2009-04-29 20:31:03 -

Fitch Ratings has completed the bulk of its review of all student loan ABS with auction rate exposures, and the results are summarized below.

As previously announced, Fitch initiated the review of its student loan ABS transactions with auction rate bonds following the disruption in the auction rate market. Fitch's analysis focused on transactions that utilized auction rate debt to finance

FFELP and private student loan collateral. While most trusts were structured to withstand the market freeze, several were affected significantly by the market dislocation.

The review consisted of 90 trusts and as of March 31, 2009, both senior and subordinate bonds of 62 trusts were affirmed. Fitch downgraded 84 classes consisting of 36 senior and 48 subordinate or junior subordinate classes from 25 trusts. The downgrade results are as follows.

Senior bonds rated AAA.

--7 bonds downgraded to 'A';

--3 bonds downgraded to 'AA';

--3 bonds downgraded to 'AA-';

--23 bonds downgraded to 'BBB'.

Subordinate bonds.

--3 bonds downgraded to 'A' from 'AAA';

--1 bond downgraded to 'A' from 'AA';

--2 bonds downgraded to 'BBB' from' A';

--22 bonds downgraded to 'BB' from 'A';

--19 bonds downgraded to 'B' from 'A';

--1 bond downgraded to 'BB' from 'BBB'.

Classes downgraded to 'BB' and 'B' could experience principal losses but are expected to receive timely interest payments for a number of years depending on the transaction structure and interest rate environment.

Nine classes from three trusts remain on Rating Watch Negative awaiting additional information, and will be reviewed in the near future.

Fitch's auction rate review was primarily focused on the direction and speed of parity change, the transaction structure and the generation of excess spread. A declining parity ratio indicated that the trust was not generating sufficient income to cover its interest and expenses. The maximum auction rate definition was a critical factor in Fitch's analysis as this rate dictated the amount of bond interest paid to investors. For most tax-exempt trusts, definitions were based on an index such as 91-day t-bill, SIFMA or the Kenny Index, and 90-day CP.
For most trusts with taxable ARS, the definition was based on LIBOR plus a spread or the net loan rate, which is typically the student loan rate minus fees.

Fitch's analysis revealed that, due to the current interest rate environment, those trusts with maximum rate definitions based on 91-day t-bill, 90-day CP, SIFMA and the Kenny Index were able to build parity as these indices either declined or remained relatively low for most of 2008. As a result, the ratings of these trusts were affirmed.
Additionally, the debt structure of many of the trusts that were affirmed were mixed funded with debt having a lower cost of funds which positively impacted parity.

It is important to note that although these trusts were able to survive the current interest rate environment, there is latent basis risk, and a change in interest rates could cause issues in the future.

The majority of rating downgrades occurred in trusts that were under-collateralized, and where the maximum auction rate was held at the net loan rate. In most cases, the imbalance between the assets and liabilities created a mismatch between the earnings received on the assets and the interest expense paid on the bonds. As a result, principal receipts were used to pay bond interest. Further, some of these trusts also contained a significant percentage of private student loans that were experiencing higher than expected defaults, thus adding to the parity deterioration.

For more information on how failed auctions can impact parity please see the special report titled 'Student Loan Auction Rate-The Definition of Stress' published on Sept. 30, 2008 and available on Fitch's web site at ' www.fitchratings.com : '.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com : .

Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.



Fitch Ratings, New YorkNicole Edwards, +1-212-908-9114Cynthia
Ullrich, +1-212-908-1609Sandro Scenga, +1-212-908-0278 (Media
Relations) sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com