Approximately $760 million of asset-backed securities affected
New York, August 17, 2010 -- Moody's Investors Service has assigned provisional ratings of (P)Aaa (sf)
to the Class A notes and (P)A3 (sf) to the Class B notes to be issued
by SLM Student Loan Trust 2010-2.
Issuer: SLM Student Loan Trust 2010-2
$738,000,000 Floating Rate Class A Notes, Assigned
$22,379,000 Floating Rate Class B Notes, Assigned
The ratings are based on the underlying collateral which consists of Federal
Family Education Loan Program (FFELP) non-consolidation student
loans, which are indirectly guaranteed by the U.S.
Department of Education for a minimum of 97% of defaulted principal
and accrued interest; gross excess spread, which is expected
to average between 30 and 40 basis points per annum, a debt service
reserve account equal to 0.50% of the pool balance,
which is available to cover shortfalls in payments of the servicing and
administration expenses, interest on the notes, and principal
at maturity; a $3 million capitalized interest account that
provides liquidity support; and the expertise and experience of Sallie
Mae, Inc., which is the largest FFELP servicer,
as the master servicer for this transaction. The Class A notes
are further expected to benefit from the 3% subordination provided
by the Class B notes. The expected net loss for the SLM 2010-2
transaction is 0.32%.
In rating securitizations backed by student loans originated under FFELP,
Moody's assesses both the liquidity and credit risk of the transaction.
The drivers that affect the performance of a transaction include defaults,
rejection rates, voluntary prepayments, basis risk,
borrower benefit utilization, and the number of borrowers in non-repayment
status, such as deferment and forbearance.
As part of our analysis to understand the risk of the underlying collateral,
we examine historical FFELP static pool performance data. To the
extent that performance data is available from a specific issuer,
that information is used to arrive at our cash flow assumptions for that
particular issuer. If an issuer's data are either limited or unavailable,
our assumptions are based on FFELP performance data received from other
participants. Although FFELP loans are a standardized asset,
we will assume additional volatility in certain assumptions for those
issuers that have limited or no data.
In addition, historical interest rates and spreads are analyzed
to evaluate the basis risk between the interest rate to which the bonds
are indexed and the interest rate to which the FFELP loans are indexed.
This historical data is used to derive an expected, or most likely,
outcome for each variable. These expected defaults, prepayments,
interest rates, and other assumptions are then stressed in accordance
with the rating categories requested by the issuer. Factors that
influence the stress levels include the availability of relevant issuer-specific
performance data, the seasoning of the loans, collateral concentrations
(school types, loan programs), the financial strength and
stability of the servicer, and the general economic environment.
Other Methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
These stressed assumptions are then incorporated into a cash flow model
that takes into account the FFELP loan characteristics as well as structural
(e.g., starting parity, cash flow waterfall,
bond tranching, etc.) and pricing features of the transaction.
The cash flow model outputs are analyzed to determine whether the transaction
as structured by the issuer has sufficient credit protection to pay off
the bonds by their legal final maturity dates. We also analyze
the liquidity risk of the transaction given that borrowers can be in non-repayment
status while in school, grace, deferment or forbearance status,
and the transaction can experience delays in default reimbursement and
In the SLM Student Loan Trust 2010-2 transaction, the bonds
are expected to be indexed to One-Month LIBOR, unlike many
previous student loan transactions in which the bonds were indexed to
Three-Month LIBOR. In addition, the underlying collateral
in the SLM Student Loan Trust 2010-2 transaction consists of approximately
24% of loans that are indexed to T-bill.
This transaction is exposed to basis risk between one-month LIBOR
and three-month CP rate while a typical FFELP transaction is subject
to basis risk between three-month LIBOR and three-month
CP rate. Moody's Aaa stressed basis risk between one-month
LIBOR and the CP Rate is 10 basis points with certain periods in which
the spread increases to 100 basis points. The Single A stressed
basis risk between one-month LIBOR and the CP Rate is 7 basis points
with certain periods in which the spread increases to 80 basis points.
The most common form of basis risk in FFELP-backed student loan
transactions is CP-based assets paired with LIBOR-based
liabilities. The basis risk exists because all FFELP loans disbursed
after 2000 generate a CP-based yield, while the bond interest
rates are generally indexed to LIBOR. This CP-LIBOR risk
is accounted for and stressed through Moody's interest rate cash flow
assumptions which were updated on November 19, 2008.
Approximately 24% of the student loans in the transaction generate
a T-Bill based return to the trust. This creates a significant
amount of basis risk between T-Bill and One Month LIBOR.
The interest rate assumptions used for the T-
Bill and One Month LIBOR assumptions are:
Spread Assumptions: Aaa -- 135 bps; Single A
-- 117 bps; Maturity -- 115 bps;
Spike Assumptions: Aaa -- 280 bps; Single A --
210 bps; Maturity -- None;
The interest rate spikes occur in the third and fourth quarter of year
1; the third and fourth quarter of year 5 and for the first 6 months
after the pool factor reaches 10%.
The V Score for this transaction is Medium, which is in-line
with the Medium V Score assigned for the U.S. FFELP-Backed
LIBOR-Indexed ABS sector. The primary driver of the Medium
V Score is the volatility that is introduced by basis risk, which
Moody's V Scores provide a relative assessment of the quality of available
credit information and the potential variability around the various inputs
to a rating determination. The V Score ranks transactions by the
potential for significant
rating changes owing to uncertainty around the assumptions due to data
quality, historical performance, the level of disclosure,
transaction complexity, the modeling and the transaction governance
that underlie the ratings. V Scores apply to the entire transaction
(rather than individual tranches).
If the basis risk in our Aaa stressed assumptions were to increase by
5, 15 or 25 basis points, the initial model output for the
Class A notes may result in model outputs of Aaa, Aaa, and
Aa1, respectively. The Class A notes benefit from a subordinate
interest trigger that shuts off interest to the subordinate class if the
senior parity ratio falls below 100%.
If the basis risk in our Single-A stressed assumptions were to
increase by 5, 15 or 25 basis points, the initial model output
for the Class B notes may result in model outputs of Baa2, Baa3,
and Baa3, respectively.
Parameter Sensitivities are not intended to measure how the rating of
the security might migrate over time; rather they are designed to
provide a quantitative calculation of how the initial model output might
change if key input parameters used in the initial rating process differed.
The analysis assumes that the deal has not aged. Parameter Sensitivities
only reflect the ratings impact of each scenario from a quantitative/model-indicated
standpoint. Qualitative factors are also taken into consideration
in the rating process, so the actual ratings that would be assigned
in each case could vary from the information presented in the Parameter
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction.
Information source used to prepare the credit rating is the following:
parties involved in the ratings.
Moody's Investors Service considers the quality of information available
on the issuer satisfactory for the purposes of assigning a credit rating.
Additional research, including a pre-sale report for this
transaction is available at www.moodys.com. The special
report "V Scores and Parameter Sensitivities in the U.S.
Student Loan ABS Sector," is also available on moodys.com.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit or validate
information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Barbara A. Lambotte
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns Provisional Rating to SLM Student Loan Trust 2010-2
250 Greenwich Street
New York, NY 10007