Fitch Maintains Rating Watch on Multiple SLM Trusts Sr. Notes; Affirms Multiple Sub Notes

December 13, 2013 01:13 PM Eastern Standard Time

NEW YORK--(BUSINESS WIRE)--Fitch Ratings maintains the Negative Rating Watch on the senior notes currently rated 'AAAsf' issued by SLM Student Loan Trust 2008-3, SLM Student Loan Trust 2008-4, SLM Student Loan Trust 2008-7, SLM Student Loan Trust 2008-8, and SLM Student Loan Trust 2012-1. In addition, all five trust's subordinate notes were affirmed.

Key Rating Drivers

High Collateral Quality: All the trust collateral consists of 100% of Federal Family Education Loan Program (FFELP) loans. The credit quality of the trust collateral is high, in Fitch's opinion, based on the guarantees provided by the transaction's eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest.

Rating Watch Maintained: On Oct. 16, Fitch placed 766 'AAAsf' rated tranches of U.S. FFELP student loan ABS on Rating Watch Negative following the revision of the U.S. sovereign rating on Oct. 15.

Sufficient Credit Enhancement: CE is provided by overcollateralization (OC; the excess of trust's asset balance over bond balance) and excess spread. As of September 2013, total parity is 101.03% and senior parity is 106.73% for SLM 2008-3; 102.55% and 108.2% for SLM 2008-4; 101.01% and 106.58% for SLM 2008-7; 103.09% and 108.85% for SLM 2008-8. As of October 2013, total parity is 101.01% and senior parity is 105.03% for SLM 2012-1. Cash is being released from the trusts if the target parity or overcollateralization amount is maintained. For SLM 2008-3, the target is $5.84 million overcollateralization amount; for SLM 2008-4, the target is 102.55% parity; for SLM 2008-7, the target is 101.01%; for SLM 2008-8, the target is 103.09%; for SLM 2012-1, the target is the greater of 1% of the Adjusted Pool Balance and $2,000,000.

Adequate Liquidity Support: Liquidity support is provided by a reserve account. The reserve is sized equal to the greater of 0.25% of the pool balance, and $1,000,020 for SLM 2008-3; for SLM 2008-4, the reserve is sized equal to the greater of 0.25% of the pool balance, and $999,985; for SLM 2008-7, the reserve is sized equal to the greater of 0.25% of the pool balance, and $1,544,879; for SLM 2008-8, the reserve is sized equal to the greater of 0.25% of the pool balance, and $1,000,088; for SLM 2012-1, the reserve is sized equal to the greater of 0.25% of the pool balance, and $764,728.

Acceptable Servicing Capabilities: Sallie Mae Inc., as servicer, is responsible for servicing the trusts. Fitch believes Sallie Mae is an acceptable servicer of FFELP student loans.

Rating Sensitivities

Since FFELP student loan ABS rely 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 and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

Fitch has taken the following rating actions:

SLM Student Loan Trust 2008-3:

--Class A-2 note Rating Watch Negative maintained;