Fitch downgrades SLM

Fitch Ratings said it downgraded SLM Corp.'s long-term issuer default rating and senior unsecured debt to BBB from A+, the company's preferred stock to BB+ from A and its short-term issuer default rating and short-term debt to F3 from F1.

The ratings remain on Rating Watch negative.

The downgrade reflects the agency's belief that if the acquisition of SLM by a group led by JC Flowers & Co., Bank of America, and JPMorgan Chase does not close, the company will be subject to reduced funding flexibility because of the uncertain reception the company would encounter in the unsecured debt and equity markets.

Fitch expects to downgrade SLM's long-term issuer default rating to BB+ and senior unsecured debt rating to BB as the transaction deal structure, terms and closing become more certain.

The agency said the expected ratings would balance SLM's continued dominant position in the acquisition and servicing of government-guaranteed student loans, core earnings consistency, low consolidated credit risk and strong liquidity profile against heightened legislative risk in the industry, increased credit losses in the private education loan product, increased consolidated leverage, reduced funding flexibility, negative tangible net worth and moderate cash flow coverage.

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