Fitch Affirms Kentucky Higher Education Student Loan Corp. Senior Series 2014A

Fitch Ratings has affirmed the Kentucky Higher Education Student Loan Corporation, senior series 2014A student loan revenue bonds as follows:

--A2016 at 'Asf'; Outlook Stable;

--A2017 at 'Asf'; Outlook Stable;

--A2018 at 'Asf'; Outlook Stable;

--A2019 at 'Asf'; Outlook Stable;

--A2020 at 'Asf'; Outlook Stable;

--A2021 at 'Asf'; Outlook Stable;

--A2022 at 'Asf'; Outlook Stable;

--A2023 at 'Asf'; Outlook Stable;

--A2024 at 'Asf'; Outlook Stable;

--A2026 at 'Asf'; Outlook Stable;

--A2028 at 'Asf'; Outlook Stable;

--A2031 at 'Asf'; Outlook Stable.

KEY RATING DRIVERS

Adequate Collateral Quality: The senior series 2014A master trust is a mixed trust collateralized by consolidation loans (17.9%) originated under the Federal Family Education Loan Program (FFELP) and fixed-rate private student loans (82.1%). The FFELP loans includes approximately 40.2% of rehabilitated (rehab) loans, with guarantees provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The current U.S. sovereign rating is 'AAA' with a Stable Outlook. The projected lifetime defaults for the private student loans are expected to be approximately 15%-17%.

Sufficient Credit Enhancement (CE): CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of January 2016, total parity was 141.63% (29.39% CE). Cash can be released to the issuer when the total parity reaches 140%.

Adequate Liquidity Support: Liquidity support for the senior series 2014A notes is provided by a debt service reserve account (sized at the greater of 3% of the bond balance and $500,000) and a $404,196 loan reserve fund.

Acceptable Servicing Capabilities: KHESLC is servicing the entire senior series 2014A portfolio. Fitch believes KHESLC is an acceptable servicer for the portfolio.

On Nov. 18, 2015, Fitch released an exposure draft that delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014.

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 build-up 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.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Exposure Draft: Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 04 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874971

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530

U.S. Private Student Loan ABS Criteria (pub. 31 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868836

Related Research

Kentucky Higher Education Student Loan Corporation Senior Series 2014A -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747191

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003706

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003706

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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