Fitch Affirms SLM Student Loan Trust 2006-2
--Class A-5 notes at 'AAAsf'; Outlook Stable;
--Class A-6 at 'AAAsf'; removed from Rating Watch Negative and assigned Outlook Stable;
--Class B notes at 'Asf'; Outlook Stable.
The affirmations above are due to the notes passing both Fitch's credit and maturity stresses at the commensurate rating level.
KEY RATING DRIVERS
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 17.00% and a 50.75% 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 in its credit stress cash flow analysis. The trailing 12-month (TTM) average constant default rate, utilized in the maturity stresses, is 2.0%. TTM levels of deferment, forbearance, income-based repayment (prior to adjustment) and constant prepayment rate (voluntary and involuntary) are 5.8%, 8.7%, 8.2% and 6.5%, respectively, and 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 0.28%, 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 (CE) is provided by excess spread and, for the class A notes, subordination. As of July 2016 distribution date, senior and total effective parity ratios, respectively, are 104.43% (4.2% CE) and 100.00% (0.0 % CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the pool balance and $4,524,615, currently equal to its floor of $4,524,615. The trust will continue to release cash as long as 100.00% total parity is maintained.
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.
Acceptable Servicing 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. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated Sept. 1, 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. Since the only available funds to invest are those held in the Collection Account, and the funds can only be invested for a short duration given the payment frequency of the notes, Fitch does not believe such variation has a measurable impact upon the ratings assigned.
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 build-up of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.