Vermont Student Assistance Corp. Series 2012-B Rating Raised On Class A-2, And Removed From Watch Positive


OVERVIEW
  • We reviewed Vermont Student Assistance Corp.'s series 2012-B, which is backed by a pool of private student loans originated under Vermont Student Assistance Corp.'s deferred variable-rate Advantage loan program.
  • We raised our rating on the class A-2 notes to 'AAA (sf)' and removed it from CreditWatch with positive implications.
  • The upgrade reflects our view of the collateral performance and that the increased credit enhancement is sufficient to support the notes at the 'AAA' rating stress.
 
NEW YORK (S&P Global Ratings) Jan. 4, 2019--S&P Global Ratings today raised 
its rating on the class A-2 notes issued from Vermont Student Assistance Corp.'
s (VSAC's) series 2012-B to 'AAA (sf)' from 'A (sf)' and removed it from 
CreditWatch, where we place it with positive implications on Oct. 10, 2018. 

The upgrade reflects our view that the growth in credit enhancement, resulting 
from the turbo payment mechanism, as well as the better than expected 
performance for the collateral, is sufficient to support the notes at the 'AAA 
(sf)' rating level. 

The transaction uses all available funds remaining after paying fees, 
expenses, and interest to the notes, to pay the class A-1 and A-2 notes 
principal sequentially until the notes are paid in full. As such, the 
overcollateralization, as measured by parity (total assets over the total note 
balance), has increased to 279% from approximately 154% initial parity at 
closing and is expected to continue to increase.

Class A-1 notes have been paid in full as of the December 2018 distribution 
date. 

COLLATERAL OVERVIEW AND DEFAULT EXPECTATION
VSAC's series 2012-B consists of private student loans originated under VSAC's 
deferred variable-rate Advantage loan program and made mostly to undergraduate 
borrowers attending four-year schools. The loans in the pool are highly 
seasoned, with a weighted average time in repayment of almost nine years. 

As of the collection period ending Oct. 31, 2018, approximately 87% of the 
loans are in current repayment status. Cumulative defaults were approximately 
12.8% of the initial collateral balance, while the collateral pool has been 
amortized down to approximately 46.3% of its initial balance. 

Based on our review of the collateral's performance and the seasoning of the 
loans, we lowered our base case lifetime cumulative defaults for the pool to 
17.0%-18.0% from 19.0%-20.0% at closing.  


CASH FLOW MODELING ASSUMPTIONS AND RESULTS
We ran break-even cash flows at 'AAA' stress assumptions to test the 
transaction's ability to receive timely interest and principal no later than 
legal final maturity. The following are some of the major assumptions we 
modeled:

  • A five-year straight-line default curve;
  • A 10% recovery rate received over 10 years;
  • A ramped-up voluntary prepayment speed, which starts at 5% in the first year and gradually ramps up annually, until it reaches 10% and remains at that rate for the transaction's life; and a constant voluntary prepayment speed of 3% for the transaction's life;
  • Forbearance rates of 7.50% for three years;
  • The borrower benefits on all loans that are currently receiving a benefit; and
  • An up, down, and forward interest rate path based on the one-month LIBOR interest rate paths in our criteria (see "U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter," published April 30, 2012). For the 91-day Treasury bill, we assumed one-month LIBOR minus 0.70% for the 'AAA' rating scenario. For the three-month LIBOR, we assumed one-month LIBOR plus 1.0% for the first year and thereafter, one-month LIBOR plus 0.05%.
Given the turbo payment mechanism and the available credit enhancement, the 
class A-2 notes receive timely interest and full principal repayment by its 
maturity date under our 'AAA' stress cash flow scenarios. 
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