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Fitch Takes Various Rating Actions on SLC Student Loan Trust 2004-1
[November 30, 2016]

Fitch Takes Various Rating Actions on SLC Student Loan Trust 2004-1


Fitch Ratings has taken the following rating actions on SLC Student Loan Trust 2004-1:

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

--Class A-6 notes affirmed at 'AAAsf'; Outlook Stable;

--Class A-7 downgraded to 'B-sf' from 'AAAsf'; removed from Rating Watch Negative and assigned a Stable Outlook;

--Class B downgraded to 'B-sf' from 'Asf'; removed from Rating Watch Negative and assigned a Stable Outlook.

The class A-7 notes miss their legal final maturity date under both Fitch's credit and maturity base cases. This technical default would result in interest payments being diverted away from class B, which would cause that note to default as well. In downgrading to 'B-sf' rather than 'CCCsf' or below, Fitch has considered qualitative factors such as Navient's ability to call the notes upon reaching 10% pool factor, the long time horizon until the A-7 and B maturity dates, and the eventual full payment of principal in modelling.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral is comprised of 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 10.0% and a 29.9% default rate under the 'AAA' credit stress scenario, which is based on actual trust performance. 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-12-month (TTM) average constant default rate, utilized in the maturity stresses, is 1.5%. TTM levels of deferment, forbearance, income-based repayment (prior to adjustment) and constant prepayment rate (voluntary and involuntary) are 4.3%, 7.4%, 6.9%, and 7.9%, respectively, and are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.36%, 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 (CE) is provided by overcollateralization (OC), excess spread and, for the class A notes, subordination. As of August 2016, total and senior effective parity ratios are 100.00% (0.00% CE) and 104.99% (4.75% CE). Liquidity support is provided by a reserve equal to its floor of $2,250,000. The transaction will continue to release cash as long as the specified parity level (not including the reserve after 40% pool factor) of 100% is maintained.

Maturity Risk: Fitch's Student Loan ABS (News - Alert) (SLABS) cash flow model indicates that the class A-5 and A-6 notes are paid in full on or prior to the legal final maturity dates under the 'AAA' stress scenarios. The A-7 and B notes do not pay off before their maturity date in Fitch's modelling scenarios, including the base cases. If the breach of the class A-7 maturity date triggers an event of default, interest payments will be diverted away from the class B notes, causing them to fail the base cases as well.

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

Eligible Investments

Under the 'Counterparty Criteria for Structured Finance and Covered Bonds', dated September 1, 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 are those held in the Collection Account, and the funds can only be invested for a short duration given the payment frequency of the notes, Fitch does not believe such variation has a measurable impact upon the ratings assigned.

Rating Tolerance

Because there is no revolving credit facility or other evidence of support from Navient in place for SLC Student Loan Trust 2004-1, the decision to downgrade the A-7 and B notes to 'B-sf' rather than 'CCCsf' or below is a criteria variation. Fitch has considered qualitative factors such as Navient's ability to call the notes upon reaching 10% pool factor, the long time horizon until the A-7 and B maturity dates, and the eventual full payment of principal in modelling in its analysis to support this decision.

RATING SENSITIVITIES

'AAAsf' rated tranches of most FFELP securitizations will likely move in tandem with the U.S. sovereign rating, given the strong linkage to the U.S. sovereign by nature of the reinsurance and SAP (News - Alert) provided by ED. Sovereign risks are not addressed in Fitch's sensitivity analysis.

Fitch conducted a CE sensitivity analysis by stressing both the related lifetime default rate and basis spread assumptions. In addition, Fitch conducted a maturity sensitivity analysis by running different assumptions for the IBR usage and prepayment rate. The results below should only be considered as one potential model implied outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.

Credit Stress Rating Sensitivity

--Default increase 25%: class A 'B-sf'; class B 'B-sf'

--Default increase 50%: class A 'B-sf'; class B 'B-sf'

--Basis Spread increase 0.25%: class A 'B-sf'; class B 'B-sf'

--Basis Spread increase 0.50%: class A 'B-sf'; class B 'B-sf'

Maturity Stress Rating Sensitivity

--CPR decrease 50%: class A 'B-sf'; class B 'B-sf'



--CPR increase 100%: class A 'B-sf'; class B 'B-sf'

--IBR Usage increase 100%: class A 'B-sf'; class B 'B-sf'


--IBR Usage decrease 50%: class A 'B-sf'; class B 'B-sf'

It is important to note that the stresses are intended to provide an indication of the rating sensitivity of the notes to unexpected deterioration in trust performance. Rating sensitivity should not be used as an indicator of future rating performance.}

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC (News - Alert) 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=1015586

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015586

Endorsement Policy

https://www.fitchratings.com/regulatory

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