Fitch Affirms Brazos Student Finance Corp, Senior Series 2009-1; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the senior student loan notes issued by Brazos Student Finance Corporation, senior series 2009-1 (BSFC 2009-1). A full list of rating actions follows at the end of this release

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral comprises approximately 12.02% private student loans and 87.98% Federal Family Education Loan Program (FFELP) loans, where guaranties for the FFELP loans are provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The U.S. sovereign rating is currently 'AAA'/ Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of 6%-9% for the private student loans and 21.5% for the FFELP loans. Under the 'AAAsf' credit stress scenario, the default rate is 64.2% for the FFELP loans and ranges between 21% -38% for the private student loans. The weighted average (WA) claim reject rate is assumed to be approximately 0.3% and 2% in the base case and 'AAAsf' case respectively and Fitch assumed 10% recoveries for the private student loans. Fitch applies the standard default timing curve, with the trailing 12-month (TTM) credit default rate (CDR) and prepayment levels as assumptions for FFELP loans in its cash flow analysis. The TTM average constant default rate used in the maturity stresses is 3.1%. The TTM levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 4.2%, 5.5%, 8.9% and 8.8%, respectively, and are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The WA borrower benefit is assumed to be approximately 0.2%, based on information provided by the sponsor.

Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.

Payment Structure: As of May 2016, the senior and the senior A-S parity are 278.6% and 145.3%, respectively. Liquidity support is provided by a debt service reserve account of $684,395.

Maturity Risk: Fitch's SLABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.

Operational Capabilities: Day-to-day servicing is provided by Xerox Education Services LLC., Navient Solutions, Inc., Great Lakes Educational Loan Services Inc., Pennsylvania Higher Education Assistance Agency, and Nelnet Servicing. Fitch believes all servicers are acceptable servicers of FFELP student loans given their long servicing history.

Criteria Variations:

Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated Sept. 1, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of eligible investments for this deal does not include Fitch's rating for commercial paper that matures in more than 30 days. This represents a criteria variation. Fitch does not believe such variation has a measurable impact upon the ratings assigned.

For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria report is silent on the treatment of such assets, this treatment is considered a criteria variation.

RATING SENSITIVITIES

Since the FFELP student 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, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors 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.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has affirmed the following ratings:

Brazos Student Finance Corporation Senior Series 2009-1

--Class A-1 at 'AAA'; Outlook Stable;

--Class A-S at 'AAA'; Outlook Stable.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/site/re/879815

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 26 Jul 2016)

https://www.fitchratings.com/site/re/881705

U.S. Private Student Loan ABS Criteria (pub. 31 Jul 2015)

https://www.fitchratings.com/site/re/868836

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011179

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011179

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Nicole Edwards
Director
+1-212-908-9114
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Nicole Edwards
Director
+1-212-908-9114
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com