Fitch Sees Minimal Impact on XLS Student Loan Servicing Due to CIT Bankruptcy

2009-11-04 16:23:02 -

Fitch Ratings believes that the bankruptcy of CIT Group Inc. (CIT) will not have material performance implications resulting from operational deterioration for the trusts serviced by Xpress Loan Servicing (XLS).

CIT Group Inc. (CIT) is the parent company of Education Lending Group (ELG) and XLS. The trusts serviced by XLS include: Education Lending Group - Education Funding Capital Trust II,

III, IV, and CIT Education Loan Trust 2005-1 as well as a portion of PARTS Student Loan Trust 2007-CT1.

Fitch downgraded the long-term Issuer Default Ratings (IDRs) of CIT to 'D' from 'RD' after the company filed a voluntary petition seeking relief under Chapter 11 of the U.S. Bankruptcy Code on Nov. 1. The ratings of CIT Bank and the company's other operating subsidiaries remain unchanged as they were not included in the bankruptcy filing. XLS confirmed to Fitch that it and its parent ELG were not included in the filing.

Fitch spoke with XLS regarding the potential implications of the CIT bankruptcy filing to XLS' operations and its capacity as servicer of the above mentioned transactions. XLS stated that it is 'business as usual' and that they continue to fill open positions as turnover occurs. Fitch believes that if XLS becomes part of the bankruptcy proceedings, a bankruptcy judge would consider the servicing operations necessary to protect trust assets and the total value of the estate. Therefore, the servicing operations would be maintained and expenses, including payroll, would continue to be funded. Additionally, the servicing platform itself is an asset and could be acquired by a third-party in a bankruptcy proceeding.

Currently, XLS services approximately $9 billion in student loans, which includes about $2.6 billion within the above referenced transactions.

Additional named servicers on the ELG transactions include Great Lakes Educational Loan Services, Inc. (GLELSI) and the Pennsylvania Higher Education Assistance Agency (PHEAA). Other servicers named on the PARTS transaction include GLELSI and ACS Education Services.

Fitch affirmed its ratings of the XLS serviced trusts on Sept. 30 after determining that there was no significant operational risk tied to XLS.

The exception was the PARTS transaction, which was placed on Rating Watch Negative on Oct. 30 due to a higher than expected level of default, not because of its ties to XLS or XLS' operational capacity.

The PARTS trust consists of private education loans, including proprietary and trade school loans which have been more susceptible to the current recession leading to the higher level of defaults. The ELG transactions consist of only federally guaranteed student loans and were affirmed based on the increased parity of the trusts as well as the determination that operational risk related to XLS was not present at that time.

Fitch will continue to monitor the performance of all the XLS serviced trusts and comment on performance, servicing, or other changes. Since PARTS is on Rating Watch Negative, it is currently being reviewed and Fitch is expected to comment in the next 180 days.

The following applicable criteria report is available on Fitch's web site at ' www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. '.

'Global Structured Finance Rating Criteria' dated Sept. 30, 2009; 'Rating US Federal Family Education Loan Program Student Loan ABS Criteria' dated April 11, 2008; and 'U.S. Private Student Loan ABS Criteria' dated Aug. 24, 2009.

Additional information is available at ' www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. '.

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Fitch Ratings, New YorkSandro Scenga, +1-212-908-0278 sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com Howard
Miller, +1-212-908-0737Emily Lee, +1-212-908-0667