OREANDA-NEWS. Fitch Ratings has affirmed The Higher Education Securitised Investment No.1 plc's (Thesis) notes as follows:

GBP29.4m class A3 notes: affirmed at 'CCsf'; Recovery Estimate (RE) 60%
GBP7.9m class A4 notes: affirmed at 'CCsf'; Recovery Estimate (RE) 60%

The affirmation reflects our expectation that the class A3 and A4 notes are likely to default due to the increasing principal deficiency ledger (PDL), which is expected to continue and begin writing against the rated notes.

Thesis is a securitisation of income contingent floating-rate student loan receivables, originated in the UK by the government-owned Student Loan Company Limited between 1991 and 2006. The final legal maturity of the notes is in April 2028.

KEY RATING DRIVERS
In our view, negative excess spread amplified by the long duration significantly affects the credit of the transaction. This is evidenced by the decline in credit enhancement for the class A3 and A4 notes, and the growing PDL. We estimate excess spread at around negative 0.90% per year of the non-defaulted portfolio. Taking into account the cost of carrying defaults, and further assuming the recovery on outstanding defaulted loan amounts, we expect negative excess spread to generate further deficiencies on the notes.

Fitch uses a dedicated model to support its analysis of UK student loans such as those of Thesis. We assume a base rate of default on loans in repayment status of 13% and a base recovery rate of 20%. Further deficiency through negative excess spread is calculated at 6%

The portfolio of loans in deferment status is otherwise assumed to exit deferment (or "restate") at a rate of 5% per year over an average remaining duration of eight years. This is in line with past performance until the deferment threshold revision for 2014/15, although this may be expected to revert to the average of previous years over time.

RATING SENSITIVITIES
The impact of a change in the repayment status or delinquency/ default would be unlikely to impact the ratings as default now appears likely. Any change in the PDL and timing of default would lead to a rating change.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Transaction reporting provided by Royal Bank of Scotland plc dated 11 April 2016