NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating actions on SLM Student Loan Trust Series
2004-5 (SLM 2004-5) senior and subordinate notes:
--Class A-4 notes affirmed at 'AAAsf'; Outlook Stable;
--Class A-5 notes affirmed at 'AAAsf'; Outlook Stable;
--Class A-6 notes at 'AAAsf'; Rating Watch Negative maintained;
--Class B notes affirmed at 'BBBsf'; Outlook Stable.
The Rating Watch Negative action on the class A-6 notes of the SLM 2004-5 trust is due to their inability to pass cash flow stresses necessary to maintain their current ratings of 'AAAsf'. On Dec. 4, 2015, Fitch released its exposure draft which delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. This transaction was reviewed under both the existing criteria and exposure draft. Fitch expects to resolve the Rating Watch Negative status once its revised FFELP criteria report is published.
KEY RATING DRIVERS
Collateral Quality: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. The credit quality of the trust collateral is high, in Fitch's opinion, based on the guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. Fitch currently rates the U.S. 'AAA' with a Stable Outlook.
Credit Enhancement: Credit enhancement (CE) is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance), excess spread, and for the senior notes, subordination is provided by the subordinate notes. As of March 2016, senior and subordinate parities are 104.83% (4.60% CE) and 100.00%, respectively. The trust may release cash as long as the total parity of 100.0% is maintained.
Liquidity Support: Liquidity support is provided by a debt service reserve account sized at the greater of 0.25% of the pool balance and $4,455,445. As of March 2016, the debt service reserve account is sized at $4,455,445.
Servicing Capabilities: Navient Solutions, Inc. (formerly, Sallie Mae, Inc.), as servicer, will be responsible for the day to day servicing of the portfolio. Fitch believes Navient Solutions to be an acceptable servicer of FFELP student loans.
In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to
1-month LIBOR at a negative rate level in accordance with Fitch's "Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds" dated May 2016. Since the updated interest rate stresses are not addressed yet in existing FFELP criteria, this represents a criteria variation. Use of the criteria variation did not have a measurable impact upon the ratings assigned.
Under Fitch's "Counterparty Criteria for Structured Finance and Covered Bonds", dated May 14, 2014, Fitch looks to its own ratings in analysing counterparty risk and assessing a counterparty's creditworthiness. The definition of permitted investments for this deal allows possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest in are those held in the collection account, and the funds can only be invested for a short duration of three months given the payment frequency of the notes, Fitch doesn't believe such variation has a measurable impact upon the ratings assigned.
RATING SENSITIVITIES
Since FFELP student loan ABS rely on the U.S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a build-up of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
DUE DILIGENCE USAGE
Fitch was not provided due diligence information from any third parties relating to the transaction.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 23 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750530
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005859
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005859
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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