NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the senior notes at 'AAAsf' and upgrades the subordinate notes to 'BBsf' from 'Bsf' of U.S. Education Loan Trust IV, LLC - March 1, 2006 Indenture of Trust. The Rating Outlooks of the senior notes are revised to Stable from Negative, and the Rating Outlooks of the subordinate notes are revised to Positive from Negative.
The trust has continued to build senior and total parity since the beginning of 2011 due to redemption of notes at a discount, and there is no longer uncertainly present due to ongoing litigation. Because of this, the subordinate notes have been upgraded to 'BBsf' from Bsf', with their Rating Outlooks revised to Positive from Negative, and the Rating Outlooks for the senior notes have been revised to Stable from Negative.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans with guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. Fitch's current U.S. sovereign rating is 'AAA' with a Stable Outlook.
Sufficient Credit Enhancement: Credit enhancement (CE) is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance), excess spread, and for the senior notes, subordination provided by the subordinate notes. As of March 2015, senior and total parities are 116.95% and 105.12%, respectively, and the trust can release cash as long as the respective 106.00% and 101.00% senior and total parity levels, are maintained.
Adequate Liquidity Support: Liquidity support is provided by a debt service reserve fund sized at 1% of the outstanding bond balance. The debt service reserve fund is sized at $12,065,770 as of March 2014.
Acceptable Servicing Capabilities: Pennsylvania Higher Education Assistance Agency, Navient Servicing Inc, Xerox-ES, and Great Lakes Educational Loan Services, Inc. are responsible for the day-to-day servicing of the loans in the trust. In Fitch's opinion, they are acceptable servicers of FFELP student loans.
RATING SENSITIVITIES
Since the FFELP loan ABS relies 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 loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch takes the following rating actions:
U.S. Education Loan Trust IV, LLC - March 1, 2006 Indenture of Trust:
--Class 2006-1 A-2 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 A-3 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 A-4 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 A-5 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 A-6 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 A-7 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 A-8 affirmed at 'AAAsf'; Outlook revised to Stable from Negative.
--Class 2006-2 A-1 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-2 A-2 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-2 A-3 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-2 A-4 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-2 A-5 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-2 A-6 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-2 A-7 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2007-1 A-4 affirmed at 'AAAsf'; Outlook revised to Stable from Negative;
--Class 2006-1 B-1 upgraded to 'BBsf' from 'Bsf'; Outlook revised to Positive from Negative;
--Class 2006-1 B-2 upgraded to 'BBsf' from 'Bsf'; Outlook revised to Positive from Negative;
--Class 2006-2 B-1 upgraded to 'BBsf' from 'Bsf'; Outlook revised to Positive from Negative;
--Class 2007-1 B-1 upgraded to 'BBsf' from 'Bsf'; Outlook revised to Positive from Negative.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986930
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986930
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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