Fitch Takes Various Actions on SLM 2006-1

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December 2, 2015 12:54 PM EST

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions on SLM Student Loan Trust 2006-1 administered by Navient:

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

--Class A-5 'AAAsf' placed on Rating Watch Negative;

--Class B 'AA-sf' placed on Rating Watch Negative.

KEY RATING DRIVERS

Maturity Risk: The Rating Watch Negative action is based on the heightened risk of SLM 2006-1 class A-5 and class B notes missing their legal final maturities of July 26, 2021 and Jan. 25, 2027, respectively, which would result in an event of default. In an event of such technical default, Fitch would expect ultimate repayment of full principal and interest after the legal final. The magnitude of the rating action could vary depending on remaining time to maturity, recent payment trends, issuer actions such as loan purchases, or other external factors. Absent any issuer actions, structural or other mitigants, it is possible that 'AAA' ratings could be downgraded to noninvestment grade rating categories. Fitch expects to complete its review and resolve the Rating Watch status over the next three to six months.

Collateral Quality: SLM 2006-1 is collateralized by approximately $312.80 million of 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 for the FFELP loans. The U.S. is currently rated 'AAA'; Outlook Stable.

Credit Enhancement: Credit enhancement (CE) is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance), excess spread, and for the class A notes, subordination provided by the class B notes. The trust, below the 40% pool factor threshold, can release cash as long as total parity, not including the reserve account, is 100%. The trust has been releasing cash and maintaining this parity level. Including the reserve account, total and senior parities are 100.80% and 131.58% respectively.

Liquidity support: Liquidity support for the series 2006-1 notes is provided by a reserve account (greater of 0.25% of the pool balance and $2,502,266). The reserve fund is sized at the floor of $2,502,266 as of September 2015.

Servicing Capabilities: Navient Solutions, Inc. (formerly known as Sallie Mae, Inc.) is the servicer of the trust's student loan pool. In Fitch's opinion, Navient Solutions, Inc. is an acceptable servicer of FFELP student loans.

On Nov. 18, 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. Fitch has reviewed this transaction under both the existing and proposed criteria, which has resulted in placing the BSFC 2010-1 notes on Rating Watch Negative.

On Nov. 18, 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. Fitch has reviewed this transaction under both the existing and proposed criteria, which has resulted in placing the SLM 2006-1 class A-5 and class B notes on Rating Watch Negative.

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.

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

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Exposure Draft: Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 18 Nov 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872755

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 Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=995819

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995819

Endorsement Policyhttps://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.

Fitch Ratings
Primary Analyst:
Eric Orenstein, +1-646-582-4816
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Michael Dean, +1-212-908-0556
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
[email protected]

Source: Fitch Ratings


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