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Rating Action:

Moody's upgrades 6 classes of notes and confirms 6 classes of notes in 4 National Collegiate Student Loan Trust securitizations

24 Jan 2017

Approximately $800 million of asset-backed securities affected

New York, January 24, 2017 -- Moody's Investors Service, ("Moody's") upgraded the ratings of 6 classes of notes and confirmed the ratings of 6 classes of notes in 4 National Collegiate Student Loan Trust (NCSLT) securitizations backed by private (i.e. not government-guaranteed) student loans. The loans are serviced primarily by the Pennsylvania Higher Education Assistance Agency (PHEAA) with U.S. Bank, N.A. acting as the special servicer. The administrator for all securitizations is GSS Data Services, Inc., a wholly owned subsidiary of Goal Structured Solutions, Inc.

Complete rating actions are as follows:

Issuer: National Collegiate Student Loan Trust 2004-2

Cl. A-4, Confirmed at Aaa (sf); previously on Mar 24, 2016 Aaa (sf) Placed Under Review for Possible Downgrade

Cl. B, Confirmed at B1 (sf); previously on Mar 24, 2016 B1 (sf) Placed Under Review for Possible Downgrade

Issuer: National Collegiate Student Loan Trust 2005-1

Cl. A-5-1, Confirmed at Baa3 (sf); previously on Mar 24, 2016 Baa3 (sf) Placed Under Review for Possible Downgrade

Cl. A-5-2, Confirmed at Baa3 (sf); previously on Mar 24, 2016 Baa3 (sf) Placed Under Review for Possible Downgrade

Cl. A-4, Confirmed at Aaa (sf); previously on Mar 24, 2016 Aaa (sf) Placed Under Review for Possible Downgrade

Cl. B, Upgraded to Caa3 (sf); previously on Jun 3, 2013 Downgraded to Ca (sf)

Issuer: National Collegiate Student Loan Trust 2005-2

Cl. A-4, Upgraded to A3 (sf); previously on Mar 24, 2016 Baa2 (sf) Placed Under Review for Possible Downgrade

Cl. A-5-1, Upgraded to Caa1 (sf); previously on Jun 3, 2013 Downgraded to Caa3 (sf)

Cl. A-5-2, Upgraded to Caa1 (sf); previously on Jun 3, 2013 Downgraded to Caa3 (sf)

Issuer: National Collegiate Student Loan Trust 2005-3

Cl. A-4, Upgraded to Aaa (sf); previously on Mar 24, 2016 Aa2 (sf) Placed Under Review for Possible Downgrade

Cl. B, Upgraded to Ca (sf); previously on Jun 3, 2013 Downgraded to C (sf)

Issuer: NCF Grantor Trust 2004-2

Cl. A-5-1, Confirmed at Baa2 (sf); previously on Mar 24, 2016 Baa2 (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

The primary rationale for the rating actions is the continued build-up in credit enhancement supporting the A-class and B-class notes as a result of the rapid pay down of senior notes in sequential pay structures. Although the ratios of total assets to total liabilities have declined to a range of 72%-84% as of December 2016 from a range of 74%-86% as of December 2015, the senior class A-tranches have benefitted from rapid deleveraging. Subordination and overcollateralization supporting senior A-classes increased to a range of 100%-126% from a range of 98%-119%. Moody's expected lifetime net collateral losses has decreased to a range of 28.7%-36.1% from a range of 29.1%-37.3%. The rating actions also reflect Moody's view that the probability of an occurrence of an event of default (EOD) is low. Therefore, the ratings on the A-class bonds continue to reflect sequential principal payments and the resulting differentiation in credit support amongst the senior tranches. The deleveraging of the A-class notes has also benefited B-class notes, with subordination and overcollateralization supporting the B-tranches increasing to a range of 91%-103% from a range of 90%-100%.

The transactions in today's rating actions continue to be subject to the operational and governance risk concerns outlined in Moody's March 24, 2016 rating action. In that action, Moody's placed on review for downgrade 8 of the 12 classes of notes that are the subject of today's rating actions due to the increase in operational and governance risk brought on by a disputed servicing agreement with Odyssey Education Resources, LLC. (See, Moody's reviews for downgrade 8 classes of notes in 4 National Collegiate Student Loan Trust securitizations). The dispute continues to be litigated in the U.S. District for the District of Delaware. In addition, these transactions are also subject to a Notice of Servicer Default claiming that PHEAA failed to comply with the terms of its servicing agreement applicable to all 15 NCSLT transactions (which includes the 4 transactions affected by today's rating action) and a separate lawsuit brought by the 15 trusts against PHEAA in the Delaware Court of Chancery. Moody's believes the lawsuits raise operational and governance risk concerns for the NCSLT transactions because it creates uncertainty as to which party will service the loan pools underlying the NCSLT deals. In addition, the lawsuits give rise to extraordinary fees and expenses that are currently being paid by trust cash flows to cover legal costs sustained by the trustees in the NCSLT securitizations.

In today's rating actions, Moody's considered both the potential negative impact from extraordinary fees charged to the trusts as well as the potential deterioration in performance of underlying pools due to servicer transfer. With regard to extraordinary fees, Moody's modeled the expenses up to the capped amount for the life of the transactions. The cap is specified in transaction documents, limiting all trustee expenses to a maximum of $250,000 per annum. To account for operational and governance risk, Moody's performed sensitivity analysis with higher net collateral loss. Moody's analysis of these cash flow results indicates that the Aaa rated top-pay A-class notes are expected to pay off within 8 to 12 months, even under Moody's stressed assumptions.

The principal methodology used in these ratings was "Moody's Approach to Rating U.S. Private Student Loan-Backed Securities" published in January 2010. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Up

Among the factors that could drive the ratings up are build up in credit enhancement and lower net losses on the underlying assets than Moody's expects, and an elimination in operational and governance risk concerns.

Down

Among the factors that could drive the ratings down are an decrease in credit enhancement, higher net losses on the underlying assets than Moody's expects, and an increase in operational and governance risk concerns.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Donald Lee
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

Kruti Muni
Senior Vice President/Manager
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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