Navient will call another $636 million of bonds backed by Federal Family Education Loans that are on review for downgrade by either Moody’s Investor’s Service or Fitch Ratings.
The student loan servicer and securitization sponsor said last Wednesday that it is exercising its call option on notes issued by four securitization trusts: SLMA 2004-6, SLMA 2004-9, SLMA 2005-1, and SLMA 2005-2; the bonds will be repaid on Oct. 26.
Earlier this year, the company exercised its call option with respect to eight trusts representing $429 million in bonds. The latest repurchases bringing the year-to-date total to $1.1 billion in 12 trusts.
In a report published Friday, Barclays noted that the four trusts to be called in October have collateral balances of 6-8% of their initial balance. Under the trust documents, Navient has the option to purchase all remaining student loans owned by the trusts once the collateral balance is 10% or less of the initial balance.
Over the summer, Moody's and Fitch placed nearly $40 billion of FFELP bonds under review for a possible downgrade, citing the likelihood that the bonds would not pay off at maturity. The underlying loans are paying off at a slower rate as the result of rising levels of late payments, forbearance, and generous repayment plans that allow cap monthly payments for eligible student at a portion of their disposable income.
In some cases, these bonds, which are currently rated triple-A because the federal government guarantees at least 97% of the principal and interest, could be cut by Moody’s to below investment grade.
In addition to calling bonds, Navient has in some cases been repurchasing loans from some securitization trusts. As of June 30 of this year, it had exercised loan purchase rights for $428 million.
The servicer has said it has the capacity to hold about $11.5 billion of repurchased loans through various conduit facilities and plans to eventually resecuritize the loans over time.
And it is looking at other options to avoid a possible ratings downgrade, such as amending trust documents to extend the legal final maturity of bonds and repackaging tranches as collateral for new bonds with longer legal final maturities.
In its report, Barclays said the recent increase in clean-up calls and optional loan repurchases "has helped demonstrate that Navient is committed to supporting its FEELP ABS trusts and is actively trying to minimize the effect on investors should Moody’s or Fitch take rating action later this year."
Moody's decision to extend the comment period for proposed changes to its FFELP ABS methodology to Oct. 30 should give Navient more time to make further optional repurchases and call trusts with bonds currently under review, according to Barclays.
