Fitch Takes Various Rating Actions on Nelnet Student Loan Trust 2006-1

NEW YORK--()--Fitch Ratings has taken the following rating actions on Nelnet Student Loan Trust 2006-1:

--Class A-5 affirmed at 'AAAsf'; Outlook Stable;

--Class A-6 downgraded from 'AAAsf' to 'Asf'; removed from Rating Watch Negative and assigned Stable Rating Outlook;

--Class B affirmed at 'Asf'; 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. Fitch's U.S. sovereign rating is currently 'AAA'/Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of 17.25% and a 52.00% default rate under the 'AAAsf' credit stress scenario. The claim reject rate is assumed to be 0.25% in the base case and 2% in the 'AAAsf' case. Fitch applies the standard default timing curve, in its credit cash flow analysis.

Trailing 12 month average constant default rate, utilized in the maturity stresses, is 2.3%. The trailing 12 month average of deferment, forbearance, Income based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 6.3%, 7.3%, 10.8% and 7.9%, respectively, which are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.27%, 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 and the class A notes benefit from subordination provided by the class B note. As of the August 2016 distribution report, senior and total parity is 104.58% (4.38% CE) and 100.05% (.05% CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the outstanding pool balance and $2,951,197.22, currently equal to the floor. The trust is releasing cash.

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. Fitch believes Nelnet to be acceptable servicers of FFELP student loans.

RATING SENSITIVITIES

'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.

Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.

Credit Stress Rating Sensitivity

--Default increase 25%: class A 'Asf'; class B 'BBBsf'

--Default increase 50%: class A 'Asf'; class B 'BBBsf'

--Basis Spread increase 0.25%: class A 'Asf'; class B 'Asf'

--Basis Spread increase 0.50%: class A 'Asf'; class B 'Asf'

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'AAAsf'; class B 'AAsf'

--CPR increase 100%: class A 'AAAsf'; class B 'AAsf'

--IBR Usage increase 100%: class A 'AAsf'; class B 'AAsf'

--IBR Usage decrease 50%: class A 'AAsf'; class B 'AAsf'

Stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.

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.

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. 26 Oct 2016)

https://www.fitchratings.com/site/re/888492

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. 10 Nov 2016)

https://www.fitchratings.com/site/re/889777

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014969

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014969

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
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, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Phillip Chan
Director
+1-212-908-0745
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, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com