NEW YORK--(BUSINESS WIRE)--Fitch Ratings has maintained the Rating Watch Negative on the Class A-4 note currently rated 'AAAsf' and affirmed the class A-3 note issued by Nelnet Student Loan Trust 2008-3 at 'AAAsf'. The Rating Outlook remains Stable for Class A-3.
Fitch expects to resolve the Rating Watch for Class A-4 once our revised FFELP criteria report is published.
KEY RATING DRIVERS
Collateral Quality: The trust collateral consists of 100% Federal Family Education Loan Program (FFELP) 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 reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. Fitch currently rates the U.S. 'AAA' with a Stable Outlook.
Credit Enhancement: Credit enhancement (CE) is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of May 2016, total parity is 105.00% (4.76% CE), and the trust can release cash as long as the 105.00% total parity level is maintained.
Liquidity Support: Liquidity support is provided by a debt service reserve fund sized at the greater of 0.25% of the pool balance and $1,505,150.
Acceptable Servicing Capabilities: Nelnet, Inc. is responsible for the day-to-day servicing of the loans in the trust. In Fitch's opinion, they are an acceptable servicer of FFELP student loans due to their long history of servicing FFELP loans and low net claims reject-rate history.
In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to 1-month LIBOR at a negative rate level in accordance with Fitch's "Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds" dated May 2016. Since the updated interest rate stresses are not addressed yet in existing FFELP criteria, this represents a criteria variation. Use of the criteria variation did not have a measurable impact on the ratings assigned.
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 build-up of credit enhancement 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 has taken the following rating actions:
--Class A-3 notes affirmed at 'AAAsf; Outlook Stable;
--Rating Watch Negative maintained on class A-4 notes rated 'AAAsf.
Additional information is available at www.fitchratings.com
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)
Dodd-Frank Rating Information Disclosure Form