NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings for the student loan revenue notes issued by Massachusetts Educational Financing Authority (MEFA) Series 2008 at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
Collateral Quality: The collateral consists of 100% 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 U.S. Sovereign Rating is currently 'AAA'/Outlook Stable.
Credit Enhancement (CE): Credit enhancement is provided by overcollateralization and excess spread. As of April 2016, the reported senior parity is 107.54% which includes the reserve account balance. Since the pool factor is below 40%, the cash release parity excludes the reserve account balance which brings the effective parity slightly above its cash release level of 106%.
Liquidity Support: Liquidity support is provided by a debt service reserve fund sized and maintained at 0.25% of the initial pool balance for the life of this transaction at $753,927.
Acceptable Servicing Capabilities: Xerox Education Services, LLC (XEROX-ES) is responsible for the day-to-day servicing of the loans in the trust. Fitch believes XEROX-ES is an acceptable servicer of FFELP student loans due to their long history of servicing FFELP loans.
In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to
1-month LIBOR at a negative rate level in accordance with Fitch's "Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds" dated May 2016. Since the updated interest rate stresses are not addressed yet in existing FFELP criteria, this represents a criteria variation. Use of the criteria variation did not have a measurable impact upon the ratings assigned.
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 build-up 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.
Fitch has affirmed the following rating:
--class A notes at 'AAAsf; Outlook Stable.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds (pub. 17 May 2016)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating U.S. Federal Family Education Loan Program Student Loan ABS
Criteria (pub. 23 Jun 2014)
Dodd-Frank Rating Information Disclosure Form