OREANDA-NEWS. Fitch Ratings has taken various rating actions on the Michigan Finance Authority student loan asset-backed notes series 2015-1. The Class A notes were placed on Rating Watch Negative (RWN), and the Class B notes were affirmed at 'A+sf'. The Rating Outlook is Stable.

The RWN action on the Class A reflects the notes inability to pass Fitch's 'AAA' maturity stresses, as detailed in the exposure draft published on Nov. 18, 2015. A major factor for the RWN is the high levels of partial financial hardship (PFH) IBR loans in the portfolio which reduces the borrower payments and may cause the Class A notes to miss its final maturity date.

KEY RATING DRIVERS

Maturity Risk: The Negative Watch action is based on the heightened risk of the MFA Series 2015-1 Class A notes missing their legal final maturity date of April 29, 2030, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final. Fitch expects to resolve the Negative Watch status once its revised FFELP criteria report is published. The magnitude of any potential rating action could vary depending on remaining time to maturity, recent payment trends, issuer actions such as loan purchases, or other external factors.

High Collateral Quality: The trust collateral is comprised of Federal Family Education Loan Program (FFELP) loans with guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. Fitch's current U.S. sovereign rating is 'AAA' with a Stable Rating Outlook.

Sufficient Credit Enhancement: CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance), excess spread, and for the Class A notes, subordination provided by the Class B notes. As of the February 2016 distribution, total parity is at 100.89% and senior parity at 104.40%. The parity ratios are expected to continue to increase since this trust cannot release any cash until all notes are paid-in-full.

Adequate Liquidity Support: Liquidity support is provided by a debt service reserve account which is determined as the greater of 0.25% of the pool balance and $463,172 floor. The current reserve requirement balance is $665,497, and the current balance is $674,040.

Acceptable Servicing Capabilities: Nelnet Servicing, LLC is the servicer of this trust. In Fitch's opinion, Nelnet is an acceptable servicer of FFELP student loans based on reviewing its historical net claims rejects.

RATING SENSITIVITIES

Since the FFELP student loan ABS relies on the U.S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch takes the following actions on Michigan Finance Authority student loan asset-backed notes series 2015-1 (series 2015-1):

--Class A 'AAAsf'; Placed on Rating Watch Negative;
--Class B affirmed at 'A+sf'; Outlook Stable.