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Announcement:

Moody's: Slowing FFELP repayment rates pose limited risk for Navient and Nelnet

19 Aug 2015

New York, August 19, 2015 -- Slowing repayment rates on FFELP term student loan asset backed securitization (ABS) trusts sponsored by Navient Corp (Ba3 stable) and Nelnet, Inc. (Ba1 stable) will have a modest impact on either company's risk profile, says Moody's Investors Service in "Navient Corp. and Nelnet, Inc.: Slow FFELP Repayment Rates Manageable for Both Firms."

"The repayment rates on the FFELP term ABS trusts are slowing because a growing number of borrowers are opting for income-based repayment plans, and the number of loans in deferment and forbearance remains high," says Brian Harris, a Moody's Senior Vice President. "However, these factors will weaken both companies' cash flows only slightly, and the risk of impairment to the residual investments in these securities because of the slowing payment rates is also limited."

The direct financial costs of slowing repayment rates to both companies is limited, but Navient does have a large amount of unsecured debt -- $8.8 billion -- maturing over the next four years. Refinancing this debt at a time when student loans are likely to remain a focus of policymakers, and public policy initiatives could create uncertainty for the company, is the key risk for Navient. However, the company will have access to the sizeable amount of cash generated by its student loan portfolio, as well as significant unencumbered assets, currently comprised of $1.0 billion of FFELP loans and $4.7 billion of private student loans.

Nelnet's business is funded almost entirely with securitizations and cash from operations, and given that its $60 million of corporate debt does not mature until 2036, its refinancing risk is minimal.

With regard to the direct financial risks from the slowing repayment rates, both Navient and Nelnet face some potential liquidity challenges. For example, one challenge could arise if the companies were to purchase loans from their FFELP term ABS trusts up to the permissible limits, to lessen the likelihood that ABS bonds will not be repaid by their maturity. But significant purchases are likely only if the companies believe they will be able to obtain permanent financing for the loans.

Furthermore, the two companies' residual investments in the securitization trusts could pose another challenge if the bonds do not pay down fully by their final maturity dates. However, Moody's estimates the potential residual interest impairment over the next ten years at only about $185 million for Navient (5.3% of its tangible equity) and $17.5 million for Nelnet (1.1% of its tangible equity).

The risks stemming to the corporate debt of the sponsors and servicers of FFELP ABS differ from the risks to the bonds backed by the securitized FFELP student loans. A number of FFELP term ABS trusts sponsored by these companies might not pay down fully by their final maturity dates owing to the slowing repayments. As a result, Moody's recently placed on review for downgrade the ratings on 118 tranches amounting to about $37 billion of FFELP term loan securitizations by several issuers, including trusts sponsored by Navient and Nelnet. Moody's also published a request for comment on its approach to FFELP ABS, available at

https://www.moodys.com/research/Proposed-Changes-to-Moodys-Approach-to-Rating-Securities-Backed-by--PBS_SF412194.

The report is available to subscribers at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1007129

***

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Brian L. Harris
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Slowing FFELP repayment rates pose limited risk for Navient and Nelnet
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