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Fitch Affirms SLM Student Loan Trust 2003-12; Revises Outlook to Stable.

New York: Fitch Ratings has affirmed SLM Student Loan Trust 2003-12 as follows:

--Class A-5 notes at 'AAsf'; Outlook revised to Stable from Negative;

--Class A-6 notes at 'AAsf'; Outlook revised to Stable from Negative;

--Class B notes at 'BBsf'; Outlook Stable.

The transaction is performing as expected. Although cash flow modelling indicates higher ratings for the class A-5 and A-6 notes, the affirmation at 'AAsf' is due to the counterparty risk introduced by the cross-currency swap, as the swap documents do not contain a provision that would mandate a counterparty replacement should the swap counterparty ratings fall below Fitch's required rating level.

The affirmation of the class B notes is reflective of cash flow modelling results supporting implied ratings at the commensurate rating level.


U.S. Sovereign Risk: The trust collateral comprises 100% 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. The U.S. sovereign rating is currently 'AAA'/Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of 15.25% and a 45.75% default rate under the 'AAA' credit stress scenario. Fitch assumes a sustainable constant default rate of 2.4% (assuming a weighted average life of 6.4 years) and a sustainable constant prepayment rate (voluntary and involuntary) of 8.5% based on data provided by the issuer. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The claim reject rate is assumed to be 0.5% in the base case and 3.0% in the 'AAA' case. The trailing 12-month (TTM) levels of deferment, forbearance and income-based repayment (prior to adjustment) are approximately 4%, 8.2%, and 12.8%, 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 0.2%.

Basis and Interest Rate Risk: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for SAP and the securities. As of August 2017, 12.8% of the trust student loans are indexed to 91-day T-Bill and 87.2% to one-month LIBOR. All notes are indexed to three-month LIBOR. 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 and for the class A notes, subordination. As of August 2017, total and senior effective parity ratio (including the reserve) are 100.51% (0.51% CE) and 105.34(5.07% CE), respectively. Liquidity support is provided by a reserve account currently sized at is floor of $3,759,518. The trust will continue to release cash as long as the target total parity of 100% (excluding the reserve) is maintained.

Maturity Risk: Fitch's student loan ABS 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. Fitch believes Navient to be an acceptable servicer, due to its extensive track record as the largest servicer of FFELP loans.


Swap documents for SLM 2003-12 do not contain a provision that would mandate a counterparty replacement should the swap counterparty ratings fall below Fitch's required rating level per Fitch's counterparty criteria. In addition, collateralization criteria are broadly in line with Fitch's expectation, in spite of lower volatility cushions than expected and no adjustments for liquidity and FX risk in collateral valuation. Fitch assessed the materiality of the inconsistencies against the available mitigants, which included sufficient collateral posting and concluded that contractual provisions can support ratings up to 'AAsf'; this represents a criteria variation from Fitch's counterparty criteria.


'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. Additionally, the results do not take into account any rating cap considerations.

Credit Stress Rating Sensitivity

--Default increase 25%: class A 'AAAsf'; class B 'BBsf';

--Default increase 50%: class A 'AAAsf'; class B 'BBsf';

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

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

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'AAAsf'; class B 'BBsf';

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

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

--IBR Usage decrease 50%: class A 'AAAsf'; class B 'BBBsf'.

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.


No third-party due diligence was provided or reviewed in relation to this rating action.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Feb 5, 2018
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