RPT-Fitch: More new U.S. residual interest student loan ABS deals likely
Oct 15 (Reuters) - (The following statement was released by the rating agency)
Increased investor demand is likely to lead to more new issuance of residual interest U.S. student loan ABS, according to Fitch Ratings in a new report.
To date, Fitch has rated two such transactions - one backed by multiple FFELP residual interests and the other backed by 99% of the residual interest of a single private SLABS trust. Residual interests are simply what are left over from an underlying SLABS trust after making required payments to the relevant parties in a transaction. With these transactions come more idiosyncrasies, according to Director Melvin Zhou.
'Excess spread is a major source of residual student loan ABS so high prepayments would stand to reduce cumulative excess spread over the life of the transaction,' said Zhou. 'This in turn would make residual student loan ABS more vulnerable to losses since the residual interest collateralizing the trust is first line to absorb losses in an underlying trust.'
On top of its standard cash flow stress scenarios for FFELP and private SLABS, Fitch may conduct additional customized stress testing and sensitivity analysis. 'Existing ratings on the underlying bonds, historical performance, structural triggers, trust termination provisions, and qualitative factors all need to be taken into account when assessing residual interest SLABS,' said Zhou.
'Considerations in Rating Student Loan ABS Residual Interest Securitizations' is available at 'www.fitchratings.com' or by clicking on the below link.
Link to Fitch Ratings' Report: Considerations in Rating Student Loan ABS Residual Interest Securitizations
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