Fitch Removes Three Student Loan ABS Trusts from Rating Watch Negative; Assigns Negative Outlooks

Link to Fitch Ratings' Report: Fitch Takes Various Actions on Three Student Loan ABS Trusts on Rating Watch Negative

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682691

Fitch Ratings has removed all classes of the following student loan ABS trusts from Rating Watch Negative and assigns Negative Outlooks:

--New Jersey Higher Education Student Assistance Authority - 1998 Indenture of Trust (NJHESAA);

--Vermont Student Assistance Corporation 1995 Master Trust (VSAC).

--Alaska Student Loan Corp. - 2002 Indenture of Trust (AK).

In addition, Fitch takes various rating actions on all three trusts. A list of rating actions follows at the end of this release.

The ratings were placed on Rating Watch due to the prominence of a unique multiplier function and its determination based on lowest rating assigned to the notes by any rating agency. Trusts that are being downgraded have been determined to be vulnerable to this multiplier function, with presently under-collateralized trusts faring worse under the applied stress. The trusts are either comprised of 100% private student loans or a mixture of FFELP and private student loans.

Since the failure of the auction rate securities market in 2008, the maximum auction rate (MAR) has been in effect for these transactions. The MAR includes a multiplier or applicable percentage which increases depending on the rating. Typically, the applicable percentage is between 150% - 175% of the linked index for ratings 'A' or better and 200% - 265% of the linked index for ratings less than 'A'. The applicable percentage is usually based on the lowest rating on the bonds.

Fitch analyzed the effect on the trusts if a bond's applicable percentage were to increase from 175% to 265% due to a ratings downgrade while simultaneously applying the LIBOR up interest rate stresses also used for new transactions. In this scenario, the bond's coupon will increase by about 50% (unless it hits the cap), which will compress excess spread and possibly erode parity. Fitch has downgraded tranches which become impaired under this scenario and have a higher risk of principal shortfall.

Definitions of MAR vary for the indicated trusts and they can be indexed to either the Securities Industry and Financial Markets Association Municipal Swap Index (SIFMA), produced by Municipal Market Data, the 30 or 90 day 'AA' Financial CP rate (CP), or the 90-day T-Bill rate (T-Bill). The interest rate for the ARS is the lesser of the applicable percentage times SIFMA, CP, or T-Bill, and a high fixed rate cap set between 14% - 18%.

Given these trusts contain private student loans as part of their underlying collateral. Fitch applied an additional stress to the private loans to account for projected defaults. Fitch used historical vintage loss data provided by each issuer, or proxies for trusts that were not able to provide one to form a loss timing curve representative of each trust collateral pool. After giving credit for seasoning of loans in repayment, Fitch applied the trust's current cumulative gross loss level to this loss timing curve to derive the expected gross losses over the projected remaining life. A recovery rate was applied, which was determined to be appropriate based on the latest data provided by the issuer.

Fitch has downgraded all classes of the following trusts:

--New Jersey Higher Education Student Assistance Authority - 1998 Indenture of Trust (NJ)

(private collateral);

--Vermont Student Assistance Corp. - 1995 Bond Resolution (VT) (FFELP and private collateral).

In addition, Fitch affirms all classes of the following trust:

--Alaska Student Loan Corp. - 2002 Indenture of Trust (AK) (FFELP and private collateral).

Please see the attached file for a complete list of rating actions.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

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

--'Rating U.S. Federal Family Education Loan Program Student Loan ABS' (April 3, 2012);

--'U.S. Private Student Loan ABS Criteria' (Jan. 31, 2012).

Applicable Criteria and Related Research:

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=675202

U.S. Private Student Loan ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=667570

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

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