Fitch Places 16 U.S. Student Loan ABS Trusts on Rating Watch Negative
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed 16 U.S. student loan ABS trusts on Rating Watch Negative. In taking the actions, Fitch has cast a wide net selecting trusts (as indicated below) that contain more than 20% tax-exempt auction rate securities (ARS) and have a pool factor greater than 10%.
The trusts are being reviewed at this time due to the prominence of a unique multiplier function and its determination based on lowest rating assigned to the notes by any rating agency. This feature, in conjunction with recent actions taken by other agencies as well as parity being sustained only voluntarily in some cases at levels substantially in excess of cash release levels, has led Fitch to reevaluate the risk in these transactions. Fitch notes that the analysis will focus upon structural issues and that there is not additional perceived credit risk associated with the collateral, which is comprised of FFELP student loans for most trusts.
Fitch will conduct a detailed review of each of the trusts placed on Rating Watch Negative over the next two to three months. Although these trusts are currently benefiting from the low interest rate environment, the review will consist of running various interest rate stresses against these transactions, coupled with the current and maximum multiplier function values to evaluate the long term risk. Rating actions as a result of the review are expected to include both affirmations and downgrades. Downgrades will vary, but some could be several categories in severity. Mitigating factors could include current parity level, minimum parity level for cash release, current pool factor, trust liability and collateral composition, amongst others.
Since the failure of the auction rate securities market in 2008, the maximum auction rate (MAR) has been in effect for these transactions. The MAR includes a multiplier or applicable percentage which increases depending on the rating. Typically, the applicable percentage is between 150%-175% of the linked index for ratings 'A' or better and 200% - 265% of the linked index for ratings less than 'A'. The applicable percentage is based on the lowest rating on the bonds. If a bond's applicable percentage increases from 175% to 265% due to a downgrade, the bond's coupon will increase by about 50% (unless it hits the cap), which will compress excess spread and possibly erode parity.
Definitions of MAR vary for the indicated trusts and they can be indexed to either the Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA), produced by Municipal Market Data, the 30 or 90 day 'AA' Financial CP rate (CP), or the 90-day T-Bill rate (T-Bill). The interest rate for the ARS is the lesser of the applicable percentage times either SIFMA, CP, or T-Bill and a high fixed rate cap set between 14%-18%.
Fitch places the following FFELP trusts on Rating Watch Negative:
--Arizona Educational Loan Marketing Corp. - 1992 (April 1, 1992) Trust Indenture (AZ);
--Access to Loans for Learning Student Loan Corp. - 1998 Master Trust IV (CA);
--Arizona Educational Loan Marketing Corp. - 1992 (Sept 1, 1992) Trust Indenture (AZ);
--Arizona Higher Education Loan Authority - 2005 Trust Indenture;
--Educational Funding of the South, Inc. - 1993 Indenture of Trust (TN);
--Florida Educational Loan Marketing Corp.(FELMAC) - 1998 Trust Indenture (FL);
--Mississippi Higher Education Assistance Corp. - 1999 Trust Indenture (MS);
--Mississippi Higher Education Assistance Corp. - 2004 Indenture of Trust (MS);
--Montana Higher Education Student Assistance Corporation - 1993 General Indenture (MT);
--Panhandle-Plains Higher Education Authority, Inc. - Amended and Restated 2003 Trust Indenture (1991) (TX);
--Rhode Island Student Loan Authority - 1993 Master Trust (RI);
--South Texas Higher Education Authority, Inc. - 2007 Master Trust;
--Student Loan Funding Corp - 1997 Indenture of Trust;
--Washington Student Loan Finance Association - 1998 Indenture of Trust (WA).
Fitch places the following trusts on Rating Watch Negative;
--Alaska Student Loan Corp. - 2002 Indenture of Trust (AK) (FFELP and private collateral);
--New Jersey Higher Education Student Assistance Authority - 1998 Indenture of Trust (NJ) (private collateral).
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' dated Aug. 4, 2011;
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS' dated April 7, 2011.
Applicable Criteria and Related Research: Fitch Places 16 U.S. Student Loan ABS Trusts on Rating Watch Negative
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria