OREANDA-NEWS. Fitch Ratings has published an exposure draft detailing proposed amendments to its rating criteria for U.S. Federal Family Education Loan Program (FFELP) student loan ABS. Fitch invites feedback on the proposals during the consultation period that will end on Dec. 31, 2015.

During the exposure draft period, Fitch expects to place potentially impacted tranches on Rating Watch Negative. The aforementioned tranches include those that fail the new proposed stresses for their current rating category.

The main proposals upon which feedback is sought are:

--Revised assumptions and stresses for deferment, forbearance, IBR, default timing and prepayments:
Fitch is proposing changes to key FFELP assumptions and stresses which reflect changing payment behavior and loan status trends partly driven by the introduction of government-sponsored payment programs such as the IBR.

--New surveillance application methodology:
Fitch will apply a new methodology for existing transactions where its cash flow model indicates an implied rating that is lower than the current rating after applying the revised stresses. The methodology allows for rating tolerance of one to two rating categories based on the rating and time to maturity.

Ratings Impact:
Fitch estimates that approximately 35%-45% of existing FFELP student loan ABS tranches would be downgraded based on the new methodology. The magnitude of downgrades is expected to span one to five rating categories, ranging from 'AAA' to 'B'.

Based on preliminary sample testing using proposed assumptions, approximately:

--55%-60% of current 'AAA' rated senior tranches could remain at 'AAA';
--30%-35% of current 'AAA' rated senior tranches could be lowered to 'AA' or 'A' categories;
--10%-15% of current 'AAA' rated senior tranches could be lowered to non-investment grade categories.

Also based on preliminary sample testing using proposed assumptions, approximately 35% of current subordinate bond ratings could be lowered to non-investment grade. However, additional factors such as remaining time to maturity, payment trends, and sponsor support will be considered in Fitch's analysis.