NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed the following Brazos Student Finance Corporation Series 2010-1 (BSFC 2010-1) notes on Rating Watch Negative.
--Class A-1 at 'AAAsf'.
The Rating Watch Negative action is based on the heightened risk of BSFC 2010-1 class A notes missing their legal final maturity of June 25, 2035, which would result in an event of default.
KEY RATING DRIVERS
The Rating Watch Negative action is based on an analysis conducted by Fitch that identified the class A tranche that has a heightened risk of missing its legal final maturity date based on principal repayment to date. The transaction identified will be subject to additional analysis over the next few months. Fitch's additional analysis will focus on the remaining time to maturity, recent and historical payment trends, breakeven payment speed thresholds, and structural factors to ensure that the likelihood of payment at maturity is commensurate with the ratings assigned.
The magnitude of this rating action with respect to this bond placed on Rating Watch Negative could vary significantly depending on remaining time to maturity, recent payment trends, issuer actions such as loan purchases, or other external factors. Absent any issuer actions, structural or other mitigants, it is possible that the 'AAA' rating could be downgraded to a noninvestment grade rating category. Fitch expects to complete its review and resolve the Rating Watch status for this and other trusts over the next three to six months.
In today's action, Fitch identified one tranche with a heightened risk of missing its legal final maturity, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final.
The main drivers of the heightened maturity risk are prepayments and principal repayment rates coming in more slowly than initial expectations. The decline in prepayment rates has followed the consolidation wave and a slow recovery in the job market for graduates during and after the recession. The growth of government sponsored student loan payment plans, such as the Income Based Repayment Plan has also helped push down repayment speeds. Helping offset these declines more recently are an improving labor market, expansion of debt consolidation programs, seasoning of portfolios and recent issuer actions to address this risk.
On Nov. 18, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed this transaction under both the existing and proposed criteria, which has resulted in placing the BSFC 2010-1 notes on Rating Watch Negative.
RATING SENSITIVITIES
As Fitch's base case default proxy is derived primarily from historical collateral performance, actual performance may differ from the expected performance, resulting in higher loss levels than the base case. This will result in a decline in CE and remaining loss coverage levels available to the notes and may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage. Fitch will continue to monitor the performance of the trust.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Exposure Draft: Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 18 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872755
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
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
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995567
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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