NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the SLC Student Loan Trust 2009-3 senior notes at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral consists of Federal Family Education Loan Program (FFELP) loans, with 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's U.S. sovereign rating is currently 'AAA' with a Stable Outlook Stable.
Collateral Performance: Collateral Performance: Fitch assumes a base case default rate of 15.50% and a 46.50% default rate under the 'AAAsf' credit stress scenario. The claim reject rate is assumed to be 0.50% for the base case and 3% for the 'AAAsf' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. Trailing 12 month average constant default rate is 2.99%. Trailing 12 month levels of deferment, forbearance, Income-based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 9.67%, 15.32%, 12.14% and 9.16% respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modeled as per criteria. The borrower benefit is assumed to be approximately 0.13% based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this trust as per the agency's criteria.
Payment Structure: Credit Enhancement (CE) is provided by excess spread and overcollateralization. As of the June 2016 distribution report, total parity is 107.53% (7.00% CE). Liquidity support is provided by a reserve account currently sized at the floor of $2,095,557. Cash will continue to be released as long as the target credit enhancement level of 7.00% is maintained.
Maturity Risk: Fitch's SLABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.
Operational Capabilities: Day-to-day servicing is provided by Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.). Fitch believes Navient to be an acceptable servicer of FFELP student loans.
CRITERIA VARIATIONS
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 the 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.
Under Fitch's criteria 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated July 26, 2016, Fitch does not address the process by which it gives certain credit to short-term assets in its cash flow analysis, and it is therefore considered a criteria variation.
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 and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a build-up of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch has affirmed the following:
SLC Student Loan Trust Series 2009-3:
--Class A at 'AAAsf'; Outlook Stable.
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/site/re/884963
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/site/re/879815
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
https://www.fitchratings.com/site/re/875586
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 26 Jul 2016)
https://www.fitchratings.com/site/re/881705
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010808
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010808
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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