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Fitch Takes Various Rating Actions on PHEAA Student Loan Trust 2015-1.

New York: Fitch Ratings has taken the following rating actions on Pennsylvania Higher Education Assistance Agency (PHEAA) Student Loan Trust 2015-1:

--Class A affirmed at 'AAAsf'; Outlook Stable;

--Class B upgraded to 'AAsf' from 'Asf'; Outlook Stable.

Although cash flow indicated a higher rating, the class B notes do not meet the 102.5% total parity required for 'AAAsf' per Fitch's criteria.

Additionally, the class B notes have an interest cap. Fitch rates to the class B interest cap and does not rate to the class B carryover interest.


U.S Sovereign Risk: The trust collateral comprises 100% Federal Family Education Loan Program (FFELP) loans, 19% of which are rehab loans, with guarantees provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The U.S. sovereign rating is currently 'AAA'/Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of 21.75% and a 50.75% default rate under the 'AAA' credit stress scenario (48% under the 'AA' credit stress scenario). The base case default assumption of 21.75% implies a sustainable constant default rate of 4.2% (assuming a weighted average life of 5.1 years) and a sustainable constant prepayment rate (voluntary and involuntary) of 12.5%. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The claim reject rate is assumed to be 0.25% in the base case and 2.0% in the 'AAA' case. As of September 2017, the trailing-12-month (TTM) levels of deferment, forbearance, and income-based repayment (prior to adjustment) are approximately 6.6%, 9.5%, and 11.2%, respectively, and are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.31%, based on information provided by the sponsor.

Basis and Interest Rate Risk: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for SAP and the securities. Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.

Payment Structure: Credit enhancement (CE) is provided by overcollateralization (OC) and excess spread. As of October 2017, the total and senior effective parity ratios (including the reserve and excluding accrued interest not to be capitalized) are 101.52% (1.5% CE) and 105.33% (5.06%), respectively. Liquidity support is provided by a reserve sized at the greater of 0.25% of the pool balance and $954,246.16, currently equal to $1,079,469.71. The trust will continue to release cash as long as the specified OC amount (the greater of 1.5% and $6,432,822.23) is maintained.

Maturity Risk: Fitch's student loan ABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.

Operational Capabilities: Day-to-day servicing is provided by Pennsylvania Higher Education Assistance Agency (PHEAA). Fitch believes PHEAA to be an acceptable servicer, due to its extensive track record as one of the largest servicers of FFELP loans.


'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. Additionally, the results do not take into account any rating cap considerations.

Credit Stress Rating Sensitivity

--Default increase 25%: class A 'AAAsf'; class B 'AAAsf';

--Default increase 50%: class A 'AAAsf'; class B 'Asf'

--Basis Spread increase 0.25%: class A 'AAAsf'; class B 'AAAsf;

--Basis Spread increase 0.50%: class A 'AAAsf'; class B 'AAAsf'.

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf';

--CPR increase 100%; class A 'AAAsf'; class B 'AAAsf';

--IBR Usage decrease 50%: class A 'AAAsf'; class B 'AAAsf';

--IBR Usage increase 100%: class A 'AAAsf'; class B 'AAAsf'.


No third party due diligence was provided or reviewed in relation to this rating action.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Mar 14, 2018
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