Barclays is preparing a $185.87 million securitization of federally guaranteed student loans, according to a presale report by Fitch Ratings.

The deal, Academic Loan Funding Trust (ALFT) 2013-1, will issue bonds backed by “rehabilitated” Federal Family Education Loan Program loans; these are loans to borrowers who have previously defaulted but have since made at least nine timely payments in a 10-month period.

The loans were all made through either the Pennsylvania Education Assistance Agency or the Great Lakes Educational Loan Services Inc., and these entities continue to service them.

Fitch has assigned preliminary ‘AAA’ rating to the class A tranche, which benefits from credit enhancement of 2.21%. “Although these loans exhibit much higher redefault rates as nonrehabiltated FFELp loans, they benefit from the same government guarantee”  – 97% of principal – “as nonrehabiliated FFELP loans,” the agency stated.

“In addition to the higher default rate, rehab loans exhibit a more front-loaded default curve, compared with regular FFELP loans; both features are negative to a transaction‘s cash flow. On the other hand, rehabilitated loans tend to have low claim reject rates and utilization rates of deferment, forbearance and borrower benefits, which could have a positive impact to the trust,” the report stated.


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