OREANDA-NEWS. Fitch Ratings has taken the following rating actions on SLM Student Loan Trust 2013-5 (SLM 2013-5):

--Class A-2 affirmed at 'AAAsf'; Outlook Stable;

--Class A-3 downgraded to 'Bsf' from 'AAAsf'; removed from Rating Watch Negative and assigned Outlook Stable;

--Class B downgraded to 'Bsf' from 'A+sf'; removed from Rating Watch Negative and assigned Outlook Stable.

The class A-3 notes miss their legal final maturity date under both Fitch's credit and maturity base cases. This technical default would result in interest payments being diverted away from class B, which would cause that note to default as well. In downgrading to 'Bsf' rather than 'CCCsf' or below, which constitutes a criteria variation, Fitch has considered qualitative factors such as Navient's historical commitment to the performance of its securitizations, the revolving credit agreement in place for the benefit of the noteholders, and the eventual full payment of principal in modelling.

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.


U. S. Sovereign Risk: The trust collateral comprises 100% Federal Family Education Loan Program (FFELP) 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.

Collateral Performance: Fitch assumes a base case default rate of 6.5% and a 19.5% 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 twelve month (TTM) constant default rate (CDR) and prepayment levels as assumptions for FFELP loans in its cash flow analysis. TTM levels of deferment, forbearance and IBR are 11.18%, 17.41%, and 17.74%, 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 0.17%, 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: Credit enhancement is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of June 2016, total and senior parity ratios are 101.01% (1.00% CE) and 105.33% (5.06% CE), respectively. Liquidity support is provided by a reserve sized at the greater of 0.25% of the pool balance and $998,874, currently equal to $1,684,566. The transaction will continue to release cash as long as the target OC amount of 1.00% (with a floor of $1,250,000) is maintained.

Maturity Risk: Fitch's SLABS cash flow model indicates that the A-2 notes are paid in full on or prior to the legal final maturity date under the 'AAA' rating scenarios. The class A-3 notes, however, do not pay off before their maturity date in any of Fitch's modelling scenarios, including the base cases. If the breach of the class A-3 maturity date triggers an event of default, interest payments will be diverted away from the class B notes, causing them to fail the base cases as well.

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.

While under Fitch's maturity and credit base case scenarios the class A-3 notes miss their legal final maturity date, and the class B notes suffer an interest shortfall due to the default of the class A-3 notes, Fitch is downgrading to 'Bsf', rather than 'CCCsf' or below, 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.


Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.