Fitch Takes Various Actions on SLM 2004-8

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating actions on SLM Student Loan Trust 2004-8 (SLM 2004-8):

--Class A-5 affirmed at 'AAAsf'; Outlook Stable;

--Class A-6 upgraded to 'AAAsf' from 'AAsf'; Outlook Stable;

--Class B affirmed at 'BBBsf'; Outlook Stable.

KEY RATING DRIVERS

Correction: The upgrade of the class A-6 notes is due to a model error from the prior surveillance review. The model should withdraw from the debt service reserve (DSR) fund for class B interest payable regardless of whether or not the class B interest subordination trigger is in effect. However, the model incorrectly excluded the class B interest payable when the class B interest subordination trigger is in effect. With the corrected model, the notes pass the 'AAAsf' stresses.

U.S. Sovereign Risk: The trust collateral comprises 100% 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. The U.S. sovereign rating is currently 'AAA'/Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of 13.8% and a 41.5% default rate under the 'AAA' credit stress scenario. The claim reject rate is assumed to be 0.50% in the base case and 3% in the 'AAA' case. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The trailing-twelve-month (TTM) average constant default rate, utilized in the maturity stresses, is 2.7%. TTM levels of deferment, forbearance, Income-based repayment (prior to adjustment) and constant prepayment rate (voluntary and involuntary) are 5.8%, 9.0%, 8.7% and 7.8%, respectively, which are used as the starting point in cash flow modeling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.22%, 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 is provided by excess spread and, for the class A notes, subordination. As of June 2016, total and senior effective parity ratios (with include the reserve account), respectively, are 100.42% (0.42% CE) and 105.59% (5.29% CE). Liquidity support is provided by a reserve account sized at its floor of $3,314,921. The trust will continue to release cash as long as the target parity ratio of 100% (excluding the reserve account, as pool factor is below 40%) is maintained.

Maturity Risk: Fitch's SLABS cash flow model indicates that the notes are paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.

Operational 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

Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated July 18, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of permitted investments for this deal allows for the possibility of using investments not rated by Fitch, which represents a criteria variation. Since the only available funds to invest in are those held in the Collection Account, and the funds can only be invested for a short duration of three months given the payment frequency of the notes, Fitch does not 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.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)

https://www.fitchratings.com/site/re/888492

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria (pub. 10 Nov 2016)

https://www.fitchratings.com/site/re/889777

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016020

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016020

Endorsement Policy

https://www.fitchratings.com/regulatory

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