NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Nelnet Student Loan Trust 2008-2 class A-3 and A-4 notes at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
Collateral Quality: The collateral consists of 100% 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' with a Stable Outlook.
Credit Enhancement: Credit enhancement (CE) is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of February 2016, total parity is 104.83% (4.61% CE), and the trust can release cash as long as the 105.00% total parity level is maintained.
Liquidity Support: Liquidity support is provided by a debt service reserve fund sized at the greater of 0.25% of the pool balance and $452,584. The debt service reserve fund balance has reached is floor of $452,584.
Acceptable Servicing Capabilities: Nelnet, Inc. is responsible for the day-to-day servicing of the loans in the trust. In Fitch's opinion, they are an acceptable servicer of FFELP student loans due to their long history of servicing FFELP loans and low net claims reject rate history.
In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to one-month LIBOR at a negative rate level in accordance with Fitch's 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (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.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
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 Dec 2015)
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