Fitch Takes Various Rating Actions on SLM 2003-2

NEW YORK--()--Fitch Ratings has taken the following rating actions on SLM Student Loan Trust 2003-2:

--Class A-5 affirmed at 'AAAsf'; Outlook Stable;

--Class A-6 downgraded from 'AAAsf' to 'Bsf'; removed from Rating Watch Negative and assigned Stable Outlook;

--Class A-7 downgraded from 'AAAsf' to 'Bsf'; removed from Rating Watch Negative and assigned Stable Outlook;

--Class A-8 downgraded from 'AAAsf' to 'Bsf'; removed from Rating Watch Negative and assigned Stable Outlook;

--Class A-9 downgraded from 'AAAsf' to 'Bsf'; removed from Rating Watch Negative and assigned Stable Outlook;

--Class B downgraded from 'BBBsf' to 'Bsf'; removed from Rating Watch Negative and assigned Stable Outlook.

The class A-6, A-7, A-8, A-9, and B notes miss their legal final maturity date under both Fitch's credit and maturity base cases. In downgrading to 'Bsf' rather than 'CCCsf' or below, Fitch has considered qualitative factors such as Navient's ability to call the notes upon reaching 10% pool factor, the revolving credit agreement (RCA) in place for the benefit of the noteholders, and the eventual full payment of principal in modelling.

The trust has entered into an RCA with Navient by which it may borrow funds at maturity in order to pay off the notes. Because Navient has the option but not the obligation to lend to the trust, Fitch cannot give full quantitative credit to this agreement. However, the agreement does provide qualitative comfort that Navient is committed to limiting investors' exposure to maturity risk.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans with guaranties provided by 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'/Stable Outlook.

Collateral Performance: Fitch assumes a base case default rate of 15% and a 45% default rate under the 'AAA' credit stress scenario. The base case default assumption of 15% implies a constant default rate of 3% (assuming a weighted average life of 15.1 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 'AAA' case.

The TTM average of deferment, forbearance, income-based repayment (prior to adjustment) and constant prepayment rate (voluntary and involuntary) are 5.7%, 10.6%, 19.3% and 9.5%, respectively, and 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 0.05%, 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 overcollateralization, excess spread and, for the class A notes, subordination. As of September 2016, total and senior effective parity ratios (which include the reserve account) are, respectively, 100.32% (0.3% CE) and 111.01% (9.9% CE). Liquidity support is provided by a reserve account sized at the greater of 0.25% of the pool balance, and $2,005,060. Excess cash will continue to be released as long as 100% parity is maintained.

Maturity Risk: Fitch's Student Loan ABS (SLABS) cash flow model indicates that the A-5 notes are paid in full prior to the legal final maturity dates under all rating scenarios. The A-6, A-7, A-8, A-9, and B notes do not pay off before their maturity date in Fitch's modelling scenarios, including the base cases. If the breach of the senior classes' maturity date triggers an event of default, interest payments will be diverted away from the class B notes, causing the subordinate notes to fail the base cases as well.

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 APPLICATION

Under the "Counterparty Criteria for Structured Finance and Covered Bonds", dated Sept. 1, 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. Since the only available funds to invest are those held in the Collection Account, and the funds can only be invested for a short duration given the payment frequency of the notes, Fitch does not believe such variation has a measurable impact upon the ratings assigned.

RATING SENSITIVITIES

'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 'CCCsf'; class B 'CCCsf'

--Default increase 50%: class A 'CCCsf'; class B 'CCCsf'

--Basis Spread increase 0.25%: class A 'CCCsf'; class B 'CCCsf'

--Basis Spread increase 0.50%: class A 'CCCsf'; class B 'CCCsf'

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'CCCsf'; class B 'CCCsf'

--CPR increase 100%: class A 'Asf'; class B 'BBsf'

--IBR Usage increase 100%: class A 'CCCsf'; class B 'CCCsf'

--IBR Usage decrease 50%: class A 'CCCsf'; class B 'CCCsf'

It is important to note that the 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

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. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)

https://www.fitchratings.com/site/re/888492

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. 10 Nov 2016)

https://www.fitchratings.com/site/re/889777

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015659

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015659

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Matthew Shaw
Associate Director
+1-212-908-0218
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Andreas Wilgen
Managing Director
+1-212-908-1778
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Matthew Shaw
Associate Director
+1-212-908-0218
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Andreas Wilgen
Managing Director
+1-212-908-1778
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com