NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the rating of the senior and subordinate notes in the KeyCorp Student Loan Trust 2006-A (Group II). Fitch also affirmed the junior subordinate notes. The Rating Outlook for the senior and subordinate notes remains Stable. The Recovery Estimate for the junior subordinate note was increased to 35% from 15%.
A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
Correction: The revised ratings are due to an input error from a recent annual surveillance review of the trust. During the annual review, the projected default rate was overestimated due to a miscalculation of the weighted average life caused by an input error. With the correction and recent updated improved trust performance, the ratings on the senior and subordinate notes are upgraded to be commensurate with their respective loss coverage multiples.
Collateral Quality: The trust is collateralized by approximately $235 million of private student loans originated by KeyBank under the Key Alternative Loan program, Campus Door program, Private Graduate program, Private Consolidation program and TERI program. The projected remaining defaults are expected be approximately 11% of the current pool balance. A recovery rate of 15% was applied based on historical and performance data.
Credit Enhancement (CE): CE is provided by overcollateralization, excess spread and subordination for the class A and B notes. Additionally, the trust can receive excess funds from its bifurcated KSLT 2006-A Group I Federal loan pool. As of the August 2016 servicer report, the parity ratios have increased since the last year from 183.7% to 236.3% for the class A notes, from 113.6% to 119.2% for the class B notes and from 96.40% to 96.74% for the class C notes (May 2015 - August 2016), respectively. The trust cannot release any excess cash until the class C parity reaches 104.5%.
Liquidity Support: Liquidity support for the trust is provided by a debt service reserve fund which is currently at $8.3 million, representing approximately 3.5% of the outstanding pool balance.
Servicing Capabilities: Day-to-day servicing is provided by KeyBank, N.A. Fitch believes the servicing operations are acceptable servicer of private student loans.
Eligible Investment: Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated Sept. 1, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of the permitted investments for this deal allows for the possibility of using investments that do not meet Fitch's criteria, this represents a criteria variation. Since the only available funds to invest 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 does not believe such variation has a measurable impact upon the ratings assigned.
As Fitch's base case default proxy is derived primarily from historical collateral performance, actual performance may differ from the expected performance, resulting in higher loss levels than the base case. This will result in a decline in CE and remaining loss coverage levels available to the bonds and may make certain bond ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage. Fitch will continue to monitor the performance of the trust.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch takes the following rating actions:
KeyCorp Student Loan Trust 2006-A (Group II)
-- Senior class II-A-4 upgraded to 'AAAsf' from 'AAsf'; Outlook Stable;
-- Subordinate class II-B upgraded to 'BBBsf' from 'B+sf'; Outlook Stable;
-- Junior subordinate class II-C affirmed at 'CCsf'; increase RE to 35% from 15%.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
U.S. Private Student Loan ABS Criteria (pub. 31 Jul 2015)
Dodd-Frank Rating Information Disclosure Form
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