Fitch Takes Various Actions on Two SLM Student Loan Trusts

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions:

SLM Student Loan Trust 2005-10 (SLM 2005-10):

--Class A-4 affirmed at 'AAAsf'; Outlook Stable;

--Class A-5 'AAAsf'; Rating Watch Negative maintained;

--Class B 'A+sf'; Rating Watch Negative maintained.

SLM Student Loan Trust 2006-4 (SLM 2006-4):

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

--Class A-6 'AAAsf'; Rating Watch Negative maintained;

--Class B affirmed at 'Asf'; Outlook Stable.

The Rating Watch Negative actions on the A-5 and B notes of SLM 2005-10 and the A-6 notes of SLM 2006-4 are due to their inability to pass cash flow stresses necessary to maintain their current ratings. 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

High Collateral Quality: The trusts' collateral are comprised 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. sovereign 'AAA' with a Stable Outlook.

Sufficient Credit Enhancement (CE): CE is provided by excess spread and for the class A notes, subordination of the class B notes. As of March 2016, Fitch calculated total and senior parity ratios (which include the reserve fund) are 100.87% and 136.61% (26.80% CE) for SLM 2005-10; 100% and 104.75% (4.53% CE) for SLM 2006-4. Cash will continue to be released as long as the target parity ratios of 100% are maintained.

Adequate Liquidity Support: Liquidity support is provided by reserve accounts sized at their floors of $3,002,803 and $4,769,927 for the SLM 2005-10 and SLM 2006-4 trusts, respectively.

Acceptable Servicing Capabilities: Day to day servicing is provided by Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.), In Fitch's opinion, Navient is an acceptable servicer of FFELP student loans.

In December 2015, Fitch released an exposure draft that delineates revisions it plans to make to the 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated June 23, 2014. Fitch has reviewed transactions under both the existing and proposed criteria.

On June 9, 2016, Fitch published a press release titled 'Fitch Finalizing Changes to FFELP Student Loan ABS Criteria' that details likely changes to the final criteria report, which it expects to publish in less than 60 days.

CRITERIA VARIATIONS

In certain LIBOR-down interest rate stress scenarios the basis spread may be compressed, as Fitch would apply a floor to one-month LIBOR at a negative rate level in accordance with Fitch's 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (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 the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated May 14, 2014, 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 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 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. 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=1006144

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006144

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160616005821/en/

Fitch Ratings
Primary Analyst
Eric Orenstein
Analyst
+1-646-582-4816
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson
Tracy Wan
Senior Director
+1-212-908-9171
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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