New York, March 29, 2012 -- Moody's announced today that the appointment of Citigroup Trust Delaware,
N.A. (Citigroup) as successor Delaware Trustee for 26 Nelnet
transactions ("AFFECTED TRANSACTIONS"), pursuant to
the amendments to trust agreements dated March 28, 2012, in
and of itself, will not result in a reduction, withdrawal,
or placement under review for possible downgrade of the outstanding ratings
assigned to student loan bonds at this time.
The amendments to trust agreements formalize Citigroup's role as
Delaware trustee, allowing them to take on Delaware trustee duties,
including the execution of certain documents, in the Affected Transactions.
The previous Delaware trustee, Wilmington Trust Company, provided
notice of its resignation as Delaware Trustee.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
significant effect on yield and/or other payments to investors.
This press release should not be taken to imply that there will be no
adverse consequence for investors since in some cases such consequences
will not impact the rating.
AFFECTED TRANSACTIONS:
GCO Education Loan Funding Trust I
Nelnet Student Loan Trust 2002-1
Nelnet Student Loan Trust 2002-2
Nelnet Student Loan Trust 2003-1
Nelnet Student Loan Trust 2004-3
Nelnet Student Loan Trust 2004-4
Nelnet Student Loan Trust 2005-1
Nelnet Student Loan Trust 2005-2
Nelnet Student Loan Trust 2005-3
Nelnet Student Loan Trust 2005-4
Nelnet Student Loan Trust 2006-1
Nelnet Student Loan Trust 2006-2
Nelnet Student Loan Trust 2006-3
Nelnet Student Loan Trust 2007-1
Nelnet Student Loan Trust 2007-2
Nelnet Student Loan Trust 2008-1
Nelnet Student Loan Trust 2008-2
Nelnet Student Loan Trust 2008-3
Nelnet Student Loan Trust 2008-4
Nelnet Student Loan Trust 2009-2
Nelnet Student Loan Trust 2009-3
Nelnet Student Loan Trust 2010-1
Nelnet Student Loan Trust 2010-2
Nelnet Student Loan Trust 2010-3
Nelnet Student Loan Trust 2010-4
Nelnet Student Loan Trust 2011-1
RATING METHODOLOGY
In rating securitizations backed by student loans originated under the
Federal Family Educational Loan Program (FFELP), Moody's assesses
both the liquidity and credit risk of the transaction. The drivers
that affect the performance of a transaction include defaults, servicer
guarantee rejection rates, voluntary prepayments, basis risk,
borrower benefit utilization, and the number of borrowers in non-repayment
status, such as deferment and forbearance.
As part of our analysis to understand the risk of the underlying collateral,
we examine historical FFELP static pool performance data. To the
extent that performance data is available from a specific issuer,
that information is used to arrive at our cash flow assumptions for that
particular issuer. If an issuer's data are either limited or unavailable,
our assumptions are based on FFELP performance data received from other
participants. Although FFELP loans are a standardized asset,
we will assume additional volatility in certain assumptions for those
issuers that have limited or no data.
In addition, historical interest rates and spreads are analyzed
to evaluate the basis risk between the interest rate to which the bonds
are indexed and the interest rate to which the FFELP loans are indexed.
This historical data is used to derive an expected, or most likely,
outcome for each variable. These expected defaults, prepayments,
interest rates, and other assumptions are then stressed in accordance
with the rating categories requested by the issuer. Factors that
influence the stress levels include the availability of relevant issuer-specific
performance data, the seasoning of the loans, collateral concentrations
(school types, loan programs), the financial strength and
stability of the servicer, and the general economic environment.
These stressed assumptions are then incorporated into a cash flow model
that takes into account the FFELP loan characteristics as well as structural
(e.g., starting parity, cash flow waterfall,
bond tranching, etc.) and pricing features of the transaction.
The cash flow model outputs are analyzed to determine whether the transaction
as structured by the issuer has sufficient credit protection to pay off
the bonds by their legal final maturity dates. We also analyze
the liquidity risk of the transaction given that borrowers can be in non-repayment
status while in school, grace, deferment or forbearance status,
and the transaction can experience delays in default reimbursement and
other payments.
On November 18, 2009, Moody's updated its methodology to incorporate
an additional assessment of the risk posed by slow loan repayment rates
when analyzing bonds that are backed by FFELP student loans. We
have recently observed a considerable decline in actual repayment rates
of securitized FFELP student loan pools across issuers. The risk
posed by slow loan repayment rates is most pronounced for transactions
with negative excess spread, which have become more common in the
past two years. Under the updated methodology, the cash flows
of the transaction must be sufficient to make full and timely payments
to investors in a new repayment stress scenario in which the combination
of voluntary prepayments, defaults, forbearance rates,
and deferment rates results in a total repayment rate that is considerably
lower than our existing stress scenarios.
The rating agency condition for Affected Transactions was assigned in
line with Moody's existing methodology described above. Moody's
noted that on January 18th, 2011, it released a Request for
Comment, in which Moody's has requested market feedback on potential
changes to its rating methodology for FFELP securities.
Further information on Moody's analysis of these transactions is available
on www.moodys.com. Methodologies and factors that
may have been considered in the process of rating this deal can be found
in the Rating Methodologies sub-directory on Moody's website.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
Aleksandra Simanovsky
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Barbara A. Lambotte
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's: No Negative Ratings Impact On Nelnet Trusts From appointment of Citigroup Trust Delaware, N.A.(Citigroup) as the successor Delaware Trustee