Some of the lowest-rated tranches of older student-loan backed securities are likely to get a ratings uplife as the result of a new analytical tool adopted by Fitch Ratings.

Fitch said in a report published Tuesday that it's developing a tool tol improve its surveillance of Federal Family Education Loan Program student loan ABS. Initial tests indicate that using the tool could impact 10% to 15% of the existing FFELP ABS currently rated by Fitch.

In many cases, there will be upgrades.

The tranches taht stand to gain are subordinated bonds with interest rates linked to LIBOR. However some senior bonds in tax-exempt portfolios with multiplier embedded in the interest rate definition could see a negative ratings impact, Fitch said.

Deutsche Bank analysts said in a report, also published Tuesday, that the potential upgrades would be well deserved. 

“Fitch’s ratings on these bonds are often significantly lower than the other rating agencies despite most of the transactions having clean structures, and the 97% government guarantee on the underlying collateral,” the analysts said.

 

 

 

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