Fitch Takes Various Rating Actions on SLM 2006-3 Notes

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings takes the following rating actions on the SLM Student Loan Trust 2006-3 notes:

SLM Student Loan Trust, Series 2006-3:

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

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

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

KEY RATING DRIVERS

Collateral Quality: 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 current U.S. sovereign rating is 'AAA' with a Stable Outlook.

Credit Enhancement (CE): CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance), excess spread, and for the senior notes, subordination of the class B note. As of September 2015, total parity is 100.00% and senior parity is 130.16% (23.17% CE). The trust has been releasing cash given the parity release level of 100% has been maintained.

Liquidity Support: Liquidity support is provided by a debt service reserve fund currently sized at the greater of 0.25% of the pool balance and $2.5 million. As of September 2015, the reserve account balance is at the reserve floor of $2.5 million.

Servicing Capabilities: Day-to-day servicing is provided by Navient Corporation (formerly known as Sallie Mae, Inc.). Fitch believes Navient is an acceptable servicer of FFELP student loans.

The Rating Watch Negative actions are based on analysis conducted by Fitch that identified trusts with tranches that have heightened risk of missing legal final maturity dates based on principal repayment to date. The transactions identified will be subject to additional analysis over the next few months. Fitch's additional analysis will focus on the remaining time to maturity, recent and historical payment trends, breakeven payment speed thresholds, and structural factors to ensure that the likelihood of payment at maturity is commensurate with the ratings assigned.

The magnitude of the rating actions with respect to those bonds placed on Rating Watch Negative could vary significantly 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 lowered to noninvestment grade rating categories. Fitch expects to complete its review and resolve the Rating Watch status for all trusts over the next three to six months.

In taking the actions, Fitch has identified trusts with one or more individual tranches most likely to miss their legal final maturities, 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 on all tranches after the legal final. Tripping an event of default, however, could have adverse rating implications for additional tranches. The rating implications will depend on the waterfall mechanics and voting rights and actions of investors. When an event of default occurs, it is highly likely that the class B notes will not receive timely interest as the principal for the class A notes must be paid in full prior to the class B notes receiving interest. Therefore, the subordinate notes are placed on Rating Watch Negative for all affected trusts.

The main drivers of the heightened maturity risk are prepayments and principal repayment rates coming in more slowly than initial expectations. The decline in prepayment rates has followed the consolidation wave and a slow recovery in the job market for graduates during and after the recession. The growth of government sponsored student loan payment plans, such as the Income Based Repayment Plan has also helped push down repayment speeds. Helping offset these declines more recently are an improving in labor market, expansion of debt consolidation programs, seasoning of portfolios and recent issuer actions to address this risk.

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 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

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=993533

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993533

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/20151105006846/en/

Fitch Ratings
Primary Analyst
Jeffrey Prackup
Director
+1-212-908-0839
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Kevin Corrigan
Senior Director
+1-212-908-9156
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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