Approximately $930 million of asset-backed securities affected
New York, November 28, 2012 -- Moody's confirms the ratings on five classes of notes in SLM Private Credit Student Loan Trust 2005-A. The ratings were previously placed on review for downgrade because of the downgrade of the senior unsecured rating of Morgan Stanley to Baa1. Morgan Stanley's subsidiary, Morgan Stanley Capital Services LLC, is the counterparty in two basis risk swaps in this securitization. The underlying collateral consists of a pool of private student loans that are not guaranteed or reinsured under either the Federal Family Education Loan Program (FFELP) or any other student loan program.
The complete rating actions are as follows:
Issuer: SLM Private Credit Student Loan Trust 2005-A
Cl. A-2, Confirmed at Aaa (sf); previously on Jul 23, 2012 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. A-3, Confirmed at Aa1 (sf); previously on Jul 23, 2012 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. A-4, Confirmed at Aa2 (sf); previously on Jul 23, 2012 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. B, Confirmed at A1 (sf); previously on Jul 23, 2012 A1 (sf) Placed Under Review for Possible Downgrade
Cl. C, Confirmed at Baa1 (sf); previously on Jul 23, 2012 Baa1 (sf) Placed Under Review for Possible Downgrade
The confirmations of the ratings on the notes reflect stable performance of the underlying student loan collateral pool and a significant increase in credit enhancement for the senior classes A2 and A3 as a result of the sequential pay structure. Senior parity for the senior classes A2 and A3 has increased substantially over the past two years, and the current available credit enhancement is sufficient to protect the bonds. In addition, Class A4, Class B and Class C do not benefit materially from the swaps because their final maturity dates occur in 2038, while the two outstanding swaps expire in 2020.
It should be noted that on 2 July 2012, Moody's released a Request for Comment, requesting market feedback on potential changes to its rating implementation guidance for assessing linkage to swap counterparties in structured finance cash-flow transactions. If Moody's adopts the revised guidance as proposed, the ratings on the securities will not be affected. Please refer to Moody's Request for Comment, entitled "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.
If the expected defaults on the collateral pool were to increase by 10%, model implied results indicate that the lowest rated Class C note rating would be downgraded by 1 notch, from Baa1 (sf) to Baa2 (sf). If the expected defaults were to decrease by 10%, model implied results indicate that Class C rating would not be upgraded.
The methodologies used in this rating were "Moody's Approach to Rating U.S. Private Student Loan-Backed Securities" rating methodology, published in January, 2010, and "Framework for De-Linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions," published in October 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
To assess the higher probability of default by Morgan Stanley as the swap counterparty, we ran two sets of cash flows: one assuming Morgan Stanley defaulting and the second one assuming it is not defaulting. We then calculated the weighted average of both outcomes using Moody's Idealized Probability of Default rates for a Baa1-rated entity as weights.
The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not limited to, the performance metrics.
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Suilan Mo-Escowitz Analyst Structured Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Irina Faynzilberg VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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