NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken the following rating actions on Navient Student Loan Trust 2014-5 (NSLT 2014-5):
--Class A downgraded to 'AAsf' from 'AAAsf'; removed from Rating Watch Negative and assigned Outlook Stable;
--Class B affirmed at 'AAsf'; Outlook Stable.
The class A notes fail Fitch's 'AAAsf' Up Maturity stress scenario due to the interest shortfall after the reserve account steps down on August 2019 to 0.25% from 2.25%.
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans, approximately 15% of which are rehabilitated 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.
Collateral Performance: Fitch assumes a base case default rate of 23.00% and a 60.25% default rate under the 'AAAsf' credit stress scenario. The base case default assumption of 23.00% implies a constant default rate of 3.6% (assuming a weighted average life of 19 years) consistent with the trailing 12 month (TTM) average constant default rate utilized in the maturity stresses. Fitch applies the standard default timing curve. The claim reject rate is assumed to be 0.50% in the base case and 3% in the 'AAAsf' case.
The trailing 12 month average of deferment, forbearance, Income-based repayment (prior to adjustment) and constant prepayment rate (voluntary and involuntary) are 6.9%, 13.8%, 10.6% and 8.5%, 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 0.18%, based on information provided by the sponsor.
Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this transaction as per criteria.
Payment Structure: Credit Enhancement (CE) is provided by excess spread, overcollateralization and for the class A note, subordination provided by the class B note. As of the October 2016 distribution report, total parity is 104.71% (4.50% CE) and senior parity is 108.19% (CE 7.69%). Excess cash will continue to be released from the trust 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 currently sized at $2,897,420. The required reserve account balance for 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 student loan ABS cash flow model indicates that the notes 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, subservicer and subservicer, respectively, and are responsible for the day to day servicing of the portfolio. Fitch believes all to be acceptable servicers of FFELP student loans at this time.
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 permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.
Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.
Credit Stress Rating Sensitivity
--Default increase 25%: class A 'AAAsf'; class B 'AAAsf'
--Default increase 50%: class A 'AAsf'; class B 'Asf'
--Basis Spread increase 0.25%: class A 'AAAsf'; class B 'AAAsf'
--Basis Spread increase 0.50%: class A 'AAAsf'; class B 'AAAsf'
Maturity Stress Rating Sensitivity
--CPR decrease 50%: class A 'Asf'; class B 'BBBsf'
--CPR increase 100%: class A 'AAAsf'; class B 'AAAsf'
--IBR Usage increase 100%: class A 'Asf'; class B 'Asf'
--IBR Usage decrease 50%: class A 'AAsf'; class B 'AAsf'
Stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.
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.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 10 Nov 2016)
Dodd-Frank Rating Information Disclosure Form
Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.