NELNET, INC.
Fitch Ratings has affirmed the ratings of
In addition, Fitch revised the Rating Outlook for the A-4 notes to Negative from Stable and the class B-2 notes to Stable from Positive.
RATING ACTIONS
Entity / Debt
Rating
Prior
A-4 64032EAD9
LT
AA+sf
Affirmed
AA+sf
B-2 64032EAJ6
LT
Asf
Affirmed
Asf
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The class A-4 and B-2 notes pass credit and maturity stresses in cashflow modeling with sufficient hard credit enhancement (CE) under Fitch's assumptions at current ratings. The notes continue to face rating sensitivity to maturity risk scenarios.
The sustainable constant default rate (sCDR) assumption was increased to 3.50% from 3.00% due to the increasing trend in defaults since the prior review.
The Negative Outlook for the class A-4 notes and the B-2 notes' Outlook revision to Stable reflect the increased assumed defaults and the possibility of further negative rating pressure in the years if the remaining term of the assets continues to decline at a slower rate than expected.
The rating of the class A-4 notes is capped at 'AA+sf', the level of the
KEY RATING DRIVERS
Collateral Performance: Based on transaction-specific performance to date, Fitch assumes a cumulative default rate of 18.00% under the base case scenario and a cumulative default rate of 49.50% under the 'AA' credit stress scenario and 36.00% under the 'A' credit stress scenario. Fitch is revising the sustainable constant default rate (sCDR) upwards to 3.50% from 3.00%, as the trend in defaults has increased, and maintaining the sustainable constant prepayment rate (sCPR; voluntary and involuntary prepayments) of 12.50% in cash flow modelling.
Fitch applies the standard default timing curve in its credit stress cash flow analysis, as described in Fitch's FFELP criteria. The claim reject rate is assumed to be 0.25% in the base case, 1.30% in the 'A' case, and 1.65% in the 'AA' case. The TTM levels of deferment, forbearance and IBR are 5.21% (5.51% at
The 31-60 DPD and the 91-120 DPD have decreased marginally from
Basis and Interest Rate Risk: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of most recent distribution date, approximately 98.87% of the student loans are indexed to 30-day Average SOFR. The balance of the loans are indexed to T-bill. All the notes are currently indexed to 90-day Average SOFR plus the spread adjustment of 0.26161%. Fitch applies its standard basis and interest rate stresses to the transaction as per criteria.
Payment Structure: Credit enhancement (CE) is provided by excess spread, overcollateralization, and for the class A notes, subordination provided by the class B notes. As of the most recent distribution date, the reported total parity ratio is 101.06%. Liquidity support is provided a reserve account currently sized at its floor of
Operational Capabilities: Day-to-day servicing is provided by
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
'AA+sf' rated tranches of most FFELP securitizations will likely move in tandem with the
This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. Fitch conducts credit and maturity stress sensitivity analysis by increasing or decreasing key assumptions by 25% and 50% over the base case. The credit stress sensitivity is viewed by stressing both the base case default rate and the basis spread. The maturity stress sensitivity is viewed by stressing remaining term, IBR usage and prepayments. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance.
Current Ratings: class A-4 'AA+sf'; class B-2 'Asf'
Current Model-Implied Ratings: class A-4 'AA+sf' (Credit Stress) / 'AAsf' (Maturity Stress); class B 'AAsf' (Credit Stress) / 'AA+sf' (Maturity Stress)
Credit Stress Rating Sensitivity
Default increase 25%: class A 'AA+sf'; class B 'Asf';
Default increase 50%: class A 'AA+sf'; class B 'Asf';
Basis Spread increase 0.25%: class A 'AA+sf'; class B 'Asf';
Basis Spread increase 0.5%: class A 'AA+sf'; class B 'Asf'.
Maturity Stress Rating Sensitivity
CPR decrease 25%: class A 'BBBsf'; class B 'Asf';
CPR decrease 50%: class A 'CCCsf'; class B 'BBBsf';
IBR Usage increase 25%: class A 'AAsf'; class B 'Asf';
IBR Usage increase 50%: class A 'Asf'; class B 'Asf'.
Remaining Term increase 25%: class A 'CCCsf'; class B 'CCCsf';
Remaining Term increase 50%: class A 'CCCsf'; class B 'CCCsf'.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Credit Stress Sensitivity
Default decrease 25%: class A 'AA+sf'; class B 'AA+sf';
Basis Spread decrease 0.25%: class A 'AA+sf'; class B 'AA+sf'.
Maturity Stress Sensitivity
CPR increase 25%: class A 'AA+sf'; class B 'AA+sf';
IBR usage decrease 25%: class A 'AA+sf'; class B 'AA+sf';
Remaining Term decrease 25%: class A 'AA+sf'; class B 'AA+sf'.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Additional information is available on www.fitchratings.com
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