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DRB plans 10th ABS secured by professional student loan refis

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Darien Rowayton Bank is marketing its latest rated term securitization of student loans it refinances for high-income professionals in a $300.3 million transaction.

Laurel Road Prime Student Loan Trust 2017-C consists of a pool of loans to high-income borrowers who refinanced through DRB's Laurel Road lending affiliate. The capital stack includes $268.1 million in three tranches of fixed- and floating-rate senior notes, in the 10th rated term securitization of refinanced student loans originated through the Connecticut-based institution.

The Class A-1 notes will be secured by the variable-rate refinancing loans, while the A-2A and A-2B notes will be secured by the group of fixed-rate loans. Class A credit enhancement consists of 10.68% subordination benefit; 14.43% initial overcollateralization, building to a target of 17.25%; and a reserve account of 0.25% of the outstanding Class A principal. All of the senior notes carry preliminary triple-A ratings from bond rating agency DBRS.

Class B and C notes will be secured by both types of loan.

The loans are being serviced by DRB; the Higher Education Loan authority of the State of Missouri is the backup servicer.

This is DRB’s third deal to be structured with a subordinate senior structure in which the principal of A-1 notes has to be fully repaid before any principal reduction is directed toward the A-2 notes. The principal paydown on the A-1 notes is aided by a full turbo feature in which all available cash flow beyond fee and note interest payments will be applied to all the senior notes.

The Laurel Road structure is also enhanced by a shortened weighted average life of the note classes, which limits the exposure to negative macroeconomic events. The Class A-1 notes have a WAL of 4.43 years, the A-2A notes have a WAL under one year and the A-2B notes have a 5.25-year WAL. In a recent report issued by Kroll Bond Rating Agency, there is a potential disruption in the asset-backed market from the retirement of the LIBOR benchmark that could disproportionately impact student loan securitizations, based on the longer-term nature of the notes.

Laurel Road securitizations offer shorter WALs than securitizations backed by in-school loans, because many borrowers are already in repayment of their loans, and have higher incomes, allowing them to prepay.

The portfolio has a weighted average FICO of 768, with borrower income average $202,289, and discretionary income of $12,157 – which is nearly double that of borrowers underwritten by other professional student-loan finance peers such as Social Finance ($7,439). The average balance of $116,143 is lower than recent Laurel Road/DRB securitizations.

The average seasoning of the loans is about 45 months. Nearly 88% of the borrowers are refinancing loans from advanced-degree programs at eligible graduate schools. Over 66% obtained business-school MBAs, law degrees, or graduated from medical, dental and nursing schools.

Laurel Road’s refinancing program was launched in May 2013.

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Student loan ABS Darien Rowayton Bank DBRS