NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the rating on the following classes of Nelnet Student Loan Trust 2010-2:
--Class A at 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
U.S. Sovereign Risk: 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. The U.S. sovereign rating is currently 'AAA'/Stable Outlook.
Collateral Performance: Fitch assumes a base case default rate of 17.25% and a 51.50% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.25% for the base case and 2.0% for the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing 12 month (TTM) average constant default rate, utilized in the maturity stresses, is 2.5%. TTM levels of deferment, forbearance, income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 6.3%, 8.9%, 11.9% and 8.8% respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. The borrower benefit is assumed to be approximately 0.26% 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: Credit enhancement (CE) is provided by overcollateralization and excess spread. As of July 2016, the total parity ratio (which includes the reserve account) is 112.23% (10.89% CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the principal balance of the notes outstanding, and 0.10% of the initial note balance. Excess cash cannot be released from the transaction unless all notes are paid in full.
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 Nelnet, Inc. (Nelnet). Fitch believes Nelnet to be an acceptable servicer of FFELP student loans.
CRITERIA APPLICATION
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 is silent on the treatment of such assets, this treatment is considered a criteria variation. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
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 permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest are those held in the Collection Account, and the funds can only be invested for a short duration given the payment frequency of the notes, Fitch does not believe such variation has a measurable impact upon the ratings assigned.
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 build-up 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.
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
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011341
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011341
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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