Fitch Expects to Rate Navient's Senior Unsecured Notes 'BB-(EXP)'

Published: 2025-05-15 04:44:10 ET NAVI

Published on 05/15/2025 at 04:44

Fitch Ratings expects to rate Navient Corporation's upcoming long-term senior unsecured notes issuance 'BB-(EXP)'.

The notes are expected to mature in 2032. Proceeds from the issuance are expected to be used for general corporate purposes, including the repurchase of outstanding unsecured debt.

Key Rating Drivers

The unsecured debt is expected to rank pari passu with Navient's existing senior unsecured debt, and therefore the expected rating is equalized with its outstanding senior unsecured debt and Long-Term Issuer Default Rating (IDR). The equalization reflects average recovery prospects under a stress scenario given the availability of unencumbered assets.

Fitch does not expect the debt issuance to have a meaningful impact on the company's leverage profile as proceeds are primarily expected to repurchase outstanding debt ahead of upcoming maturities. Navient's leverage, calculated as debt to tangible equity excluding debt and capital associated with the guaranteed Federal Family Education Loan Program (FFELP) assets and the mark-to-market gains/losses on derivatives, was 9.0x at 1Q25, unchanged from YE24.

Navient's ratings reflect its sizable but shrinking scale and position as one of the largest nongovernment owners of student loan assets, its demonstrated track record (including as part of its predecessor organization) in managing its loan portfolios, its adequate liquidity profile, and the low credit risk and predictable cash flow associated with its FFELP loan assets.

Rating constraints include Navient's monoline business model focused on student lending, higher leverage relative to finance and leasing company peers, a reliance on secured, wholesale funding, high levels of asset encumbrance, and uncertainty related to its longer-term strategic direction and growth prospects.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Shifts in strategy resulting in a degradation of Navient's franchise and scale that materially weakens operating results, access to funding and/or available liquidity;

A sustained increase in Navient's debt-to-tangible equity ratio (excluding FFELP and the mark-to-market on floor income hedges) to over 12x;

A decrease in the unsecured debt mix, representing less than 10% of the company's non-FFELP funding;

Significant deterioration in credit performance of the PSL portfolio leading to materially weaker operating results;

An increase in shareholder distributions above Navient's core earnings.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Sustainable growth in core earnings from successful execution on new loan originations or other product offerings;

Strong credit performance of the private education loan refi portfolio through periods of economic stress;

A sustained reduction in leverage below 8.0x;

Continued ability to access the unsecured debt market on economic terms.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

The senior unsecured debt rating is equalized with Navient's IDR. The equalization reflects average recovery prospects under a stress scenario given the availability of unencumbered assets.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

The unsecured debt rating is expected to move in tandem with the IDR. However, a meaningful increase in the proportion of secured funding or a reduction of the unencumbered asset pool could result in the unsecured debt rating being notched below the IDR.

ADJUSTMENTS

The Standalone Credit Profile (SCP) has been assigned in line with the implied SCP.

The Business Profile score has been assigned below the implied score due to the following adjustment reason: Business model (negative).

The Asset Quality score has been assigned above the implied score due to the following adjustment reason: Collateral and reserves (positive).

The Capitalization and Leverage score has been assigned above the implied score due to the following adjustment reason: Risk profile and business model (positive).

Date of Relevant Committee

14 February 2025

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.

ESG Considerations

Navient has an ESG Relevance Score of '4' for Exposure to Social Impacts due to its exposure to shifts in social or consumer preferences as a result of an institution's social positions, or social and/or political disapproval of core activities, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.

Navient has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy, and Data Security due to its exposure to compliance risks including fair lending practices, debt collection practices and consumer data protection, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.