Approximately $812 million of asset-backed securities affected
New York, February 23, 2011 -- Moody's Investors Service has assigned provisional ratings of (P)Aaa (sf)
to the Class A-1 and the Class A-2 notes and (P)A3 (sf)
to the Class B notes to be issued by SLM Student Loan Trust 2011-1.
The underlying collateral consists of Federal Family Education Loan Program
(FFELP) student consolidation loans.
Moody's issues provisional ratings in advance of the final sale of securities.
Upon a conclusive review of the final documentation, Moody's will
endeavor to assign final ratings to the securities. Final ratings
may differ from provisional ratings.
The complete rating actions are as follows:
Issuer: SLM Student Loan Trust 2011-1
$587,977,000 Floating Rate Class A-1 Notes,
Assigned (P)Aaa (sf)
$200,000,000 Floating Rate Class A-2 Notes,
Assigned (P)Aaa (sf)
$24,370,000 Floating Rate Class B Notes, Assigned
(P)A3 (sf)
RATING RATIONALE
The ratings are based on the underlying collateral which consists of Federal
Family Education Loan Program (FFELP) 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; the overcollateralization of the trust which is expected
to have an initial parity level of 103.36%; a debt
service reserve account of 0.25% 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 $65.1 million capitalized interest account that provides
liquidity support; as well as 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 2011-1
transaction is 0.18%.
V Score
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
is unhedged. The basis risk in this transaction exists because
all of the loans generate a CP-based return to the trust ,
while the bond interest rate is indexed to LIBOR.
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).
Moody's Parameter Sensitivities
For the transaction, if the basis risk in our stressed assumptions
were to be changed to +5, +20 or +25 basis points,
the initial model-indicated output for the Class A notes would
be Aa1, Aa1, and Aa2 respectively.
For the transaction, if the basis risk in our stressed assumptions
were to be changed to +9, +20 or +25 basis points,
the initial model-indicated output for the Class B notes would
be Baa1, Baa3, and <=Ba1 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
Sensitivity analysis.
The methodology that was used in rating this transaction is described
below.
RATING METHODOLOGY
In rating securitizations backed by student loans originated under the
Federal Family Educational Loan Program (FFELP), Moody's assesses
both the liquidity and credit risk of the transaction. The drivers
that affect the performance of a transaction include defaults, servicer
guarantee 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.
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
other payments.
On November 18, 2009, Moody's updated its methodology to incorporate
an additional assessment of the risk posed by slow loan repayment rates
when analyzing bonds that are backed by FFELP student loans. We
have recently observed a considerable decline in actual repayment rates
of securitized FFELP student loan pools across issuers. The risk
posed by slow loan repayment rates is most pronounced for transactions
with negative excess spread, which have become more common in the
past two years. Under the updated methodology, the cash flows
of the transaction must be sufficient to make full and timely payments
to investors in a new repayment stress scenario in which the combination
of voluntary prepayments, defaults, forbearance rates,
and deferment rates results in a total repayment rate that is considerably
lower than our existing stress scenarios.
Basis Risk
Basis risk is the primary credit risk in FFELP student loan ABS.
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. Moody's Aaa stressed basis
risk assumption between one-month LIBOR and the CP Rate is 10 basis
points with certain periods in which the spread increases to 100 basis
points. Moody's A stressed basis risk assumption between one-month
LIBOR and the CP Rate is 7 basis points with certain periods in which
the spread increases to 80 basis points . This is based on an analysis
of historical spreads between the two indices.
For additional information, please see "Methodology Update on Basis
Risk in FFELP Student Loan-Backed Securitization".
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.
A pre-sale report 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.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify 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.
New York
Corey Henry
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Barbara A. Lambotte
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns provisional ratings to SLM Student Loan Trust 2011-1
