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01 Nov 2016
Approximately $33.9 billion of asset-backed securities affected.
New York, November 01, 2016 -- Moody's Investors Service ("Moody's") has confirmed
the ratings of 34 classes of notes, upgraded the ratings of 5 classes
of notes, and downgraded the ratings of 92 classes of notes issued
in 49 student loan securitizations sponsored or administered by Navient
Solutions, Inc. 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 http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF442386
for the List of Affected Credit Ratings. This list is an integral
part of the Press Release and identifies each affected issuer.
Today's actions conclude review actions on the 129 classes that were announced
on April 8, 2015, June 22, 2015 and June 14, 2016.
The downgrades are the result of Moody's analysis that indicates that
the tranches will not pay off by their final maturity dates under some
or all of 28 cash flow scenarios, as outlined in Moody's methodology,
Moody's Approach to Rating Securities Backed by FFELP Student Loans,
published on August 11, 2016. Therefore, Moody's expects
that these tranches will incur losses that are higher than the benchmark
levels set in Moody's Idealised Cumulative Expected Loss Rates table for
the current ratings. The low payment rates on the underlying securitized
pools of FFELP student loans are driven primarily by persistently high
levels of loans to borrowers in non-standard payment plans,
including deferment, forbearance and Income-Based Repayment
(IBR), as well as by the relatively low rates of voluntary prepayments.
The downgrades of some lowest payment priority Class A notes result in
these notes being rated lower than the subordinated Class B notes in the
affected securitizations. Although transaction structures stipulate
that Class B interest is diverted to pay Class A principal upon default
on the Class A notes, Moody's analysis indicates that the cash flow
available to make payments on the Class B notes will be sufficient to
make all required payments to Class B noteholders by the Class B final
maturity dates, which occur much later than the final maturity dates
of the downgraded Class A notes.
The upgrades and confirmations are primarily the result of Moody's analysis
that indicates that these tranches are either likely to successfully pay
off by their maturity dates, or that the expected loss for each
such tranche is lower than or consistent with, respectively,
the expected loss benchmark levels set in Moody's Idealised Cumulative
Expected Loss Rates table for the current ratings.
The confirmation of Class A-6 in SLM Student Loan Trust 2004-8
and the upgrade of Class B in SLM Student Loan Trust 2007-7 also
reflect the correction of an error in calculating the amount of investment
earnings on cash residing in each transaction's collection account before
each distribution date. In our June 14, 2016 actions,
we mistakenly assumed that interest collections from each of the collateral
loan pools generate zero investment earnings, when in fact they
generate investment earnings at the same rate as principal collections
from the collateral loan pools. As a result of the correction,
cash available for distribution on each distribution date has increased
and the expected loss for these tranches has reduced to a level equal
to or lower than the expected loss benchmark levels set in Moody's Idealised
Cumulative Expected Loss Rates table for the current ratings.
In its rating actions Moody's also considered Navient's demonstrated willingness
and ability to protect the securities from being in default as of their
final maturity dates. Specifically, Navient has consistently
exercised its option to purchase all remaining student loans from the
trusts at or below the 10% pool factor and pay off the notes.
The downgrades for Class A-5 and B in SLM Student Loan Trust 2005-10,
2006-1 and 2006-3 to Baa1 reflect the increased possibility
of Navient's protection as the pool factors in these transactions
are expected to decrease to below 10% within a year. Navient
has also amended 34 transactions to add the ability to purchase an additional
10% of the initial pool balance. In the event that Navient
does not exercise the option to purchase the loans at 10% pool
factor, the Indenture trustee may initiate a sale of the underlying
student loan pools, which will take place only if proceeds from
the sale will be sufficient to pay off all outstanding notes. Navient
has also amended some transactions to establish a revolving credit facility
that enables the trust to borrow money from Navient Corporation on a subordinated
basis in order to pay off the notes. Finally, Navient amended
25 transactions to extend maturity dates for tranches that appeared to
have significant risk of not paying off within the previous final maturities.
Today's actions reflect Moody's assumption that the events giving
rise to non-recurring fees and expenses that the Indenture trustee
might sustain, as a result of litigation or other unforeseen circumstances,
are not likely to occur during the term of the transactions, as
evidenced by historical experience in the transactions backed by FFELP
student loans. Therefore, Moody's has not included such fees
and expenses in its cash flow modeling analysis. To account for
a small probability of such events, however, Moody's qualitatively
assessed sufficiency of the cash flows to pay the trustees' non-recurring
fees and expenses. This analysis focused in particular on estimating
the amount of residual cash flows generated by the pools of student loans
after their balance declines to 10% of the initial balance (10%
pool factor), at which time the pools are expected to generate significantly
diminished amounts of cash to cover those non-recurring fees and
The principal methodology used in these ratings was "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:
Moody's could upgrade the ratings if tranches final maturities are extended,
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.
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. Moody's could
also downgrade the rating if the protection from Navient is not materialized
within a reasonable time frame. 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
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.
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
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Senior Vice President/Manager
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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