Fitch Ratings has affirmed seven class A tranches and downgraded one class C tranche of series 2007-1 student loan asset-backed notes issued by FinanSure Student Loan Master Trust I. The class B tranches remain on Rating Watch Negative. (A full rating list is provided at the end of this release.)
The trust finances Federal Family Education Loan Program (FFELP) student loans with 98.86% taxable auction rate notes and 1.14% LIBOR floating rate notes. The actions follow a review of the trust collateral performance taken in conjunction with Fitch's ongoing review of student loan transactions with auction rate exposure. However, the negative rating actions were primarily a result of increasing cumulative default rate approaching structural triggers that may stop class C note interest payments.
The trust is structured with a Junior Subordinate Note Interest Trigger that reallocates funds that would have paid class C interest to instead pay class A principal instead during the time period the trigger is in effect. The trigger will be in effect if on Feb. 1, 2009, the cumulative default rate is at least 9.5% and the subordinate asset percentage, or the total assets to outstanding class A and B note principal, is less than 100%. If on Feb. 1, 2010, defaults do not exceed 13.5% and the subordinate asset percentage is above 100%, the trust will resume paying interest to the class C notes.
As of the Oct. 31, 2008 servicer report, the cumulative default rate was at 8.52% and the subordinate asset percentage was at 98.42%. After a review of the student loan delinquency pipeline, Fitch believes that there is a high probability that this trigger will be in effect. For the trigger to occur, the trust will have to experience at least another 0.98%, or approximately $6.2 million, of defaults over the next three months to exceed the 9.5% default threshold. Currently, approximately $42 million of student loan principal, or 7.38% of the outstanding student loan principal balance, is 120 days plus delinquent
Additionally, the taxable auction rate securities are currently paying interest at the maximum rate. The maximum rate for the taxable auction rate securities is defined as the lesser of one-month LIBOR plus 1.5% to 2.5% depending on the note's rating, a Commercial Paper Rate Cap (the quarterly average auction rate is not to exceed the quarterly average CP rate plus 0.75% provided the notes are rated above 'A-'), and 17%. The maximum rate for the taxable auction rate securities is not permitted to be higher than the net loan rate, which effectively caps the auction rate to the weighted average student loan rate less fees. These definitions limit the amount of interest the trust can pay on the auction rate notes. The class B notes remain on Rating Watch Negative as the trust's ability for the subordinate parity ratio to reach 100% may be affected by whether the Junior Subordinate Note Interest Trigger occurs.
Parity ratios, or the ratio of assets to liabilities, have increased for the senior bonds, while remaining relatively stable for the subordinate and junior subordinate bonds despite auction failures. As of Oct. 31, 2008, the senior, subordinate, and junior subordinate parity ratios were at 114.06%, 98.42%, and 97.28%, respectively.
Credit enhancement consists of excess spread and a reserve account. The senior class A notes also benefit from subordination provided by the lower rated class B and C notes.
The collateral supporting the bonds consists of federally guaranteed loans originated under the FFELP. FFELP loans are guaranteed by an eligible guarantor to at least 97% of principal and accrued interest, depending on loan origination date.
The student loan portfolio is serviced by Great Lakes Educational Loan Services, Inc and ACS Education Services, Inc. both rated Proficient Plus by Fitch as FFELP servicers.
Fitch has taken the following rating actions on FinanSure Student Loan Master Trust 2007-1:
--Class A-1 affirmed at 'AAA';
--Class A-2 affirmed at 'AAA';
--Class A-3 affirmed at 'AAA';
--Class A-4 affirmed at 'AAA';
--Class A-5 affirmed at 'AAA';
--Class A-6 affirmed at 'AAA';
--Class A-7 affirmed at 'AAA';
--Class B-1 'A' remains on Rating Watch Negative;
--Class B-2 'A' remains on Rating Watch Negative;
--Class B-3 'A' remains on Rating Watch Negative;
--Class C-1 downgraded to 'BB' from 'BBB' and remains on Rating Watch Negative.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.