Fitch Affirms SLC Student Loan Trust 2010-1
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' with a Stable Outlook.
Collateral Performance: Fitch assumes a base case default rate of 11.75% and a 35.50% default rate under the 'AAAsf' credit stress scenario. The base case default assumption of 11.75% implies a constant default rate of 2.4% (assuming a weighted average life of 4.8 years), lower than the trailing 12 month average constant default rate, utilized in the maturity stresses, of 3.1%. 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 'AAAsf' case.
The trailing 12 month average of deferment, forbearance Income based repayment (before adjustment) and constant prepayment rate (voluntary and involuntary) are 10.1%, 16.7%, 19.1% and 9.2%, respectively, which 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 0.13%, 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 and excess spread. As of the August 2016 distribution report, senior parity is 128.10%. Liquidity support for the 2010-1 notes is provided by a Reserve Account which is at its floor of $1,200,450. The trust will not release cash until the notes are paid in full.
Maturity Risk: Fitch's SLABS cash flow model indicates that all notes are paid in full on or prior to their legal final maturity of Nov. 25, 2042.
Acceptable Servicing 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 VARIATIONS
For transactions in surveillance, Fitch will treat certain assets such as claims filed as short-term assets in its cash flow analysis. Given that Fitch's current criteria is silent on the treatment of such assets, this treatment is considered a criteria variation. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
The Investment Securities definition does not conforms to Fitch's current Counterparty Criteria. 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 investment securities for this deal allows for the possibility of using investments below Fitch's rating thresholds, which represents a criteria variation. 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.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch has affirmed the following rating:
SLC Student Loan Trust Series 2010-1:
--Class A at 'AAAsf'; Outlook Stable.
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