Fitch Affirms Scholar Funding Trust Series 2012-B; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following:

Scholar Funding Trust Series 2012-B (Scholar 2012-B):

--Class A-1 at 'AAAsf'; Outlook Stable;

--Class A-2 at 'AAAsf'; Outlook Stable.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans, 100% of which are rehabilitated loans. Guarantees are provided by the transaction's eligible guarantors and reinsurance is 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'/Stable Outlook.

Collateral Performance: Fitch assumes a 58.25% base case default rate and a 100% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.25% in the base case and 2.0% in the 'AAA' case. Fitch applies the standard default timing curve, as well as the trailing twelve month constant default rate (CDR) and prepayment levels as assumptions for FFELP loans in its cash flow analysis. Current levels of deferment, forbearance and IBR are 11.93%, 5.34% and 10.14% respectively, which 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 0% based on information provided by the sponsor.

Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this trust as per the agency's criteria.

Payment Structure: Credit Enhancement (CE) is provided by excess spread and overcollateralization. As of the July 2016 distribution report, total parity is 105.99% (5.65% CE). Excess cash will continue to be released from the trust given a target CE amount equal to the greatest of 5.65% of the adjusted pool balance and $1.0 million has been maintained. Liquidity support is provided by a reserve account currently sized at the floor of $356,267, which is 0.15% of the initial pool balance.

Maturity Risk: Fitch's SLABS 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: JPMorgan Chase Bank, N.A., Xerox Education Services, and Tru Student, Inc. are the master servicer, subservicer and subservicer, respectively. The subservicers are responsible for the day to day servicing of the portfolio. Fitch believes all to be acceptable servicers of FFELP student loans at this time.

CRITERIA VARIATIONS

For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria is silent on the treatment of such assets, this treatment is considered a criteria variation.

Under the "Counterparty Criteria for Structured Finance and Covered Bonds", dated July 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of the permitted investment for this deal allows the possibility of using investments not rated by Fitch; this represents a criteria variation. Fitch doesn't believe that such variation has a measurable impact upon the ratings assigned.

RATING SENSITIVITIES

Since the FFELP student loan ABS relies on the U.S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 26 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881705

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010402

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010402

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160815006152/en/

Fitch Ratings
Primary Analyst
Jeffrey Prackup
Director
+1-212-908-0839
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Robert Lopez
Associate Analyst
+1-646-582-4969
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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