Fitch affirms PHEAA student loan trust notes at AA+sf, keeps stable outlook

Traders Union
All News
Financial News
Fitch affirms PHEAA student loan rating

Highlights

Fitch affirms all outstanding classes of notes for seven PHEAA Student Loan Trusts at AA+sf with a Stable outlook, supported by sufficient hard credit enhancement.
Default assumptions remain at 3.50%–5.00% and prepayment rates at 12.00% across trusts, reflecting stable collateral performance and normalized prepayments since the last review.
FFELP loan collateral backed by eligible guarantors and 97%+ U.S. Department of Education reinsurance caps ratings at the U.S. sovereign level, currently AA+ with Stable outlook.

Rating action across seven trusts

As reported by Fitch Ratings, all outstanding classes of notes issued by PHEAA Student Loan Trust 2013-3, 2014-1, 2014-2, 2014-3, 2015-1, 2016-1 and 2016-2 are affirmed at AA+sf, while the outlook on all notes remains Stable.

Fitch says the transactions pass credit and maturity stress tests in its cash flow modeling, supported by sufficient hard credit enhancement. The affirmations reflect stable collateral performance since the last review, with trust default levels remaining steady and prepayments normalizing.

For the seven trusts, Fitch maintains sustainable constant default rate assumptions at 3.50% for PHEAA 2013-3 and 2014-1, 4.00% for 2014-2 and 2014-3, 4.50% for 2015-1 and 2016-1, and 5.00% for 2016-2. It also keeps the sustainable constant prepayment rate at 12.00% for all seven transactions in its cash flow analysis.

U.S. support and portfolio performance

The agency says the collateral consists entirely of FFELP loans backed by eligible guarantors, with reinsurance from the U.S. Department of Education covering at least 97% of principal and accrued interest. Because of that structure, the notes are capped by the U.S. sovereign rating and are likely to move in tandem with it; Fitch currently rates the U.S. sovereign at AA+ with a Stable outlook.

Under Fitch's base case and AA stress scenarios, cumulative default assumptions range from 19.25% to 29.50% in the base case and from 57.75% to 79.50% under stress, depending on the trust. The agency also reports trailing-12-month deferment, forbearance and income-based repayment levels for each transaction, using those measures as starting points for further cash flow modeling as balances are projected to rise or decline under its criteria.

In our earlier article, we covered a rating review of U.S. legacy residential mortgage-backed securities (RMBS) in which 97 note classes across 12 transactions were confirmed with no rating changes. The review concluded that asset-performance trends and credit-support levels remained consistent with existing credit expectations, using updated baseline macroeconomic assumptions and noting no material ESG impact on the credit analysis.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.