Approximately $11 billion of asset-backed securities affected
New York, June 03, 2020 -- Moody's Investors Service ("Moody's") has downgraded 38 securities issued
by 29 FFELP student loan securitizations. Of those 38 downgraded
securities, nine from four transactions have also been placed on
review for possible further downgrade. Separately, Moody's
has placed the ratings of additional seven securities issued by five FFELP
student loan securitizations on review for possible downgrade.
The securitizations are backed by student loans originated under the Federal
Family Education Loan Program (FFELP) that are guaranteed by the US government
for a minimum of 97% of defaulted principal and accrued interest.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL425603
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Today's review for downgrade actions reflect an increased likelihood
of slower collateral pool amortization and bond payoff risk by their legal
final maturity dates due to significant increases in forbearance resulting
from a contraction in economic activity and an increase in unemployment
due to the coronavirus outbreak.
Today's downgrade actions are primarily driven by the updated performance
of the transactions and updated expected loss on the tranches across Moody's
cash flow scenarios. Moody's quantitative analysis derives the
expected loss for a tranche using 28 cash flow scenarios with weights
accorded to each scenario. In addition, Moody's also
considered the resiliency of these bonds and associated expected loss
to an increased forbearance scenario due to the coronavirus outbreak.
As part of our coronavirus stress analysis, we considered an increase
in forbearance of up to approximately 20% and 30% for consolidation
and non-consolidation loans, respectively, over a period
of up to 24 months. The increased forbearance assumption considers
both existing delinquent borrowers and additional non-delinquent
borrowers who may seek this relief due to the impact of the coronavirus
outbreak. We also considered servicers' borrower relief strategies
and increases in forbearance observed on FFELP loans during the last financial
crisis as well as the more recent natural disaster forbearance use during
the 2017 hurricanes.
In addition to the above-mentioned rationale, today's
rating actions incorporate the following note-specific considerations.
The rating actions reflect the granularity of the collateral data Moody's
receives. Generally, more granularity allows for a better
understanding of the collateral characteristics important in evaluating
performance and the likelihood of repayment by the bonds' final
maturity dates. Given the low likelihood of our modeled assumptions
persisting for an extended period of time, certain Navient notes
with final maturity dates of more than five years are rated higher than
indicated by the model output. The downgrade actions of Class A-7
notes of SLM 2003-11, Class A-6 notes of SLM 2004-8,
Class A-4 notes of SLM 2005-2 and Class A-5 notes
of SLM 2005-8 reflect considerations of the collateral data granularity
in relation to the remaining time to the bonds' respective maturities.
Additionally, Moody's also considered Navient's and Nelnet's
willingness and ability to support and prevent their securities from defaulting
at their legal final maturity dates. In addition to the 10%
clean-up call, Navient can use other forms of liquidity support.
The downgrade actions of Class A-3 notes of SLM 2008-3 and
Class A-4 notes of SLM 2007-3, 2007-7 and 2008-1
are primarily due to the bonds' approaching maturities. The
maturities for these tranches are between October 2021 and January 2022.
The rating actions further reflect the lengthening of the weighted average
remaining terms of some of the underlying non-consolidation loan
pools, which, for certain deals, increases the risk
that bonds will not pay off by maturity. The downgrade actions
on the Class B notes of SLM 2010-1, Class A notes of SLM
2010-2, Class B notes of SLM 2013-5, and Class
A-3 and A-4 notes of Navient 2014-1 reflect the increasing
payoff risk of these tranches by their final maturity dates. Over
the 12-month period between 03/31/2019 and 03/31/2020, the
weighted average remaining loan terms increased by three to nine months
for these deals. The review for downgrade action on Class A notes
of SLM 2010-2 further reflects its higher payoff risk under our
coronavirus stress forbearance assumptions.
Today's action also considered the increased uncertainty related
to non-amortizing "bullet" bonds with short-term
maturities. The 2010 A-1-7 and A-1-8
bonds from New Mexico Educational Assistance Foundation (NMEAF) were issued
as non-amortizing bonds that are expected to receive principal
payment only on their respective final maturities, 12/1/2020 and
12/1/2021. Although 30% of the principal due on the bonds
maturing in 12 months is being set aside each quarter from the available
collections, the non-amortizing structure of the bonds and
their short time to final maturity would subject them to higher payoff
risk if cash collections were to materially reduce over the coming months.
Effective in mid-March, the servicer, NMEAF,
placed all loans more than 30 days past due in a 90-day natural
disaster forbearance status. By placing delinquent borrowers in
forbearance status, the servicer effectively reset the number of
days past due of these loans to zero, pushing back claims for federal
payments by over a year if these loans were to default. The review
for downgrade actions on the 2010 A-1-7 and A-1-8
bonds thus reflect an expected slowdown of cash collections due to an
increase in forbearance as a result of the servicer's action in
response to the coronavirus outbreak.
During the review period, Moody's will evaluate the effects
of ongoing and projected macroeconomic conditions, as well as the
impact of various parties including the government, servicers and
issuers on the performance of underlying pools to update our assumptions.
Unemployment is a key indicator of performance for student loan ABS.
High unemployment is likely to have a material negative impact on the
amortization speed of student loans. Rating actions on the bonds
will vary for the different issuer shelves and will reflect individual
transaction performance and considerations.
Moody's generally strives to conclude rating reviews within 90 days.
However, due to the high degree of uncertainty in the current credit
environment, the resolution of these watchlist actions may extend
beyond our usual timeframe. Ratings that are placed on review for
possible downgrade, or ultimately downgraded, are meant to
signal increased risk of credit loss. They are generally not,
however, declarations that losses are expected.
Our analysis has considered the effect of the coronavirus outbreak on
the US economy as well as the effects that the announced government measures
put in place to contain the virus, will have on the performance
of consumer assets. Specifically, for FFELP student loan
ABS, loan performance could weaken due to a continued increase in
the unemployment rate, which may limit borrowers' income and
their ability to service debt. Furthermore, borrower assistance
programs to affected borrowers, such as forbearance, deferment
and income-based repayment, may adversely impact scheduled
cash flows to bondholders.
The contraction in economic activity in the second quarter will be severe
and the overall recovery in the second half of the year will be gradual.
However, there are significant downside risks to our forecasts in
the event that the pandemic is not contained and lockdowns have to be
reinstated. As a result, the degree of uncertainty around
our forecasts is unusually high. We regard the coronavirus outbreak
as a social risk under our ESG framework, given the substantial
implications for public health and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Securities Backed by FFELP Student Loans" published in May 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1226065.
Alternatively, 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 ratings owing to a build-up
in credit enhancement.
Down
Moody's could downgrade the ratings if the paydown speed of the loan pool
declines as a result of lower than expected voluntary prepayments,
and higher than expected deferment, forbearance and IBR rates,
which would threaten full repayment of the class by its final maturity
date. 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 rating of the notes if it were
to downgrade the rating on the United States government.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL425603
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Jiaoren Wang
Associate Lead 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
Jinwen Chen
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
