Fresh off securing $31 billion in financing from a syndicate led by Bank of America and JPMorgan Chase, SLM Corp. walked into a tough week. On a corporate level, the company's counterparty credit rating was downgraded, and it remained on watch with negative implications. It was also hit with a class-action suit.

Standard & Poor's reduced the student lender's rating to BBB-'and A-3' from BBB+' and A-2', according to the rating agency. The downgrade reflected a high degree of financial risk, reduced profitability and the possibility that a weakened economy would impact the quality of the lender's assets. Further, the rating agency decided to leave Sallie Mae on CreditWatch Negative because the potential $31 billion in 364-day financing from the bank group is still subject to certain conditions, S&P wrote.

The rating agency added, however, that its ratings on all of Sallie Mae's SLABS, both FFELP and private, remain at their original levels. It said that the company has a strong record of servicing the FFELP collateral, with very low levels of servicer rejects.

SLM Corp. disagreed with the downgrade decision, saying that it had taken several key steps to strengthen the company. It tapped the securitization market by issuing more than $9 billion in triple-A-rated ABS and eliminated its equity forward positions. The company also pointed to its 35-year track record of profitability. The company also said it would increase its position in the marketplace in 2008 and future years.

"We are disappointed by today's announcement by Standard & Poor's," according to a statement from SLM Corp. "We are committed over the long term to strengthen and improve our investment-grade rating."

Aside from the Standard & Poor's action, the company faces a class-action suit from Coughlin Stoia Geller Rudman & Robbins, which said it filed the suit on behalf of those who purchased Sallie Mae stock between Jan. 18, 2007, and Jan. 3, 2008. The suit, said the company, stems from charges that certain officers and directors issued materially false and misleading statements about its business and financial results, according to a statement from the law firm.

Specifically, the company accuses Sallie Mae of making those statements, although loan loss provisions for its subprime borrowers attending non-traditional schools were inadequate. Consequently, argues the San Diego-based firm, Sallie Mae's stock was overpriced between the two dates mentioned.

Sallie Mae officials did not return calls seeking comment.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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