NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the Kentucky Higher Education Student Loan Corp. Sr Series 2014A student loan revenue bonds as follows:
--A2016 'Asf'; Outlook Stable;
--A2017 'Asf'; Outlook Stable;
--A2018 'Asf'; Outlook Stable;
--A2019 'Asf'; Outlook Stable;
--A2020 'Asf'; Outlook Stable;
--A2021 'Asf'; Outlook Stable;
--A2022 'Asf'; Outlook Stable;
--A2023 'Asf'; Outlook Stable;
--A2024 'Asf'; Outlook Stable;
--A2026 'Asf'; Outlook Stable;
--A2028 'Asf'; Outlook Stable;
--A2031 'Asf'; Outlook Stable.
KEY RATING DRIVERS
Adequate Collateral Quality: The senior series 2014A master trust is a mixed trust collateralized by consolidation loans (21.5%) originated under the Federal Family Education Loan Program (FFELP) and fixed-rate private student loans (78.5%). The FFELP loans includes approximately 41.4% of rehabilitated (rehab) 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 current U.S. sovereign rating is 'AAA' with a Stable Outlook. The projected lifetime defaults for the private student loans are expected to be approximately 11%-13%.
Sufficient Credit Enhancement (CE): CE is provided by overcollateralization (OC; the excess of the trust's asset balance over bond balance) and excess spread. The parity ratio (total assets to total liabilities) has been increasing, from 136.25% (26.61% CE) at closing to the current 138.22% (27.65% CE). Cash will be released to the issuer when the total parity reaches 140% until Dec. 1, 2026.
Adequate Liquidity Support: Liquidity support for the senior series 2014A notes is provided by a debt service reserve account (sized at the greater of 3% of the bond balance and $500,000) and a $404,196 loan reserve fund.
Acceptable Servicing Capabilities: KHESLC is servicing the entire senior series 2014A portfolio. Fitch believes KHESLC is an acceptable servicer for the portfolio.
Since FFELP student loan ABS rely 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 and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades. As Fitch's base case private loans default proxy is derived primarily from historical collateral performance, actual performance may differ from the expected performance, resulting in higher loss levels than the base case. This will result in a decline in CE and remaining loss coverage levels available to the notes and may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage.
A comparison of the transaction's representations, warranties, and enforcement mechanisms (RW&Es) to those of typical RW&Es for FFELP asset-backed securities is available in the presale appendix. This presale appendix and Fitch's special report on 'Representations, Warranties, and Enforcement Mechanisms on Global Structured Finance Transactions,' may be accessed via the links provided below.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (March 31, 2015);
--'U.S. Private Student Loan ABS Criteria' (January 29, 2014);
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (June 23, 2014);
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (Mar. 26, 2015).
--'Kentucky Higher Education Student Loan Corporation Senior Series 2014A -- Appendix' (May. 01, 2014).
Applicable Criteria and Related Research:
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria
U.S. Private Student Loan ABS Criteria
Global Structured Finance Rating Criteria
Kentucky Higher Education Student Loan Corporation Senior Series 2014A -- Appendix