Fitch Rates Navient Student Loan Trust 2016-2
OREANDA-NEWS. Fitch Ratings has assigned the following ratings to Navient Student Loan Trust 2016-2 as follows:
--$153,000,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$104,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
--$240,000,000 class A-3 notes 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral consists of Federal Family Education Loan Program (FFELP) loans including approximately 20% of 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. Fitch currently rates the U.S. at 'AAA'/Stable Outlook.
Sufficient Credit Enhancement (CE): Cash flow scenarios for the class A notes were satisfactory under Fitch's 'AAAsf' stresses. Credit enhancement (CE) is provided by overcollateralization (OC), excess spread. A target OC amount equal to the greater of 5.5% of the adjusted pool balance and $5 million must be met before excess cash can be released.
Adequate Liquidity Support: Liquidity support is provided by a reserve account sized at 1.25% of the initial student loan balance, which is funded at closing. The required reserve account balance for any distribution dates prior to the June 2017 distribution is 1.25% of the pool balance and 0.60% of the pool balance on or after the distribution date occurring on or after June 2017 until the June 2021 distribution. Thereafter, the requirement will be the greater of 0.25% of the current student loan balance and 0.10% of the initial student loan balance.
Acceptable Servicing Capabilities: Navient Solutions, Inc. will service 100% of the trust's student loan pool. In Fitch's opinion, Navient Solutions, Inc. is an 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 FFELP student loan ABS rely 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 and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses 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.