ABS investors have concluded, according to a report released by Barclays Capital analysts today, that regardless of a rating action or lack thereof by Standard & Poor's, the FFELP student loan asset class is still fundamentally strong.
"Even if the sector experiences a wholesale downgrade, we do not expect widespread forced selling, as we believe most investors have flexibility in terms of ratings constraints," analysts wrote.
According to them. legislative risks remain in the FFELP ABS sector such as the consolidation of FFELP loans into the federal direct lending program and the possibility of dischargeability of federally guaranteed student loans in bankruptcy.
But, analysts think that the probability of these legislative initiatives’ to achieve success is comparatively small considering the current composition of Congress.
Considering the technical factors, the sound fundamental picture, as well as the government guaranty of the underlying loans, analysts think further spread widening in the sector is probably going to be limited.
With these, they suggested a return to overweight on FFELP-backed student loan ABS.