Fitch Takes Various Actions on GCO Education Loan Funding Master Trust-II

NEW YORK--()----2006-2 A-1AR affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-1RN affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-2AR affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-3AR affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-3L affirmed at 'AAAsf'; Outlook Stable;

--2006-2 A-4AR affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-5L affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-6L affirmed at 'AAAsf'; Outlook Stable;

--2007-1 A-6AR 'AAAsf'; Rating Watch Negative maintained;

--2007-1 A-5AR 'AAAsf'; Rating Watch Negative maintained;

--2007-1 A-7AR 'AAAsf'; Rating Watch Negative maintained;

--2007-1 A-7L 'AAAsf'; Rating Watch Negative maintained;

--2006-2 B-2AR affirmed at 'Asf'; Outlook Stable;

--2007-1 C-1L affirmed at 'BBBsf'; Outlook Stable.

KEY RATING DRIVERS

Maturity Risk: The Rating Watch Negative is maintained on four classes due to the heightened risk of the class A notes missing their legal final maturity dates of Nov. 25, 2030 and Nov. 26, 2046, respectively, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final. Fitch expects to resolve the Rating Watch Negative status once its revised FFELP criteria report is published. The magnitude of any potential rating action could vary depending on remaining time to maturity, recent payment trends, issuer actions such as loan purchases, or other external factors.

Collateral Quality: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. The credit quality of the trust collateral is high, in Fitch's opinion, based on the guarantees provided by the transaction's 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 at 'AAA' with a Stable Outlook.

Credit Enhancement: While both the senior, subordinate, and junior notes will benefit from future excess spread, the senior and subordinate notes also benefit from subordination provided by the subordinate and junior subordinate notes, respectively. As of March 2016, reported senior and subordinate parities are at 104.67% and 103.56%, respectively. Fitch calculated total parity which includes the junior subordinate notes is at 101.67%.

Liquidity Support: Liquidity support is provided by a reserve fund currently sized at approximately $9.67 million. The reserve is sized equal to the greater of 0.75% of the principal balance of all outstanding notes, and $1,500,000.

Servicing Capabilities: Nelnet, Inc., XES, and SAF are responsible for servicing the portfolio. Fitch has reviewed the servicing operations of these servicers and believes it to be acceptable servicer of FFELP student loans.

On Nov. 18, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed this transaction under both the existing and proposed criteria.

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 buildup 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. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Exposure Draft: Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 04 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874971

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for Structured Finance Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864375

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002681

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002681

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1-212-908-0866
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Kevin Corrigan, +1-212-908-0156
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1-212-908-0866
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Kevin Corrigan, +1-212-908-0156
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com