Fitch Takes Various Actions on Navient 2015-1
--Class A-1 affirmed at 'AAAsf'; Outlook Stable;
--Class A-2 'AAAsf'; Rating Watch Negative maintained;
--Class B affirmed at 'A+sf'; Outlook Stable.
KEY RATING DRIVERS
Maturity Risk: The Rating Watch Negative action is based on the heightened risk of the Navient 2015-1 class A-2 notes missing their legal final maturity date of April 25, 2040, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final. Fitch expects to resolve the Rating Watch Negative status once its revised FFELP criteria report is published. The magnitude of any potential rating action could vary depending on remaining time to maturity, recent payment trends, issuer actions such as loan purchases, or other external factors.
High Collateral Quality: The trust collateral consists of 100% Federal Family Education Loan Program (FFELP) loans, including approximately 15% of rehabilitated FFELP loans. The credit quality of the trust collateral is high, in Fitch's opinion, based on the guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The current U.S. sovereign rating is 'AAA' with a Stable Outlook.
Sufficient Credit Enhancement (CE): While both the senior and subordinate notes will benefit from overcollateralization (OC) and future excess spread, the senior notes also benefit from subordination provided by the class B note. As of December 2015, total OC is 1.50%, and OC available to the senior notes is 4.36%. Cash will continue to be released from the trust given that the specified OC amount (the greater of 1.50% of the adjusted pool balance or \\$3.00 million) is maintained.
Adequate Liquidity Support: Liquidity support is provided by a reserve account sized at the greater of (i) 1.65% of the outstanding bond balance before May 2016 (steps down to 0.25% of the outstanding bond balance after May 2016) and \\$992,722, currently equal to \\$14,984,774.
Acceptable Servicing Capabilities: Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.), as servicer, will be responsible for servicing the portfolio. Fitch has reviewed the servicing operations of Navient Solutions and believes it to be acceptable servicer of FFELP student loans.
On Nov. 18, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed this transaction under both the existing and proposed criteria.
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.