Approximately $9.6 billion securities affected.
NOTE: On January 15, 2018, the press release was corrected as follows: in the third paragraph of the RATINGS RATIONALE section, the sponsor was corrected to “Navient Solutions, LLC”. Revised release follows.
New York, January 11, 2018 -- Moody's Investors Service ("Moody's") has upgraded
three classes, downgraded 26 classes and confirmed eight classes
of notes from 12 student loan-backed transactions backed by loans
originated under the Federal Family Education Loan Program (FFELP).
The loans are guaranteed by the US government for a minimum of 97%
of defaulted principal and accrued interest. 10 securitizations
have outstanding currency swaps and two securitizations have outstanding
fixed floating swaps.
The complete rating actions are as follows:
Issuer: Education Loan Asset-Backed Trust I (2003 Trust Indenture)
Senior Ser. 2003-1A-2, Downgraded to Aa3 (sf);
previously on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible
Downgrade
Senior Ser. 2003-1A-7, Downgraded to Aa3 (sf);
previously on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible
Downgrade
Senior Ser. 2003-1A-8, Downgraded to Aa3 (sf);
previously on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible
Downgrade
Sr Ser. 03-1A10, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
Sr Ser. 03-1A11, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-1, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-2, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-3, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-5, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-8, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-11, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
2003-2A-13, Downgraded to Aa3 (sf); previously
on Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
Series 2013-1 A2 Senior Notes, Upgraded to Aaa (sf);
previously on Nov 10, 2016 Downgraded to Aa1 (sf)
Series 2013-1 B1 Sub. Notes, Upgraded to Aaa (sf);
previously on Nov 10, 2016 Confirmed at Aa1 (sf)
Issuer: Goal Capital Funding Trust 2006-1
Cl. A-5, Confirmed at Aa1 (sf); previously on
Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. A-6, Downgraded to A1 (sf); previously on
Jul 26, 2017 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. B, Confirmed at A2 (sf); previously on Jul 26,
2017 A2 (sf) Placed Under Review for Possible Downgrade
Issuer: SLC Student Loan Trust 2008-1
Cl. A-4A, Downgraded to Aa1 (sf); previously
on Jul 26, 2017 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. A-4B, Downgraded to Aa1 (sf); previously
on Jul 26, 2017 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to A3 (sf); previously on Jul 26,
2017 Aa2 (sf) Placed Under Review for Possible Downgrade
Issuer: SLM Student Loan Trust 2003-10
Cl. A-4, Downgraded to A2 (sf); previously on
Jul 26, 2017 A1 (sf) Placed Under Review for Possible Upgrade
Issuer: SLM Student Loan Trust 2003-12
Cl. A-6, Downgraded to A1 (sf); previously on
Jul 26, 2017 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. B, Confirmed at Baa3 (sf); previously on Jul 26,
2017 Baa3 (sf) Placed Under Review for Possible Downgrade
Issuer: SLM Student Loan Trust 2004-2
Cl. B, Confirmed at A3 (sf); previously on Jul 26,
2017 A3 (sf) Placed Under Review for Possible Downgrade
Cl. A-5, Confirmed at Aaa (sf); previously on
Jul 26, 2017 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. A-6, Downgraded to Aa3 (sf); previously on
Jul 26, 2017 Aaa (sf) Placed Under Review for Possible Downgrade
Issuer: SLM Student Loan Trust 2004-5
Cl. A-6, Confirmed at Aa3 (sf); previously on
Jul 26, 2017 Aa3 (sf) Placed Under Review for Possible Downgrade
Issuer: SLM Student Loan Trust 2004-10
Cl. B, Confirmed at Ba1 (sf); previously on Jul 26,
2017 Ba1 (sf) Placed Under Review for Possible Downgrade
Issuer: SLM Student Loan Trust 2006-4
Cl. A-6, Downgraded to A1 (sf); previously on
Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Upgraded to A3 (sf); previously on Jul 26,
2017 Baa2 (sf) Placed Under Review for Possible Upgrade
Issuer: SLM Student Loan Trust 2006-10
Cl. A-6, Downgraded to Aa3 (sf); previously on
Jul 26, 2017 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Baa1 (sf); previously on Jul 26,
2017 A3 (sf) Placed Under Review for Possible Downgrade
Issuer: SLM Student Loan Trust 2007-4
Cl. A-5, Downgraded to A2 (sf); previously on
Jul 26, 2017 A1 (sf) Placed Under Review for Possible Downgrade
Cl. B-1, Downgraded to A2 (sf); previously on
Jul 26, 2017 A1 (sf) Placed Under Review for Possible Downgrade
Cl. B-2A, Downgraded to Ba1 (sf); previously
on Jul 26, 2017 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. B-2B, Downgraded to Ba1 (sf); previously
on Jul 26, 2017 Baa3 (sf) Placed Under Review for Possible Downgrade
Issuer: New Mexico Educational Assistance Foundation - Education
Loan Bonds (2010 Indenture)
Series 2010-1 A-3, Confirmed at Aaa; previously
on Jul 26, 2017 Aaa Placed Under Review for Possible Downgrade
RATINGS RATIONALE
The primary rationale for the rating action is the update to Moody's structured
finance rating methodologies with respect to assessing exposure to swap
counterparties, Moody's Approach to Assessing Counterparty
Risks in Structured Finance, published on 26 July 2017. Moody's
reduced the value of certain notching uplifts in connection with swaps
that would become subject to margining requirements upon counterparty
replacement. Under new swap margin rules, certain structured
finance swaps entered into or transferred after 1 March 2017 must include
collateral posting obligations for both parties (two-way posting).
The requirement for two-way posting reduces the likelihood of counterparty
replacement for existing structured finance swaps, and therefore
increases the probability that affected securitization issuers will become
unhedged following counterparty default. Consequently, we
generally apply no notching uplifts relating to (1) any transfer trigger
or collateral provisions; or (2) the issuer's ability to replace
a defaulting out-the-money swap.
On 27 October 2017, the US Commodity Futures Trading Commission
(CFTC) announced a no-action position with respect to variation
margin requirements applicable to legacy swaps with special purpose vehicles
(SPVs). Although it increases the likelihood that a downgraded
counterparty will procure a novation to a replacement counterparty,
in our view, it does not materially increase the likelihood that,
if a counterparty defaults, the SPV will enter into a new swap with
a replacement counterparty. Moreover, the relief does not
affect initial margin requirements.
As a result, in today's action we applied notching uplifts
for the swap transfer triggers benefiting Education Loan Asset-Backed
Trust I (2003 Trust Indenture), Goal Capital Funding Trust 2006-1
and New Mexico Educational Assistance Foundation - Education Loan
Bonds (2010 Indenture), as they together with their affiliates do
not have material swap exposure thus they are not affected by the initial
margin requirement. However, for other securitizations sponsored
or owned by Navient Solutions, LLC, we assumed initial margin requirement apply
and provided no notching uplifts for transfer triggers because Navient
and its affiliates will likely to have certain derivative exposures in
excess of $8 billion on 1 September 2020. For each of the
securitizations in today's action, we applied no notching
uplifts relating to (1) any swap collateral provisions; or (2) the
issuer's ability to replace a defaulting out-the-money swap.
The upgrades and confirmations are the result of Moody's analysis that
indicates that the negative impact from reducing notching uplifts in connection
with swaps subject to margining requirements did not outweigh the maturity
extension for Class B in SLM Student Loan Trust 2006-4 and the
performance of other affected tranches.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings "Moody's Approach to Rating
Securities Backed by FFELP Student Loans" published in August 2016.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings if the paydown speed of the loan pool
increases as a result of declining borrower usage of deferment,
forbearance and IBR, increasing voluntary prepayment rates,
or prepayments with proceeds from sponsor repurchases of student loan
collateral. Moody's could also upgrade the rating owing to a build-up
in credit enhancement and upgrades of ratings or CR Assessments on the
swap counterparties. In addition, Moody's could upgrade
the ratings if CFTC extends the scope of its no action relief to swaps
executed in response to counterparty default, or Moody's receives
new information showing that new swaps executed by Navient's SPVs
will not be subject to initial margin requirements.
Down
Moody's could downgrade the ratings if the paydown speed of the loan pool
declines as a result of low voluntary prepayments, and high deferment,
forbearance and IBR rates, which would threaten full repayment of
the classes by their final maturity dates. In addition, because
the US Department of Education guarantees at least 97% of principal
and accrued interest on defaulted loans, Moody's could downgrade
the ratings of the notes if it were to downgrade the rating on the United
States government. Moody's could also downgrade the rating owing
to downgrades of ratings or CR Assessments on the swap counterparties.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The following disclosure applies only to credit ratings carrying the (sf)
indicator: In rating this transaction, Moody's used
a cash flow model to model cash flow stress scenarios to determine the
extent to which investors would receive timely payments of interest and
principal in the stress scenarios, given the transaction structure
and collateral composition.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jinwen Chen
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Caroline Pichon
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
