Fitch Takes Rating Actions on 12 National Collegiate Student Loan Trusts (First Marblehead)

NEW YORK--(BUSINESS WIRE)--Fitch Ratings downgrades 25 classes, upgrades two classes and affirms 45 classes from 12 National Collegiate Student Loan Trust (NCSLT) asset-backed securities (ABS) issued by the First Marblehead Corporation (FMD). In addition, Fitch places 22 classes on 'Rating Watch Negative' and 15 classes remain on 'Rating Watch Negative' where they were placed on April 9, 2008. The ratings actions are detailed at the end of this press release.

The affirmations and upgrades are primarily related to seasoned transactions that are performing within Fitch's expectations or have built credit enhancement in excess of Fitch's expectations. Downgrades and Rating Watch Negative actions are primarily the result of a combination of default rates that have exceeded Fitch's initial expectations, the operational uncertainties related to the ongoing bankruptcy proceedings related to The Education Resources Institute (TERI), the guarantor of the loans in the NCSLT transactions, and Fitch's concerns regarding the level of recoveries on defaulted loans in a post-TERI environment.

Fitch's analysis is focusing on further refining default level and loss timing projections for each pool. Importantly, Fitch's analysis will also consider the transactions' sensitivity to various recovery levels and timing patterns in the context of TERI's bankruptcy proceedings including the impact of the suspension of "rehab" loan sales which resulted in near-term recoveries on re-performing loans. Depending on the outcome of this analysis Fitch expects that ratings currently on RWN could be downgraded by an additional zero to three notches.

Details of Fitch's analysis for each vintage are as follows:

NCSLT 2003-1, 2004-1 and 2004-2 trusts have performed within or better than Fitch's expectations or credit enhancement has built in excess of expectations since Fitch's last review of the trusts. As the collateral in these trusts have seasoned for 4 to 5 years, the levels and volatility of remaining defaults are expected to be lower than that for the newer trusts. In addition, the total and senior parity ratios for these trusts as of July 31, 2008 ranged from 100.5% to 106.8% and 121.5% to 125.0%, respectively. Higher parity ratios combined with lower expected remaining defaults make these trusts less susceptible to adverse changes in loss severity.

NCSLT 2005-1, 2005-2 and 2005-3 trusts have performed modestly below Fitch's expectations. The total and senior parity ratios for these trusts as of July 31, 2008 ranged from 97.3% to 98.2% and 111.1% to 113.2%, respectively. Less seasoning combined with lower parity ratios make these trusts, especially the class C notes, more susceptible to adverse changes in loss severity.

NCSLT 2006-1, 2006-2, 2006-3, 2006-4 and 2007-1 trusts have performed measurably worse than Fitch's expectations. In particular, the 06-1, 06-2 and 07-1 transactions have demonstrated significant weakness. In a number of the '06 and '07 transactions, loss coverage multiples were below the level necessary to maintain the current ratings, resulting in downgrades for those classes. The 2007-2 transaction is performing slightly below Fitch's expectations but within a range where current ratings are maintainable.

An update on TERI's bankruptcy filing:

The ratings on some of the NCSLT notes were placed on 'Rating Watch Negative' by Fitch on Apr. 9, 2008, following the bankruptcy filing by TERI. For more information, see the presses release titled 'Fitch Places 16 First Marblehead ABS Subordinate Classes on Watch Negative; TERI Ch. 11 Filing', also available at www.fitchratings.com.

Among Fitch's concerns were the status of funds in the pledged accounts and the potential for changes in service levels related to collection and loss mitigation functions, which if not maintained, could increase loss severity.

On June 5, 2008, TERI sought to resume payment of default claims from the pledged accounts as part of a motion terminating their master servicing agreement with the sponsor for NCSLT transactions, First Marblehead (FMD), and any related FMD entities. On June 23, 2008, the U.S. Bankruptcy Court of Massachusetts granted this motion, determining that each of the affected NCSLT transactions has an enforceable, first-perfected security interest in the funds deposited in their respective pledge accounts. In July 2008, TERI resumed payment of default claims, including claims filed but not processed by TERI from April to June.

Funds in the pledged accounts were divided into three categories: funds on deposit at the time of the bankruptcy filing; funds deposited between the bankruptcy filing and June 23, 2008 (existing recoveries); and funds deposited after June 23, 2008 (future recoveries). Other interested parties were given fund-specific objection periods of 14 days, 45 days, and 60 days, respectively, from approval of the motion, during which time the specified funds would continue to be frozen. To date, the objection period for the first group of funds has expired, and TERI has resumed paying claims on defaulted NCSLT loans from funds released from the pledged accounts. However, existing and future recoveries continue to be frozen pending the expiration of its objection periods which have been extended to September 30th, In addition, 're-hab' loan sales have been suspended pending resolution of these issues.

With regard to service levels, First Marblehead has deposited cash into specified accounts created within each NCSLT transaction for the sole purpose of supporting current service levels over the next 12 months, during which time a more permanent solution is intended to be in place.

Fitch will continue to monitor the transactions closely.

Rating actions are as follows:

NCSLT 2003-1

--Class A-4 affirmed at 'AAA';

--Class A-5 affirmed at 'AAA';

--Class A-6 affirmed at 'AAA';

--Class A-7 affirmed at 'AAA';

--Class A-IO affirmed at 'AAA';

--Class B-1 upgraded to 'A+' from 'A';

--Class B-2 upgraded to 'A+' from 'A'.

NCSLT 2004-1

--Class A-2 affirmed at 'AAA';

--Class A-3 affirmed at 'AAA';

--Class A-4 affirmed at 'AAA';

--Class A-IO-1 affirmed at 'AAA';

--Class A-IO-2 affirmed at 'AAA';

--Class B-1 affirmed at 'A';

--Class B-2 affirmed at 'A'.

NCSLT 2004-2

--Class A-2 affirmed at 'AAA';

--Class A-3 affirmed at 'AAA';

--Class A-4 affirmed at 'AAA';

--Class A-5-1 affirmed at 'AAA';

--Class A-5-2 affirmed at 'AAA'

--Class A-IO affirmed at 'AAA';

--Class B affirmed at 'AA+';

--Class C affirmed at 'A+'.

NCSLT 2005-1

--Class A-2 affirmed at 'AAA';

--Class A-3 affirmed at 'AAA';

--Class A-4 affirmed at 'AAA';

--Class A-5-1 affirmed at 'AAA';

--Class A-5-2 affirmed at 'AAA'

--Class A-IO affirmed at 'AAA';

--Class B 'AA' placed on Rating Watch Negative;

--Class C downgraded to 'BBB+' from 'A-' and remains on Rating Watch Negative.

NCSLT 2005-2

--Class A-2 affirmed at 'AAA';

--Class A-3 affirmed at 'AAA';

--Class A-4 affirmed at 'AAA';

--Class A-5-1 affirmed at 'AAA';

--Class A-5-2 affirmed at 'AAA'

--Class A-IO affirmed at 'AAA';

--Class B 'AA' placed on Rating Watch Negative;

--Class C downgraded to 'BBB+' from 'A-' and remains on Rating Watch Negative.

NCSLT 2005-3

--Class A-2 affirmed at 'AAA';

--Class A-3 affirmed at 'AAA';

--Class A-4 affirmed at 'AAA';

--Class A-5-1 affirmed at 'AAA';

--Class A-5-2 affirmed at 'AAA'

--Class A-IO-1 affirmed at 'AAA';

--Class A-IO-2 affirmed at 'AAA';

--Class B 'AA' placed on Rating Watch Negative;

--Class C downgraded to 'BBB+' from 'A-' and remains on Rating Watch Negative.

NCSLT 2006-1

--Class A-2 downgraded to 'AA+' from 'AAA';

--Class A-3 downgraded to 'AA+' from 'AAA';

--Class A-4 downgraded to 'AA+' from 'AAA';

--Class A-5 downgraded to 'AA+' from 'AAA';

--Class A-IO downgraded to 'AA+' from 'AAA';

--Class B downgraded to 'A' from 'A+' and remains on Rating Watch Negative;

--Class C downgraded to 'BBB' from 'A-' and remains on Rating Watch Negative.

NCSLT 2006-2

--Class A-1 downgraded to 'AA' from 'AAA';

--Class A-2 downgraded to 'AA' from 'AAA';

--Class A-3 downgraded to 'AA' from 'AAA';

--Class A-4 downgraded to 'AA' from 'AAA';

--Class A-IO downgraded to 'AA' from 'AAA';

--Class B downgraded to 'A' from 'A+' and remains on Rating Watch Negative;

--Class C downgraded to 'BBB' from 'A-' and remains on Rating Watch Negative.

NCSLT 2006-3

--Class A-1 'AAA' placed on Rating Watch Negative;

--Class A-2 'AAA' placed on Rating Watch Negative';

--Class A-3 'AAA' placed on Rating Watch Negative';

--Class A-4 'AAA' placed on Rating Watch Negative;

--Class A-5 'AAA' placed on Rating Watch Negative;

--Class A-IO 'AAA' placed on Rating Watch Negative;

--Class B 'AA' placed on Rating Watch Negative;

--Class C 'A' remains on Rating Watch Negative;

--Class D 'BBB' remains on Rating Watch Negative.

NCSLT 2006-4

--Class A-1 'AAA' placed on Rating Watch Negative;

--Class A-2 'AAA' placed on Rating Watch Negative';

--Class A-3 'AAA' placed on Rating Watch Negative;

--Class A-4 'AAA' placed on Rating Watch Negative;

--Class A-IO 'AAA' placed on Rating Watch Negative;

--Class B 'AA' placed on Rating Watch Negative;

--Class C 'A' remains on Rating Watch Negative;

--Class D 'BBB' remains on Rating Watch Negative.

NCSLT 2007-1

--Class A-1 downgraded to 'AA+' from 'AAA' and placed on Rating Watch Negative;

--Class A-2 downgraded to 'AA+' from 'AAA' and placed on Rating Watch Negative;

--Class A-3 downgraded to 'AA+' from 'AAA' and placed on Rating Watch Negative;

--Class A-4 downgraded to 'AA+' from 'AAA' and placed on Rating Watch Negative;

--Class A-IO downgraded to 'AA+' from 'AAA' and placed on Rating Watch Negative;

--Class B downgraded to 'A+' from 'AA' and placed on Rating Watch Negative;

--Class C downgraded to 'BBB+' from 'A' and remains on Rating Watch Negative;

--Class D downgraded to 'BB+' from 'BBB' and remains on Rating Watch Negative.

NCSLT 2007-2

--Class A-1 affirmed at 'AAA';

--Class A-2 affirmed at 'AAA';

--Class A-3 affirmed at 'AAA';

--Class A-4 affirmed at 'AAA';

--Class A-IO affirmed at 'AAA';

--Class B affirmed at 'AA';

--Class C 'A' remains on Rating Watch Negative;

--Class D 'BBB' remains on Rating Watch Negative.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.