Fitch Ratings said Nov. 1 that it has downgraded the class A and B notes of three SLM Student Loan Trust (SLM) transactions unless the sponsor, Navient, steps up or the final maturity date on the class A notes is extended. The rating agency also downgraded the Class B notes to default status of a separate SLM Student Loan Trust deal.
The legal final maturity date of the class A-4 notes is in January 2022 for the SLM 2007-7 and SLM 2008-1, and 10 months for SLM 2008-4. Fitch says that repayment by those deadlines is unlikely under the rating agency’s “maturity stress scenarios without an extension of the outstanding class A-4 legal final maturity date or support from the sponsor.”
The notes were downgraded from ‘Bsf’ with a negative outlook, to ‘CCsf’.
In a cascading effect, Fitch says that the class A notes missing their legal final maturity dates would constitute a default event on each transaction’s indenture, resulting in diversion of interest from the class B notes to pay the class A notes until they’re paid in full.
The class B notes were also downgraded from ‘Bsf’ with a negative rating to ‘CCsf’.
“This would cause the class B notes to default as well,” Fitch says, adding, “These classes are eventually paid in full under Fitch’s stressed cash flow analysis.
Help may arrive from the sponsor, Navient. Each of the three trusts has entered into a revolving credit agreement with Navient, enabling it to borrow funds at maturity in order to pay off the notes. However, Fitch says, due to the short amount of time to the legal final maturity of the class A notes, it has decreased the “qualitative credit” of the revolving credit agreements.
“If this revolving credit facility is utilized it will result in positive rating pressure to these transactions,” Fitch says. ‘Furthermore, Navient has requested investor consent to extend the legal final maturity dates for these transactions, which if approved by 100% of shareholders would also lead to positive rating actions.”
Separately, Fitch announced on the same day downgrading the outstanding notes of SLM 2008-3 to ‘Dsf’ from ‘CCCsf’, indicating a default on the senior notes in the payment of their outstanding principal by their legal maturity date of Oct. 15.
