OREANDA-NEWS. Fitch Ratings has published revised criteria for rating U. S. Federal Family Education Loan Program (FFELP) student loan ABS. The report replaces the report titled "Rating U. S. Federal Family Education Loan Program Student Loan ABS" dated June 23, 2014 and the exposure draft titled "Exposure Draft: Rating U. S. Federal Family Education Loan Program Student Loan ABS Criteria" published on Nov. 18, 2015 and subsequently re-released on Dec. 4, 2015.

The main changes to the criteria are revised assumptions and stresses for deferment, forbearance, IBR, default timing and prepayments for both new ratings and surveillance. In addition, the new surveillance approach introduces rating tolerances based on time to maturity.

Based on additional analysis and feedback received during the comment period of the exposure draft, Fitch has modified certain assumptions and stresses compared to those in its original proposal. Those modifications include:

--Implementation of annual declines in the deferment stress for the maturity scenario and forbearance stress for the credit, base case and maturity scenarios.

--Allowance for loan forgiveness for loans in the Income-Based Repayment program beginning 2036 until 2041.

--Application of a constant default rate approach for the maturity scenario for new ratings and surveillance.

--Application of a conditional payment rate stress according to the rating category for the credit stress scenarios including the base case stress scenario.

--Evaluation of the likelihood of an event of default occurrence in determining the ratings of other senior bonds.

--Application of rating tolerances of one to two categories up to either 'AAsf' or 'Asf' compared to the 'Asf' cap in the original proposal depending on the time to maturity in the surveillance process.

In addition, Fitch will now use its proprietary cash flow model to assign final ratings of new transactions.

Ratings Impact:

On Dec. 18, 2015, Fitch placed tranches that failed the new proposed stresses for their current rating category on Rating Watch Negative (RWN). Over the coming months, Fitch will review all FFELP SL ABS transactions, including those not on RWN, using the revised methodology and will take the appropriate rating actions. In addition to model results, Fitch will also consider additional factors such as remaining time to maturity, payment trends, and sponsor support.