NAVIENT CORPORATION
Fitch Ratings has assigned ratings and Rating Outlooks to the class A and B notes from
RATING ACTIONS
Entity / Debt
Rating
Prior
A
LT
AAAsf
New Rating
B
LT
AAsf
New Rating
AA(EXP)sf
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
The collateral was originated by
KEY RATING DRIVERS
Slightly Weaker Collateral Quality Offset by Strong Performance; Lower Expected Defaults: As of the
Additionally, this is the sixth transaction to include both Earnest and NaviRefi loan programs. Given the stable collateral quality and resilient performance through the pandemic, Fitch lowered its base case cumulative default assumption to 1.80% for 2023-A from 2.25% in 2021-F.
While the Earnest and NaviRefi programs have not undergone any prolonged period of prior economic stress, and defaults are minimal to date, Fitch relied on proxy data sourced from peer refi PSL lenders,
Fitch applied a stress multiple of 4.50x at the 'AAAsf' stress level, mainly reflecting the low absolute level of assumed base case defaults and higher expected volatility around assumptions derived via proxy data. A base case recovery rate of 20% (14% at AAAsf) is assumed based on recoveries observed on
CE Sufficient at Commensurate Rating Stresses: The initial credit enhancement (CE) for class A and B notes, excluding the reserve account, is expected to be 16.50% and 11.26%, respectively, up from 15.58% and 11.02% in 2022-B (NR) and those of prior transactions. Transaction cash flows were satisfactory under all stressed scenarios at the commensurate rating categories for class A and B notes.
CE is provided by overcollateralization (OC) and excess spread and, for class A notes, the subordination of class B notes and the class A reserve account, and for class B, the class B reserve account. Funds cannot be released from the trust unless the OC (excluding the reserve account) builds up from the initial level to 13.00% of the outstanding pool balance or 1.50% of the initial pool balance, whichever is higher.
Liquidity support - as well CE at maturity, or when sufficient to redeem the notes - for class A and B is provided by dedicated class A and class B reserve accounts, respectively. The class A reserve account will be fully funded at closing and maintained at 0.25% of the initial class A balance. The class B reserve account will be funded at 0.25% of the initial class B balance and maintained at the greater of 0.25% of the outstanding class B balance and 0.15% of the initial class B balance. See the Transaction Structure section for details.
Strong Servicing Support:
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
As Fitch's base case default proxy is derived primarily from historical collateral performance, actual performance may differ from the expected performance, resulting in higher loss levels than the base case. This will result in a decline in available CE and the remaining loss coverage levels available to the notes. Therefore, note ratings may be susceptible to potential negative rating actions, depending on the extent of the decline in the coverage.
Fitch conducted a sensitivity analysis by stressing the transaction's prepayment (CPR) assumption. Fitch utilized lower CPR multiples of 5.0% at 'AAAsf' and 6.0% at 'Aasf', which resulted in no adverse impact to the rating at these CPR levels.
Fitch has revised its global economic outlook forecasts as a result of the Ukraine War and related economic sanctions. Downside risks have increased, and Fitch has published an assessment of the potential rating and asset performance impact of a plausible, but worse than expected, adverse stagflation scenario on Fitch's major SF and CVB subsectors ('What a Stagflation Scenario Would Mean for Global Structured Finance,' available at www.fitchratings.com/site/re/10198541).
Fitch expects the North American private student loan ABS sector in the assumed adverse scenario to experience 'Virtually No Impact' on ratings performance, indicating very few (less than 5%) rating or Outlook changes. Fitch expects 'Virtually No Impact' on asset performance, indicating asset performance to remain broadly unaffected, and less than a 10% likelihood of sector outlook revision by YE 2023. Fitch expects the asset performance impact of the adverse case scenario to be more modest than the scenarios shown above that increase the default expectations by 2.0x.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upside sensitivity scenario was not run for the class A notes as an improved performance on the underlying collateral would not result in an upgrade due to the notes being at their highest achievable rating of 'AAAsf'.
For the class B notes, a 10% decrease in base case default rate could result in an upgrade by up to one rating category.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
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