Rating Action: Moody's assigns provisional ratings to SMB Private Education Loan Trust 2021-AGlobal Credit Research - 02 Feb 2021Approximately $2.7 billion of asset-backed securities ratedNew York, February 02, 2021 -- Moody's Investors Service, ("Moody's") has assigned provisional ratings of (P)Aaa (sf) to the Class A-PT1, Class A-PT2, Class A-1, Class A-2A1, Class A-2A2 and Class A-2B notes, (P)Aa2 (sf) to the Class B notes, (P)A3 (sf) to the Class C notes, (P)Baa3 (sf) to the Class D-1 notes and (P)Baa3 (sf) to the Class D-2 notes to be issued by SMB Private Education Loan Trust 2021-A (SMB 2021-A). The collateral underlying the transaction consists of Sallie Mae Bank's private student loans, which are loans the government does not guarantee. Our cumulative net loss rate expectation for SMB 2021-A's loan pool is approximately 9.0%.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: SMB Private Education Loan Trust 2021-AFixed Rate Class A-PT1 Notes, Assigned (P)Aaa (sf)Fixed Rate Class A-PT2 Notes, Assigned (P)Aaa (sf)Floating Rate Class A-1 Notes, Assigned (P)Aaa (sf)Floating Rate Class A-2A1 Notes, Assigned (P)Aaa (sf)Floating Rate Class A-2A2 Notes, Assigned (P)Aaa (sf)Fixed Rate Class A-2B Notes, Assigned (P)Aaa (sf)Fixed Rate Class B Notes, Assigned (P)Aa2 (sf)Fixed Rate Class C Notes, Assigned (P)A3 (sf)Fixed Rate Class D-1 Notes, Assigned (P)Baa3 (sf)Fixed Rate Class D-2 Notes, Assigned (P)Baa3 (sf)RATINGS RATIONALEThe ratings are based on the quality of the underlying private student loan collateral and its expected performance, the capital structure, and the experience and expertise of Sallie Mae Bank as the servicer of the transaction.The initial hard credit enhancement levels for the class A, B and C notes are 13%, 7%, 0.25%, respectively. Credit enhancement in SMB 2021-A consists of subordination provided by the class B, class C and class D notes and by the senior and subordinate non-declining cash reserve accounts equivalent to 0.25% of the senior and subordinate notes issuance amount. On the closing date, the class C notes will have no overcollateralization (OC). The Class D notes initial balance of $130 million corresponds to 5% of the initial pool balance and will be undercollateralized on the closing date because the total principal balance of the notes will exceed the initial pool balance by approximately 5% of the initial pool balance.The transaction is structured to build to targeted OC levels over time, but the pace and extent of this build is subject to the availability of excess spread. For instance, high total prepayment rates (i.e. defaults and voluntary prepayments), will diminish the amount of excess spread available to build credit enhancement. However, due to relatively high expected excess spread ranging from 6% to 9% per annum, depending on the level of interest rates, we expect the transaction to build up to 100% parity in just over a year after closing. In our stressed cash flow runs, we stressed the voluntary prepayment rate and the weighted average coupon rate (WAC) of the loan pool to account for scenarios with lower excess spread available. The target OC levels for class A, B, C and D are 30%, 20%, 12% and 8% of the outstanding pool balance, subject to a floor equivalent to 9.75%, 9.50%, 4.75% and 4% of the original pool balance, respectively.SMB 2021-A will be exposed to fixed to floating interest rate risk because the Class A-PT1, Class A-PT2, Class A-2B, Class B, Class C, Class D-1 and Class D-2 notes, which are expected to constitute up to 56% of the total notes at closing, carry a fixed rate while only 50% of the loans earn interest based on a fixed rate. There is no swap to mitigate this interest rate risk. The ratings assigned to the notes are based on the transaction withstanding low interest rates until the notes are paid in full.The COVID-19 outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak US economic activity and a gradual recovery for the coming months. Specifically for private student loan ABS, performance will weaken due to the unprecedented spike in the unemployment rate, which may limit borrowers' income and their ability to service debt. Furthermore, borrower assistance programs to affected borrowers, such as forbearance, may adversely impact scheduled cash flows to bondholders. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.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 also 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 US Private Student Loan-Backed Securities" published in November 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1248885. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody's could upgrade the ratings on the Class B, Class C, Class D-1 and Class D-2 notes if net losses and prepayments are lower or interest rates are higher than Moody's expects, given that the Class A-PT1, Class A-PT2, Class A-2B, Class B, Class C, Class D-1 and Class D-2 notes, which are expected to constitute up to 56% of the total notes at closing, carry a fixed rate while only 50% of the loans earn interest based on a fixed rate.DownMoody's could downgrade the ratings of the notes if net losses or prepayments are higher than Moody's expects, or if the servicer's financial stability or quality of servicing deteriorates.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_1262345.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. Joao Daher, CFA Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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