Fitch Ratings affirms the senior notes at 'AAAsf' and the subordinate notes at 'Asf' issued by Nelnet Student Loan Trust 2006-2. The Rating Outlook is revised to Negative from Stable for class A-7 and class B notes, the Outlook remains Stable for all remaining notes.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral is comprised of 100% 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. Fitch currently rates the U.S. 'AAA' with a Stable Outlook.
Credit Enhancement: Credit Enhancement is provided by overcollateralization, excess spread, and for the class A notes, subordination provided by the class B notes. As of the September 2014 report, the total parity 100.08% and senior parity is at 104.62%. Excess cash is currently released from the trust as long as the overcollateralization is maintained.
Adequate Liquidity Support: Liquidity support is provided by a reserve account which is determined as the greater of 0.25% of the pool balance and $3,055,686.03.
Acceptable Servicing Capabilities: Nelnet Inc. as the servicer is responsible for the day-to-day servicing of this trust. In Fitch's opinion, Nelnet is an acceptable servicer of FFELP student loans.
Outlook Negative: Class A-6 and A-7 notes are reset rate notes, with an initial reset date of April 25, 2018 and April 25, 2016, respectively. If the reset rate notes cannot be successfully remarketed the trust will pay the failed remarketing rate of 0.75%. Additionally, the collateral of this trust is made up of 100% FFELP consolidation loans and Fitch recently revised its default assumptions regarding consolidation loans, extending the default timing curve from five to at least eight years to reflect the industry performance data, which indicated a more even distribution of consolidation loan defaults over a longer period of time. The increased defaults in conjunction with a higher spread could create a scenario in which the class A-7 and class B notes experience a principal and an interest shortfall.
RATING SENSITIVITIES
Since the FFELP student loan ABS relies on the U.S. government to reimburse defaults, 'AAA'sf FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
Fitch has affirmed the following ratings:
Nelnet Student Loan Trust 2006-2:
--Class A-4 note at 'AAAsf'; Outlook Stable;
--Class A-5 note at 'AAAsf'; Outlook Stable;
--Class A-6 note at 'AAAsf'; Outlook Stable;
--Class A-7 note at 'AAAsf'; Outlook revised to Negative from Stable;
--Class B note at 'Asf'; Outlook revised to Negative from Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' dated Aug. 4, 2014;
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' dated June 23, 2014.
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=972135
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