Navient amended 16 of its securitization trusts, backed by federally guaranteed student loans and under review for downgrade, to give the sponsor the option to purchase up to 10% of the student loans in those trusts; as well as to provide loans to the trust under a revolving credit agreement (RCA).
The loan purchases and any borrowings under the RCA are designed to help ensure payment obligations are met by the trusts' legal final maturity dates, according to a Navient press release. The sponsor was previously allowed to purchase up to 2% of the loans from these trusts.
“Navient is seeking to avoid the adverse market perception associated with a technical default under the ABS trusts, even if ultimate repayment is highly likely,” stated Fitch Ratings in a report on Wednesday. Navient previously amended 17 trusts since 2014 to allowthe sponsor to buyback 10% of the initial assets.
Fitch does not expect the amendment to impact the ratings assigned to the notes issued by the trusts or Navient’s ‘BB’ corporate debt rating.
However, “depending on the magnitude of loans extended to the trusts and the performance of the collateral thereafter, this could adversely affect Navient, although this is not envisioned at this time,” stated analysts in the report.
Moody’s Investors Service has previously stated that although loan repurchases can help mitigate the impact of slower repayment on bonds backed student loans, the rating of a deal’s sponsor will determine the benefit that can be given to the securitization.
The RCA allows the trusts to borrow from Navient at or before a scheduled note maturity date to cover any payment shortfalls on the legal final maturity date.
The 16 trusts affected by the amendments are SLM Student Loan Trusts 2003-1, 2003-4, 2003-5, 2003-7, 2003-11, 2003-14, 2004-1, 2004-3, 2004-10, 2005-4, 2005-5, 2005-10, 2006-1, 2007-6, 2007-8 and 2012-3.
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.
As of September 14 this year, the sponsor has exercised loan repurchase rights for $1.1 billion as of September 14.