Fitch Takes Various Actions on Two Nelnet Trusts

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions on Nelnet Student Loan Trust 2005-1 and Nelnet Student Loan Trust 2005-4:

Nelnet Student Loan Trust 2005-1:

--Class A-4 affirmed at 'AAAsf'; Outlook Stable;

--Class A-5 'AAAsf'; Rating Watch Negative maintained;

--Class B 'Asf'; placed on Rating Watch Negative.

Nelnet Student Loan Trust 2005-4:

--Class A-3 affirmed at 'AAAsf'; Outlook Stable;

--Class A-4L 'AAAsf'; Rating Watch Negative maintained;

--Class A-4 AR-1'AAAsf'; Rating Watch Negative maintained;

--Class A-4 AR-2 'AAAsf'; Rating Watch Negative maintained;

--Class B 'Asf'; Rating Watch Negative maintained.

KEY RATING DRIVERS

Maturity Risk: The Rating Watch Negative action is based on the heightened risk of the Nelnet 2005-1 class A-5 and Nelnet 2005-4 class A-4 notes missing their respective legal final maturity dates of Oct. 25, 2033, and March 22, 2032, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final. When an event of default occurs, it is highly likely that the class B notes will not receive timely interest, as the principal for the class A notes must be paid in full prior to the class B notes receiving interest. Therefore, Fitch will not rate subordinate notes higher than any senior notes in the same trust, and has placed the class B notes on Rating Watch Negative accordingly. Fitch expects to resolve the Rating Watch Negative status once its revised FFELP criteria are finalized.

Collateral Quality: Nelnet 2005-1 and Nelnet 2005-4 are backed by 100% Federal Family Education Loan Program (FFELP) loans, with guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest for the FFELP loans. The U.S. is currently rated 'AAA'/Outlook Stable.

Credit Enhancement: CE is provided by excess spread and, for the class A notes only, subordination of the class B notes. As of March 2016, Fitch-calculated effective total parity for Nelnet 2005-1 (which includes the reserve fund) is 100.86% (0.75% CE) and senior parity is 107.24% (6.75% CE). Cash is being released from the trust given that $1.4 million of overcollateralization (OC) (excluding the reserve, as pool factor is below 40%) is maintained. As of February 2016, Fitch calculated effective total parity for Nelnet 2005-4 (which includes the reserve fund) is 100.47% (0.46% CE) and senior parity is 105.40% (5.12% CE). Cash is being released from the trust given that $1.1 million of OC (excluding the reserve, as pool factor is below 40%) is maintained.

Liquidity support: Liquidity support for the series 2005-1 and series 2005-4 notes is provided by reserve accounts, sized at 0.25% of the adjusted pool balances, with floors of $1,869,282 for Nelnet 2005-1 and $2,841,887 for Nelnet 2005-4. The reserve accounts for both trusts are currently equal to their respective floors.

Servicing Capabilities: Day-to-day servicing is provided by Nelnet (both trusts), Xerox-ES (for 2005-1) and ACS (for 2005-4). In Fitch's opinion, all are acceptable servicers of FFELP student loans.

On Nov. 18, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed this transaction under both the existing and proposed criteria. Fitch will address the rating watch statuses after the finalized criteria report has been published.

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. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

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

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

Exposure Draft: Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 04 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874971

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004453

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004453

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/20160513005457/en/

Fitch Ratings
Primary Analyst
Eric Orenstein
Analyst
+1-646-582-4816
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

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