Fitch Takes Various Actions on GCO ELF Trust II Notes

Fri Jun 7, 2013 6:11pm EDT

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Fitch Takes Various Actions on GCO ELF Trust II Notes

Fitch Ratings affirms the senior student loan notes at 'AAAsf' and junior subordinate student loan note at 'Bsf' and upgrades the subordinate student loan notes to 'Asf' from 'BBsf' issued by GCO Education Loan Funding Master Trust II. The Rating Outlook on the senior notes, which is tied to the sovereign rating of the U.S. government, remains Negative, while the Rating Outlook on the Jr. subordinate notes remains Stable. The subordinate notes are removed from Rating Watch Positive and assigned a Stable Outlook. Fitch used its 'Global Structured Finance Rating Criteria', and 'Rating U.S. Federal Family Education Loan Program Student Loan ABS' to review the ratings.

Key Rating Drivers

The ratings on the senior notes are affirmed and the ratings on the subordinate notes are upgraded based on stable trust performance and the sufficient level of credit to cover the applicable risk factor stresses. Credit enhancement for the senior, subordinate, and Jr. subordinate notes consists of overcollateralization and future excess spread, while the senior notes also benefit from subordination provided by the class B notes. Since last review, the subordinate notes parity, which excludes the Jr. subordinate note, increased considerably from 101.31% to 102.76%. Fitch calculated total parity, which includes the Jr. subordinate note, increased from 98.57% to 99.63%, signifying continued undercollateralization of the Jr. subordinate note.

Rating Sensitivities

Since FFELP student loan ABS rely 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 and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

Fitch has taken the following rating actions:

GCO Education Loan Funding Master Trust II:

--2006-2 A-1AR affirmed at 'AAAsf'; Outlook Negative;

--2006-2 A-1RRN affirmed at 'AAAsf'; Outlook Negative;

--2006-2 A-2AR affirmed at 'AAAsf'; Outlook Negative;

--2006-2 A-2L affirmed at 'AAAsf'; Outlook Negative;

--2006-2 A-3AR affirmed at 'AAAsf'; Outlook Negative;

--2006-2 A-3L affirmed at 'AAAsf'; Outlook Negative;

--2006-2 A-4AR affirmed at 'AAAsf'; Outlook Negative;

--2007-1 A-5AR affirmed at 'AAAsf'; Outlook Negative;

--2007-1 A-5L affirmed at 'AAAsf'; Outlook Negative;

--2007-1 A-6AR affirmed at 'AAAsf'; Outlook Negative;

--2007-1 A-6L affirmed at 'AAAsf'; Outlook Negative;

--2007-1 A-7AR affirmed at 'AAAsf'; Outlook Negative;

--2007-1 A-7L affirmed at 'AAAsf'; Outlook Negative;

--2006-2 B-2AR upgraded to 'Asf' from 'BBsf'; removed from Rating Watch Positive; Stable Outlook assigned;

--2007-1 C-1L affirmed at 'Bsf'; Outlook Stable.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' dated June 6, 2012;

--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' dated May 17, 2013.

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708795

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793195

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.

Fitch Ratings
Primary Analyst
Victoria Ohorodnyk, +1-212-908-0866
Analyst
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Tracy Wan, +1-212-908-9171
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

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