NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the senior notes issued by Illinois Student Assistance Commission, 2010 Indenture, student loan asset-backed notes, series 2010-1 (ISAC 2010-1) as follows:
--Class A-2 notes at 'AAAsf'; Outlook Stable;
--Class A-3 notes at 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
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. Fitch currently rates the U.S. '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 March 2016, senior parity was 116.07% (13.85% CE). The trust is in turbo, and no cash may be released until all the bonds have been paid in full.
Liquidity Support: Liquidity support is provided by a reserve account sized to maintain a balance equal to the greater of 0.25% of the pool balance and $940,801. As of March 2016, the reserve account balance is $942,718.
Servicing Capabilities: Edfinancial Services LLC (Edfinancial) and Navient Solutions, Inc. (formerly, Sallie Mae, Inc.) are responsible for the day to day servicing of the student loans and Pennsylvania Higher Education Assistance Agency (PHEAA) is the backup servicer. Fitch believes Edfinancial, Navient Solutions and PHEAA are acceptable servicers of FFELP student 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' (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.
Under Fitch's 'Counterparty Criteria for Structured Finance and Covered Bonds', dated May 14, 2014, Fitch looks to its own ratings in analysing counterparty risk and assessing a counterparty's creditworthiness. The definition of permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest in are those held in the Collection Account, and the funds can only be invested for a short duration of three months given the payment frequency of the notes, Fitch doesn't believe such variation has a measurable impact upon the ratings assigned.
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 build-up of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
DUE DILIGENCE USAGE
Fitch was not provided due diligence information from any third parties relating to the transaction.
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