Fitch Affirms State Board of Regents of Utah, Series 2014-1; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the series 2014-1 note issued by the State Board of Regents of the State of Utah, Series 2014-1 at 'AAAsf'. The Rating Outlook remains Stable.

KEY RATING DRIVERS

High 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 'AAA' with a Stable Outlook.

Sufficient Credit Enhancement (CE): Total CE is provided by overcollateralization (OC) and excess spread. As of April 2016, total parity is 110.6% (9.58% CE). This trust is a turbo structure therefore no cash is released until the note is paid in full.

Adequate Liquidity Support: Liquidity support is provided by a reserve account. The reserve fund is sized equal to the greater of 0.25% of the note balance, and $415,500. As of April 2016, the reserve fund balance was $525,479.

Acceptable Servicing Capabilities: State Board of Regents of the State of Utah as servicer, will be responsible for servicing the portfolio. Pennsylvania Higher Education Assistance Agency (PHEAA) will act as backup servicer. All servicers have demonstrated adequate servicing capabilities.

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 on 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 analyzing 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 given the payment frequency of the notes, Fitch does not believe such variation has a measurable impact on the ratings assigned.

RATING SENSITIVITIES

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 credit enhancement 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

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

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

Related Research

State Board of Regents of the State of Utah, Series 2014-1 -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752380

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008292

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008292

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

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Contacts

Fitch Ratings
Primary Analyst:
Jeffrey Prackup, +1-212-908-0839
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson:
Tracy Wan, +1-212-908-9171
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Jeffrey Prackup, +1-212-908-0839
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson:
Tracy Wan, +1-212-908-9171
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com