NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken the following rating actions:
Navient Student Loan Trust 2014-2 (NAVSL 2014-2):
--Class A affirmed at 'AAAsf'; Outlook Stable;
--Class B affirmed at 'AAsf'; Outlook Stable.
Navient Student Loan Trust 2014-3 (NAVSL 2014-3):
--Class A currently rated 'AAAsf'; placed on Rating Watch Negative;
--Class B affirmed at 'AAsf'; Outlook Stable.
Navient Student Loan Trust 2014-4 (NAVSL 2014-4):
--Class A affirmed at 'AAAsf'; Outlook Stable;
--Class B affirmed at 'AAsf'; Outlook Stable.
Navient Student Loan Trust 2014-5 (NAVSL 2014-5):
--Class A currently rated 'AAAsf'; placed on Rating Watch Negative;
--Class B affirmed at 'AAsf'; Outlook Stable.
Navient Student Loan Trust 2014-6 (NAVSL 2014-6):
--Class A affirmed at 'AAAsf'; Outlook Stable;
--Class B affirmed at 'AAsf'; Outlook Stable.
Navient Student Loan Trust 2014-7 (NAVSL 2014-7):
--Class A currently rated 'AAAsf'; placed on Rating Watch Negative;
--Class B affirmed at 'AAsf'; Outlook Stable.
The class A notes of NAVSL 2014-3, NAVSL 2014-5 and NAVSL
2014-7 were placed on Rating Watch Negative due to heightened liquidity risk should defaults rise significantly in an interest-rate up scenario. Fitch expects the Negative Watch to be resolved in three months. The affirmations of the notes listed above are a result of the notes passing both the credit and maturity stresses at the commensurate rating level.
KEY RATING DRIVERS
U.S. Sovereign Risk: Each trust's collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans, approximately 15% of which are rehabilitated loans. For each trust, guarantees are provided by eligible guarantors and reinsurance is provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The U.S. sovereign rating is currently 'AAA', Outlook Stable by Fitch.
Collateral Performance: For the abovementioned trusts, respectively, Fitch assumes base case default rates of 21%, 21%, 21%, 21.25%, 21%, and 21%, and default rates under the 'AAA' credit stress scenario of 58.5%, 59.25%, 59%, 59.5%, 59.5%, 59.25%. The claim reject rate is assumed to be 0.50% in the base case and 3% in the 'AAA' case for every trust. Fitch applies the standard default timing curve, with the trailing twelve month CDR and prepayment levels as assumptions for FFELP loans in its cash flow analysis.
Current levels of deferment, forbearance and IBR are as follows:
--NAVSL 2014-2: 7.47%, 17.1%, and 11.05%;
--NAVSL 2014-3: 8.04%, 14.61%, and 9.35%;
--NAVSL 2014-4: 7.84%, 15.17%, and 8.74%;
--NAVSL 2014-5: 7.3%, 13.97%, and 8.55%;
--NAVSL 2014-6: 6.63%, 15.28%, and 8.48%;
--NAVSL 2014-7: 7.41%, 16.38%, and 8.94%.
These assumptions are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.14%, 0.17%, 0.16%, 0.18%, 0.18%, and 0.16%, respectively, for the abovementioned trusts, based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to these trusts as per the agency's criteria.
Payment Structure: For each trust, credit enhancement (CE) is provided by excess spread and overcollateralization. For the Class A note, subordination is provided by the Class B note. As of the July 2016 distribution report, total parity is 104.71%, 104.71%, 104.71%, 104.71%, 104.71%, and 104.71% (4.50% CE) for the abovementioned trusts, respectively, and senior parity is 108.16%, 108.16%, 108.23%, 108.23%, 108.26%, and 108.20% for the abovementioned trusts, respectively. Excess cash will continue to be released from the trusts given a target CE amount equal to the greatest of 4.50% of the adjusted pool balance and $2.75 million has been maintained. Liquidity support is provided by a reserve account for each trust. The required reserve account balance for each trust on any distribution dates prior to Aug. 25, 2019 (the step-down date) is 2.25% of the current student loan balance; then on and after the step-down date, the greater of 0.25% of the current student loan balance or 0.10% of the initial student loan balance.
Maturity Risk: Fitch's SLABS cash flow model indicates that the notes for every trust are paid in full on or prior to their respective legal final maturities.
Operational Capabilities: Navient Solutions, Inc. (FKA Sallie Mae, Inc.), ACS, and Great Lakes are the master servicer, sub-servicer and sub-servicer, respectively, and are responsible for the day to day servicing of the portfolio for each trust. Fitch believes all to be acceptable servicers of FFELP student loans at this time.
CRITERIA VARIATIONS
For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria is silent on the treatment of such assets, this treatment is considered a criteria variation.
Under the "Counterparty Criteria for Structured Finance and Covered Bonds", dated July 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of the permitted investment for this deal allows possibility of using investments not rated by Fitch; this represents a criteria variation. Fitch doesn't believe that such variation has a measurable impact upon the ratings assigned.
RATING SENSITIVITIES
Since the FFELP student loan ABS relies 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 buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963
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. 27 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 26 Jul 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881705
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010154
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010154
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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