Navient Student Loan Trust 2021-2 — Moody’s assigns provisional ratings to Navient Student Loan Trust 2021-2
Rating Action: Moody’s assigns provisional ratings to Navient Student Loan Trust 2021-2Global Credit Research – 07 Apr 2021Approximately $762.3 million of asset-backed securities ratedNew York, April 07, 2021 — Moody’s Investors Service, (“Moody’s”) has assigned a provisional rating of (P)Aaa (sf) to the Class A-1A, Class A-1B, and Class B notes to be issued by Navient Student Loan Trust 2021-2. The underlying collateral consists of Federal Family Education Loan Program (FFELP) non-consolidation and consolidation student loans.Moody’s issues provisional ratings in advance of the final sale of securities. Upon a conclusive review of the final documentation, Moody’s will endeavor to assign final ratings to the securities. Final ratings may differ from provisional ratings.The complete rating actions are as follows:Issuer: Navient Student Loan Trust 2021-2Fixed Rate Class A-1A Notes, Assigned (P)Aaa (sf)Floating Rate Class A-1B Notes, Assigned (P)Aaa (sf)Floating Rate Class B Notes, Assigned (P)Aaa (sf)RATINGS RATIONALEThe ratings are based on the underlying collateral consisting of FFELP student loans, which are indirectly guaranteed by the U.S. Department of Education for a minimum of 97% of defaulted principal and accrued interest; the overcollateralization of the trust, which is expected to have an initial parity level of 103.1%; a reserve account funded at 3.35% of the initial pool balance that steps down successively to 1.00% of the pool balance on the September 2023 distribution date and to 0.65% of the pool balance on the April 2032 distribution date, and has a floor of approximately $0.76 million; excess spread that is expected to average between 1.3% and 1.5% basis points per annum that is trapped to a target overcollateralization level of the greater of 3.01% of the adjusted pool balance and $5.7 million, and is used on or after the April 2027 distribution date to exclusively pay down bonds. The ratings are also based on the expertise and experience of Navient Solutions, LLC (formerly known as Navient Solutions, Inc.), which is one of the largest FFELP and Direct Loan servicer, as the servicer for this transaction.The expected net loss on the loan pool to be securitized is approximately 0.8%, similar to the prior Navient FFELP deal.The COVID-19 pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world’s economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in US economic activity. Specifically, for FFELP student loan ABS, loan performance will continue to benefit from government support and the improving unemployment rate that will support the borrower’s income and their ability to service debt. However, any elevated use of borrower assistance programs to affected borrowers, such as forbearance, deferment and income-based repayment (IBR), may adversely impact scheduled cash flows to bondholders.We regard the COVID-19 outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.The ratings consider high social risk attributable to the debt burden of student loans and the affordability of education in the US. Potential regulatory or legislative changes could impact funds available to the trust.Rating MethodologyThe principal methodology used in these ratings was “Moody’s Approach to Rating Securities Backed by FFELP Student Loans” published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1226065. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to a downgrade of the ratings:Because the US Department of Education guarantees at least 97% of principal and accrued interest on defaulted loans, Moody’s could downgrade the ratings of the notes if it were to downgrade the rating on the United States government. Moody’s could downgrade the ratings if performance is materially worse than it currently expects, specifically, if the usage of borrower relief programs such as forbearance, deferment and IBR is higher than anticipated, net losses or voluntary prepayments are higher than it currently expects, or if the loan pool pays down too slowly to pay off the notes by maturity. In our analysis, we applied incremental stresses to our typical cash flow assumptions in consideration of a likely slowdown in borrower payments brought on by the economic impact of the COVID-19 pandemic.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1275871.In rating this transaction, Moody’s used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Selven Veeraragoo Asst Vice President – Analyst Structured Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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