ECMC Group is prepping a securitization of up to $383 million in student loans that may be issued as fixed- or floating-rate bonds or a combination of both.
A recent Fitch Ratings pre-sale report said the notes will be issued following a discrete trust indenture dated Sept. 22, 2021. The deal comprises mainly Class A notes, and depending on investor demand up to $153.1 million of AAA-rated bonds issued as fixed rate, or up to $371.2 million of AAA-rated notes priced over one-month Libor, or a mixture of both. There will also be a Class B, $11.9 million unrated piece to be priced over one-month Libor.
Fitch gives the ECMC Group Student Loan Trust (ECMC) 2021-1 notes a negative rating outlook due to the rating agency’s negative sovereign-issuer rating for the U.S., which through the Department of Education reinsures the bonds’ guarantors for at least 97% of the principal and accrued interest.
ECMC Group’s last securitization, a $361 million deal completed last November, ended up pricing $275 million of the bonds over one-month Libor plus 100 basis points, and an $86 million fixed portion priced at swaps plus 100 basis points, for a coupon of 1.47%, according to Finsight. Both tranches priced below the 110-120 basis point pricing guidance, and, like the current deal, JP Morgan Securities acted as structuring lead.
EMC Group supports the Educational Credit Management Corporation guaranty agency which, after paying the guarantee on a defaulted student loan acquires the legal and beneficial title to the loan and enters into agreements with the borrower to rehabilitate the loan. Loans are then are sold to rehabilitation lenders, including ECMC Group.
Among the loan highlights, Fitch points to consolidated loans making up 59.4% of the pool, the second highest of all prior ECMC deals, and notes that consolidated loans result in lower redefaults and enrollment in income-based repayment plans, the latter of which can slow down amortization of the portfolio and so increase maturity risk. All of the loans in ECMC 2021-1 are Federal Family Education Loan Program (FFELP) rehabilitated loans, and Fitch says that FFELP ABS performance has been more resilient than initially expected through the pandemic and employment stress.
Negatives include lower credit enhancement than recent transactions, and up to 91.4% of the transaction potentially referencing one-month Libor. All floating-rate loans must transition away from Libor reference rate by July 2023, and Fitch says Libor transition risk is “generally higher in FFELP ABS because of comparatively lower levels of credit enhancement and the importance of positive excess spread for performance.”
