NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the senior student loan asset-backed notes issued by the Iowa Student Loan Liquidity Corporation, Series 2011-1 at 'AAAsf'. The Rating Outlook on the senior notes remains Stable.
The affirmation is due to the notes passing both Fitch's credit and maturity stresses at the commensurate rating level.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral is comprise of 100% Federal Family Education Loan Program (FFELP) loans with guarantees 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 by Fitch.
Collateral Performance: Fitch assumes a base case default rate of 18.25% and a 55.00% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.50% in the base case and 3% in the 'AAA' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The trailing 12 month (TTM) average constant default rate, utilized in the maturity stresses, is 1.3%. TTM levels of deferment, forbearance, Income-based repayment (prior to adjustment) and constant prepayment rate (voluntary and involuntary) are 3.8%, 3.2%, 20.3% and 5.9%, respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.5%, 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 for the class A notes. As of June 2016, the senior parity ratio is 121.1% (17.4% CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the pool balance and $432,356, currently equal to $483,402. The trust will not release any cash until all the 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 Aspire Resources Inc. (wholly owned subsidiary of Iowa Student Loan). Additionally, American Education Services (AES), a wholly owned subsidiary of PHEAA, is the backup servicer for this trust. Fitch believes both Aspire Resources Inc. and AES to be acceptable servicers of FFELP student loans due to their long servicing history.
CRITERIA VARIATIONS
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.
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.
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 rating:
Iowa Student Loan Liquidity Corporation, Series 2011-1
--Class A at 'AAAsf'; 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
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012146
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012146
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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