rehabilitated FFELP loans, guarantees 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. Fitch maintains the U.S. sovereign rating at 'AAA' with a Stable Rating Outlook.
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 101.00% and senior parity is expected to be 103.50%. Total credit enhancement (CE) is provided by overcollateralization (OC; about $6.5 million at closing), excess spread and, in the case of the class A notes, a 2.40% subordination provided by the class B notes. A target OC amount (or specified OC amount) equal to the greater of 1.54% of the current adjusted pool balance and $6.505 million must be met before excess cash can be released from the trust.
Adequate Liquidity Support: Liquidity support for PHEAA SLT 2014-3 notes is provided by a $1.63 million reserve account (0.25% of the pool balance) funded at closing with note proceeds.
Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Agency (PHEAA) will service the entire PHEAA SLT 2014-3 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 updated presale report titled 'PHEAA Student Loan Trust 2014-3', dated Sept. 2, 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' (August 2014);
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (April 2014).
Applicable Criteria and Related Research: PHEAA Student Loan Trust 2014-3 (US ABS)
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria