Fitch Affirms Nelnet 2012-5

NEW YORK--()--Fitch Ratings has affirmed the ratings on the following classes of Nelnet Student Loan Trust 2012-5:

--Class A at 'AAAsf'; Outlook Stable;

--Class B at 'AAsf'; Outlook Stable.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans, 16.2% of which are rehab loans, with guaranties provided by 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'/Stable Outlook.

Collateral Performance: Fitch assumes a base case default rate of 20.75% and a 58.25% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.25% for the base case and 2.0% for the AAAsf case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing twelve month average constant default rate, utilized in the maturity stresses, is 4.2%. Trailing twelve month levels of deferment, forbearance, Income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 7.2%, 10.8%, 11.1% and 12.0% respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. The borrower benefit is assumed to be approximately 0.19% based on information provided by the sponsor.

Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.

Payment Structure: Credit enhancement is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of June 2016, total and senior effective parity ratios (with include the reserve account), respectively, are 101.01% (1.00% CE) and 105.42% (5.14% CE). Liquidity support is provided by a reserve account sized at the greater of 0.60% of the principal balance of the notes outstanding, and 0.10% of the initial note balance. Excess cash is currently being released as the Specified Overcollateralization amount of the greater of 1.00% of the adjusted pool balance and $2 million is being maintained.

Maturity Risk: Fitch's SLABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.

Operational Capabilities: Day-to-day servicing is provided by Nelnet, Inc., Edfinancial Services LLC, and Pennsylvania Higher Education Assistance Agency. Fitch believes all three to be acceptable servicers of FFELP student loans.

Under Fitch's criteria 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated July 26, 2016, Fitch does not address the process by which it gives certain credit to short-term assets in its cash flow analysis, and it is therefore considered a criteria variation.

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 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.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/site/re/884963

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016)

https://www.fitchratings.com/site/re/884964

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/site/re/879815

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)

https://www.fitchratings.com/site/re/875586

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 26 Jul 2016)

https://www.fitchratings.com/site/re/881705

Related Research

Nelnet Student Loan Trust 2012-5 Appendix

https://www.fitchratings.com/site/re/694769

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010945

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010945

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Matthew Shaw
Associate Director
+1-212-908-0218
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Matthew Shaw
Associate Director
+1-212-908-0218
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com