NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Brazos Student Finance Corporation Series 2010-1 (BSFC 2010-1) at 'AAAsf'. The issue has been removed from Rating Watch Negative and assigned a Stable Outlook.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust is collateral consists of 100% a Federal Family Education Loan Program (FFELP) loan. The credit quality of the trust 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 stable outlook on the notes is consistent with Fitch's affirmation of the U.S. sovereign rating at 'AAA'/Outlook Stable
Collateral Performance: Fitch's default model indicates a base case default rate of 10%. However, this is inconsistent with recent trust performance which is trailing upwards due to increased defaults from one serviced portfolio. Fitch has not received any conclusive explanation for this trend and therefore can currently not provide a robust default base case for the remaining term of the deal. For the rating analysis Fitch has therefore testing default rates from 10% to up to 100% at 'AAA' and found the ratings to be insensitive to this assumption.
The claim reject rate is assumed to be 0.27% for the base case and 2.1% for the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing twelve month levels of deferment, forbearance, Income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are approximately 16.4%, 10.7%, 12.7% and 18.2% respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. The weighted average 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 and excess spread. As of August 2016 distribution, total parity is approximately 111.56%. Liquidity support for note is provided by a reserve fund sized at $500,000.
Maturity Risk: Fitch's SLABS cash flow model indicates that the note is paid in full on or prior to the legal final maturity dates under the commensurate rating scenario
Servicing Capabilities: Day-to-day servicing is provided by Xerox Education Services LLC, Nelnet Servicing LLC, Pennsylvania Higher Education Assistance Agency, and Navient Solutions Inc. Fitch considers all servicers to be acceptable servicers of FFELP student loans due to their long servicing history and low net claim reject rates.
'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.
Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.
Credit Stress Rating Sensitivity
--Default increase 25%: class A 'AAAsf';
--Default increase 50%: class A 'AAAsf'
--Basis Spread increase 0.25%: class A 'AAAsf';
--Basis Spread increase 0.50%: class A 'AAAsf';
Maturity Stress Rating Sensitivity
--CPR decrease 50%: class A 'AAAsf';
--CPR increase 100%: class A 'AAAsf';
--IBR Usage increase 100%: class A 'AAAsf';
--IBR Usage decrease 50%: class A 'AAAsf'.
The stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.
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 affirms the following ratings:
Brazos Student Finance Corporation Series 2010-1:
--Class A at 'AAAsf'; Removed from Rating Watch Negative and assigned a Stable Outlook.
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)
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 10 Nov 2016)
Dodd-Frank Rating Information Disclosure Form
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