ECMC Group is marketing $373.7 million of notes backed by federally guaranteed student loans that were once delinquent but are now making timely payments.

The deal, dubbed ECMC Group Student Loan Trust 2016-1, will issue a single tranche of notes that mature in July 2066 with preliminary triple-A ratings from both Moody’s Investors Service and Fitch Ratings.

JP Morgan Securities is the initial purchaser.

ECMC is a non-profit organization based in Delaware that acts as a student loan guaranty agency. When Federal Family Education Loans default, the lender submits a claim to the guarantor, which assumes the loan and "rehabilitates" it, or helps the borrower resume making timely payments. The guarantor can then resell the loan to another eligible lender; in this case, U.S. Bank, which serves as the trustee for the securitization trust.

Rehabilitated FFEL benefit from the same government guarantee as FFEL that have never defaulted - up to 97% of the principal and interest. However losses on rehabbed FFEL are higher because they tend to redefault at a higher rate than FFEL default.

Moody’s expects the pool of collateral to experience a cumulative net loss of of 1.70%.

In addition to the government guarantee, Moody's rating is based on the overcollateralization of the trust, a fully funded reserve account at closing, excess spread that is trapped to a target overcollateralization level and is exclusively used to pay down bonds on or after 25 June 2039.

Approximately 46.6% of the student loans by principal balance are rehabilitated consolidation loans, 48.8% are rehabilitated Stafford loans, 4.0% are rehabilitated PLUS loans and 0.8% of the initial trust student loans are rehabilitated SLS loans. The average outstanding principal balance per borrower is $22,409, the weighted average borrower interest rate is 5.88%, and the weighted average remaining term to maturity is 194 months. The level of Income Driven Repayment is 6.3% as of the cutoff date. The vast majority of loans in IDR are in Income Based Repayment partial financial hardship status.

As of closing, Tru Student acts as the sub-servicer for approximately 14.8% of the trust student loans. ECMC plans to transfer the Tru Student portion of loans sub-serviced loans to Navient, which sub-services the remaining balance of the trust student loans (approximately 85.2%) within six months after closing. Although the transfer might cause minimal servicing disruption temporarily, Moody’s expects the transfer to result in a stronger servicing arrangement than the arrangement in place at closing, mainly because Navient’s financial position is stronger than that of Tru Student. “Tru Student provides adequate servicing quality; however the company is financially weak and has limited growth prospects,” the presale report states..

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