Barclays Capital said that the new SunTrust Bank Private Student Loan Consolidation Program, announced by First Marblehead Corp. (FMD) on Aug. 2, is beneficial to current and next-pay classes in the ABS market.

An earlier story about the program appeared on StructuredFinanceNews.

The program, according to the FMD-issued press release, will offer student borrowers the opportunity to refinance present private credit student loans into a new loan with a single, possibly lower, monthly payment and interest rate. The approved borrowers also have the ability to choose a fixed- or floating-interest rate in addition other repayment terms.

Analysts examined the National Collegiate Student Loan Trust 2007-1 (NCSLT 2007-1) Class A2 note to measure the potential outcome of the consolidation program on valuations. The deal’s A2 note has a 1.9-year average life and yields roughly 7%, according to Barclays analysts.

Under a base case prepayment and loss scenario, if the program results in a short-term increase in prepayments for 12 months, the yield would rise to 7.7%.

On the other hand, they said that if the program exhibits success and results in a sustained rise in prepayments — this entails 24 months of higher prepays in Barclays’ scenarios — the yield would go up to close to 9%.

Meanwhile, if the program results in better credits prepaying out of underlying pools, the last cash flow and subordinate classes would be subjected to weaker collateral and higher losses, analysts added.

Given the launch of the SunTrust’s new program, Barclays analysts recommended that investors look at current and next-pay classes of private credit student loan ABS, specifically NCSLT transactions.

Specifically, they said that the success of such a program like the FMD/SunTrust consolidation program relies on the eligibility requirements and underwriting criteria.

Internet applications will be accepted beginning early this month. The program has initially been set for two years, but can be extended another year if approved by both FMD and SunTrust Bank, Barclays analysts said.

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