Fitch Takes Various Actions on SLM 2004-4
--Class A-4 affirmed at 'AAAsf'; Outlook Stable;
--Class B 'AAAsf'; Rating Watch Negative maintained.
While the class B notes miss their legal final maturity date under Fitch's maturity and credit base case scenarios, the Rating Watch status is maintained based on anticipation of sponsor support, given the notes' eligibility for the clean-up call and Navient's historical commitment to the performance of its securitizations. This constitutes a criteria variation, as Fitch is not downgrading the notes to 'CCCsf' or below. Fitch expects to resolve this Rating Watch within six months either through a downgrade of the notes to low speculative grade or an affirmation resulting from sponsor action that remedies the situation.
Additionally, the trust has entered into a revolving credit agreement with Navient by which it may borrow funds at maturity in order to pay the off notes. Because Navient has the option but not the obligation to lend to the trust, Fitch cannot give full quantitative credit to this agreement. However, the agreement does provide qualitative comfort that Navient is committed to limiting investors' exposure to maturity risk.
KEY RATING DRIVERS
U. S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans 100% of which are rehab loans, with guaranties provided by eligible guarantors and reinsurance provided by the U. S. Department of Education (ED) for at least 97% of principal and accrued interest. The U. S. sovereign rating is currently 'AAA'/Outlook Stable by Fitch.
Collateral Performance: Fitch assumes a base case default rate of 3% and an 8.75% default rate under the AAA credit stress scenario. The claim reject rate is assumed to be 0.50% in the base case and 3% in the AAA case. Fitch applies the standard default timing curve, as well as the trailing 12-month constant default rate (CDR) and prepayment levels as assumptions for FFELP loans in its cash flow analysis. Current levels of deferment, forbearance and IBR are 12.98%, 15.81%, and 14.26%, respectively, which are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.01%, based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.
Payment Structure: As of June 2016, total and senior effective parity ratios (with include the reserve account) are, respectively, 111.18% (10.06% credit enhancement [CE]) and 437.73% (77.15% CE). Liquidity support is provided by a reserve account sized at its floor of $2,501,168. The trust has entered turbo pay-down as the pool factor is below 10%, so no cash will be released until the notes are paid in full.
Maturity Risk: Fitch's SLABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.
Operational Capabilities: Day-to-day servicing is provided by Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.). Fitch believes Navient to be an acceptable servicer of FFELP student loans.
For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria is silent on the treatment of such assets, this treatment is considered a criteria variation.
Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated July 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
Although the class B notes miss their legal final maturity date under Fitch's maturity and credit base case scenarios, Fitch is not downgrading the notes to 'CCCsf' or below for the reasons described above, which constitutes a criteria variation.
Since the FFELP student loan ABS relies on the U. S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U. S. sovereign rating. Aside from the U. S. sovereign rating, defaults, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.